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Consolidation…The possibilities and the practicalities

Darren Wateridge discusses the benefits of consolidation and the steps schemes can make now.

According to figures published in the PPF’s Purple Book 2017, 36% of schemes have fewer than 100 members and another 44% fewer than 1,000. Concerns continue to exist (rightly or wrongly) that not all small and medium sized schemes meet the governance standards expected by the Regulator and that smaller schemes lose out on the benefits of economies of scale that could lead to lower investment manager charges, lower administration costs per member, or schemes being able to gain access to beneficial investment opportunities or other products.
In the DWP’s White Paper published in March last year, the use of consolidation to improve the way that DB pension schemes operate was one of the big headlines, with much talk being around new forms of consolidation vehicles such as “Superfunds”, but also what steps can be taken now.

Trustees, employers and members could currently benefit from consolidation through:

• Using an investment platform – thereby enabling trustees to gain access to a wide range of funds, whilst benefiting from reduced costs that platforms can achieve due to their scale.
• Consolidating services, possibly across several schemes, with one provider to provide a cheaper, more efficient service.
• Merging several schemes into one, thereby reducing ongoing fees although the initial cost of such exercises can be significant.
• Implementing a sole trustee, either to replace a full trustee board or to act as trustee across several schemes.

Buying out a scheme with an insurance company is also a form of consolidation although, as we know, the cost requirements of this are usually beyond the reach of most employers.
DB master trusts, under which the assets and liabilities of a scheme are transferred into a section of a larger DB Trust also exist.

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Darren Wateridge, Senior Consultant and Actuary


This piece appeared in Pension Funds Online, January 2019