25 years of consolidation – what does the future DB universe look like?
16 Feb 2018 - Estimated reading time: 3 minutes
Whether you are a sponsor, trustee or potential investor, consolidation has the potential to help you achieve your objectives. While it’s no silver bullet to the risk management challenges facing the industry, it shouldn’t be ignored. In our view, its role will only grow.
Contrary to popular belief, consolidation doesn’t need legislative change to happen. It’s already happening. Over the coming years we’ll see the popularity of consolidation solutions such as sole trusteeship, DB master trusts, investment platforms and other ‘mid game’ consolidation vehicles take off. We’ll also see new innovations enter the market, ranging from non-insured risk transfer vehicles to superfunds. Download our recent whitepaper which explores each of these forms of consolidation in more depth.
Looking at all the options now available, and the history of DB schemes over the last decade, we believe that over the next generation the DB landscape will be completely transformed. While the details will be wrong, we think that the trend will be broadly right and over the next 25 years we believe we’ll see:
- The number of schemes fall by over 4/5ths - a drop from c5,500 to c1,000
- 90% less benefit sections within schemes - 40,000 benefits sections today will reduce to c4,000
- A 93% drop in the number of trustees - from c30,000 to around c2,000
- Assets will be around half of today’s £1.5trn - still a sizeable £700bn
- The combined UK solvency deficit should then shrink by ¾ - from £800bn to £200bn
Ultimately these moves should improve the security of people’s pensions as well as reduce costs for employers. If done well, fewer pensions will be cut back on the journey due to sponsor failures. Consolidation, in all its guises, will definitely have a role to play in moving us towards a better future for DB schemes, their members and sponsors.
If you’d like to learn more and talk to many of the experts in this field, come along to our seminar on 22nd February where we’ll look at the range of options available and the challenges they can help meet.