In addition, when DB schemes consolidate into a DB master trust, they have their own ring-fenced section within the arrangement, maintaining their own scheme-specific funding and investment strategy, while benefiting from the aforementioned economies of scale.
A mixed response
The jury is out as to how effective new consolidator businesses will be and the size of the premium applied to the assets to secure a transfer to a new scheme sponsor.
They are also not without risk.
The business models have yet to be proven and they are backed by private equity and venture capitalist investors who, by their nature, will expect to see returns in the medium term.
Consolidation is an irresistible force
One thing for certain is that the consolidation market will grow rapidly.
Many believe that the consolidation of DB funds into a smaller number of much larger funds is inevitable. At a recent event we hosted in the City, on a show of hands the majority of attendees agreed with this view.
The debate concerning consolidation is a live issue and there is political will, regulatory support and commercial momentum to make it happen.
Trustees, sponsors and advisers now have to be thinking how consolidation might help their DB scheme meet the responsibility to deliver members’ pensions now, and in the future.
A growing appetite for change
Our economic and political environments are undergoing considerable change and whatever the outcome, there are likely to be far reaching consequences for businesses that continue to manage their DB pensions.
Increasing regulation, governance and funding requirements will only compound the strain.
We have seen increasing numbers of sponsors, trustees and their advisers exploring consolidation options, as they struggle to meet the challenges set by the current environment.
We anticipate this will grow over the coming months and years, as trustees and sponsors grapple with the demands of an increasingly active regulator and a more pressing need to manage scheme risks and costs.
The DB consolidation story is relatively new, but all the signs indicate a market that is about to flourish.
This will offer opportunities to those who no longer wish to struggle with the burden of running a DB scheme and who believe there must be a better, more cost-effective way for them to secure their members’ benefits.
Mike Ramsey is chief executive of TPT Retirement Solutions
