DB consolidation: one year on
16 Jul 2019
Hot on the heels of our “DB consolidation – one year on” publication, on Tuesday 9 July we hosted a breakfast seminar covering the full DB consolidation spectrum. We brought together speakers from the DWP, Lincoln Pensions, and Taylor Wessing to discuss and give views on how this market has evolved over the past 18 months - since the DWP issued their White Paper on protecting DB pensions.
Throughout the morning, there were 4 key themes that came across loud and clear:
Consolidation is coming because of the regulatory push to make it happen. Examples include TPR establishing a transaction process for transferring to a commercial consolidator (follow TPR guidance and obtain clearance) to enable the market to start before the authorisation regime goes live. And the DWP is moving the DB Master Trust market forwards by helping develop an accreditation regime which will clearly compare the per member costs of DB Master Trusts with stand-alone schemes. TPR’s July 2019 consultation on trusteeship also promotes consolidation, primarily for trust-based DC schemes but with read across to DB schemes.
Let’s not lose sight of solutions for smaller schemes. The DWP’s drive for consolidation in their March 2018 White Paper was primarily aimed at smaller schemes to reduce their costs and improve their governance. Since then, commercial consolidators have had a lot of the limelight. They will help some smaller schemes, but many more will have sponsors unwilling or unable to afford the required cash injection. And as the commercial consolidators reach scale, their focus is likely to change to larger schemes. So, the industry must not lose sight of solutions for smaller schemes, and should continue to develop ideas like investment platforms, the sole trustee model and DB Master Trusts.
Expect the first commercial consolidator transactions in early 2020. TPR expects to finish running its ruler over the Clara and Pension SuperFund models by the end of this year. Clearance applications for the early transactions will be processed in parallel, and our panel’s best guess was that the first transactions are likely to be completed in early 2020.
Change is coming to the sole trustee model. Some professional independent trustee firms tell us that up to 50% of their new business enquiries relate to sole trustee appointments. Replacing the trustee board (including its member nominated representation) with a sole professional trustee firm is another way to reduce running costs and simplify governance, so it’s no surprise it’s becoming popular. But it’s clear that TPR has some concerns about this model, and it’s likely that we’ll see some changes, such as having a minimum of two people making decisions and sole trustees needing to demonstrate robust review and selection of advisers and service providers. These measures closely follow the requirements featured in the final standards for professional trustees, which single-out sole trusteeship as a model necessitating additional requirements to ‘standard’ appointments.
We’re backing DB consolidation and work with a wide range of providers including insurers, a commercial consolidator, a DB Master Trust and a sole trustee. Please do get in touch if you’d like to discuss how consolidation might benefit your scheme.