Navigating change: TPT’s expertise in DB scheme consolidation
Ever since the Department for Work and Pensions (DWP) introduced its white paper on ‘protecting defined benefit pension schemes’ in 2018, a wave of innovative goods and services has emerged to aid trustees and sponsors in implementing consolidation strategies.
Beyond the public sector, a significant majority of UK businesses have embraced defined contribution (DC) programmes for their employees. For newer schemes, consolidated DC arrangements have become the norm. In the last decade, several previously ‘unbundled’ own-trust DCs have transitioned to a consolidated model.
The success of consolidation in the DC realm is becoming a driving force for trustees and sponsors to explore similar efficiencies and economies of scale for defined benefit (DB) schemes. Given the array of options available, there is undoubtedly a consolidation strategy that can optimise your plan, regardless of where you are on your pension journey.
Jonathan Jackaman, TPT’s head of business development, noted, “Each consolidation option has particular advantages. As with other things, it all boils down to determining the best method for your scheme, sponsor, and members. In many circumstances, it may be advantageous to apply various consolidation methods as you proceed throughout your end-game trip.
For instance, transitioning to a single supplier for all services to address both data and illiquid asset difficulties, then to a master trust, and lastly ensuring members’ benefits by the buyout.”
Key benefits of DB pension scheme consolidation
1. Cost minimisation
Consolidating DB pension schemes offers a distinct advantage in terms of cost efficiency. The complexity and resource intensity of managing pension obligations are streamlined through a consolidated structure, realising economies of scale. Administrative processes are streamlined, duplicate efforts are reduced, and bulk purchasing benefits are leveraged, resulting in significant cost savings.
Centralising activities such as investment management and administration also leads to more efficient communication with pension scheme members, enhancing engagement and understanding of retirement benefits.
2. Improved regulation
Combining multiple schemes into a unified structure establishes a streamlined and robust governance framework. This centralised approach facilitates effective decision-making processes, with clearer responsibilities and simplified communication channels.
Enhanced governance enables quicker responses to changing economic conditions, regulatory requirements, and shifts in the financial landscape. A consolidated DB scheme benefits from a dedicated governance team focused on strategic planning, risk management, and compliance with evolving pension legislation.
3. Risk management
Consolidating multiple DB pension schemes enables greater diversification of investment portfolios, mitigating the impact of market volatility on pension fund assets. Pooling resources and assets allows for a more strategic and diversified investment strategy, reducing vulnerability to individual investment underperformance and economic uncertainties. The overall risk profile is spread across a broader spectrum, enhancing the scheme’s resilience.
4. Accessible Funding
Consolidation creates larger, more diversified pools of assets, providing pension schemes with greater investment capacity and access to a broader range of investment opportunities. Larger asset pools enable direct investments in a diverse array of asset classes, including private equity, infrastructure, and alternative investments.
This enhanced accessibility can potentially lead to improved risk-adjusted returns, allowing consolidated DB schemes to optimise their investment strategies and navigate market fluctuations more effectively.