Consolidation of smaller pension schemes could be less likely than initially expected, the managing director of River and Mercantile Derivatives has said.
There are currently 4,000 small-scale pension schemes, which hold just 10 per cent of total pension scheme assets.
It is widely anticipated that the number of schemes will have dropped by 75 per cent within 15 years as they merge with others into new vehicles called superfunds.
But Mark Davies said the option to merge with like-minded schemes presented "untold layers of complexity" and affected things like member benefits and scheme dependents.
Instead, he has suggested schemes consider "clubbing together when appointing administrators".
He said: "The arguments for consolidation are nothing new. Most pension schemes are small and suffer from diseconomies of scale. The Pensions Regulator is on board, as is the government, both preferring what is being seen as a ‘market-led’ solution.
"If outsourced service providers (and I include asset managers, consultants and actuaries in there as well) have economies of scale then their own fees should maybe start to reflect that.
"The point is, if the real goal is to make cost savings for schemes in general and thus help them be better funded, there are other options outside of consolidation which could well come to the fore, and stop this current trend in its tracks."
XPS Pensions also suggested consolidation was not the only option facing schemes in its response to the DWP’s consultation.
Martin Hunter, principal at XPS Pensions Group, said: "Consolidation is a great example of horses for courses. The pension scheme with a ‘stallion’ of a sponsoring employer may choose to run their own race, continuing to rely on the support of their employer to help them pay benefits over time.
"Or a scheme with a funding level at the front of the herd may feel there is no need to settle for anything less than full insurance protection for their members and opt to buy out. But for some schemes the option of consolidation should be a real front-runner."
The Department for Work and Pensions (DWP) put out a consultation on the consolidation of DB pension schemes at the end of 2018, asking for views on a new legislative framework for regulating the new superfund vehicles.
As part of the consultation, which is scheduled to end at the start of February 2019, the DWP said: "Many in the pensions industry believe that superfund consolidation represents a potentially more efficient way of managing legacy DB pensions for some closed schemes.
"While we welcome innovation, we recognise that these vehicles have a different risk profile to that seen in traditional DB pension schemes and therefore pose their own set of challenges."
But LCP said the DWP has failed to address the simplification of benefits in its consultation, which would have made consolidating easier.
Alex Waite, partner at LCP, said: "It appears that the DWP have missed a trick in not providing for rules that would provide much needed simplification to the DB pension landscape.
"This might also have made the DWP’s stated aim of seeing the many smaller DB pension schemes in the UK market transfer to a consolidator more achievable."
