New legislation isn't needed to benefit from DB consolidation
01 Feb 2018 - Estimated reading time: 5 minutes
The benefits promised by scheme consolidation are available today. So why aren’t more trustees and sponsors taking advantage of them? Simple: a lack of awareness and no imperative to change the status quo. But this is changing and the DB landscape could look very different by 2020.
The ACA’s 2017 Pensions Trends survey showed that sponsors are pretty cool on consolidation. Only 16% would consider consolidation and only 32% thought the potential cost savings were real. Sponsors need better information on what existing consolidation solutions could deliver for them.
Take advantage of the solutions available today
Champions of consolidation talk about better governance, access to advice, lower unit running costs and access to better investments. Existing solutions offer all of these benefits, through a variety of forms: DB master-trusts, standardised service models and sole trusteeship. New solutions are also being developed, many of which target ultimate consolidation through buy-out. No new legislation is needed for any of these solutions to be viable.
Benefit simplification and sponsor release are muddling the consolidation debate. Sponsor release is a separate debate altogether, which schemes of all sizes should engage with. The potential to improve member security and sponsor efficiency shouldn’t be tied to a discussion on operational service models.
Considering if benefits can be simplified to a standard structure is stalling progress on accessing efficiencies through existing consolidation solutions. All benefit simplification will do is bring forward a lifetime of modestly lower running costs into a one off conversion project. Like everything else in the consolidation debate, benefit simplification can be done today under existing legislation. Any new, simplified process has connotations of a weaker duty to safeguard members’ benefits, which should worry us all.
Good things don’t always come to those who wait
It’s no surprise that the DWP’s DB Sustainability White Paper has been delayed until Parliamentary Spring by Brexit. Frank Field’s challenging questions aside, the lack of a political champion for pensions guarantees a damp squib. That’s what we get for 5 Secretaries of State for Work and Pensions in 2 years.
Stimulating consolidation through new legislation isn’t the answer. Freedom & Choice is an interesting parallel. It would have been far better to stimulate take-up of the existing capped drawdown legislation than have George Osborne spring Freedom & Choice on the public. Let’s not make the same mistakes with consolidation. Let’s avoid unnecessary legislation and refocus on making the most of what we’ve already got.