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Survey Report

Perspectives: Consolidation – can it deliver for defined benefit pensions?

Pensions Corporate Consulting|Pension Board and Trustee Consulting

May 24, 2018

Following on from the government’s White Paper, “Protecting Defined Benefit Pensions”, we look at whether the consolidation of defined benefit pension schemes is something worth considering.

The government wants to encourage consolidation amongst defined benefit (DB) schemes. This can help to reduce inefficiency – and ultimately cost – through economies of scale, improved investment strategies and better governance.

Consolidation was one of the key themes within the government’s White Paper, “Protecting Defined Benefit Pensions” and is a topic that has attracted much media coverage. However, most reporting has focused on the development of a new model, a ‘commercial consolidator’ which might provide an alternative strategy for managing DB legacy schemes and, potentially, better long-term outcomes for some members. Consolidation is however, far broader than a new model and the White Paper recognises that existing options – for example, shared administration services, asset pooling, fiduciary management, DB master trusts — deliver many of the same advantages and, arguably, do so more simply. The government believes that these are currently underused and is keen to address this.

This research paper looks at DB consolidation and whether it is a viable alternative to existing options. We consider why the existing DB landscape may be ripe for consolidation and whether this is an area trustees and corporate sponsors should be looking at now. We also look at the current ideas in the market and the challenges that they bring.

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