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Managing Change: TPT’s Knowledge in DB Scheme Consolidation

Posted February 19, 2024 by EasyFinance.com to Finance 0 0

Following the Department for Work and Pensions (DWP) unveiling its white paper on 'safeguarding defined benefit pension schemes' in 2018, the pension industry has witnessed the emergence of innovative technologies to help trustees and sponsors achieve consolidation strategies. While defined contribution (DC) programmes have become the standard for the majority of UK employers, the success of consolidation in the DC sphere has prompted trustees and sponsors to investigate comparable efficiencies and economies of scale for defined benefit (DB) schemes.

Understanding the complex world of DB pension scheme consolidation may be difficult, and choosing the best choice for your scheme takes careful analysis. Jonathan Jackaman, TPT's Head of Business Development, provides insight into the variety of options presently available to trustees and sponsors, depending on where they stand within the consolidation path.

He said, “Each consolidation option offers different benefits. As with most things, it all comes down to finding the right approach for your scheme, sponsor and members. In many cases, you may find it beneficial to use different consolidation options as you progress through your end-game journey.

For example, moving to a single provider for all services to resolve both data and illiquid asset issues, then to a master trust, before finally securing members’ benefits through buyout”.

Why Should You Progress Ahead With DB Pension Scheme Consolidation?

The advantages of consolidation are multifaceted, with one notable benefit being cost minimisation. In the intricate landscape of pension management, where obligations are resource-intensive, consolidating multiple DB schemes into a unified structure provides economies of scale. This streamlining process reduces administrative complexities, eliminates duplicated efforts, and capitalises on bulk purchasing advantages.

Activities such as investment management, administration, and regulatory compliance can be centralised, resulting in substantial cost savings for organisations. Furthermore, improved communication with pension scheme members enhances engagement and comprehension of retirement benefits, making the consolidation journey not only cost-effective but also member-centric.

Another pivotal advantage of DB scheme consolidation is the establishment of a robust governance framework. By combining various schemes into a unified structure, a streamlined governance approach emerges. This simplifies decision-making processes, clarifies responsibilities, and simplifies communication channels.

A consolidated DB scheme benefits from a dedicated governance team, focusing on strategic planning, risk management, and ensuring compliance with evolving pension legislation. This proactive and well-informed approach to governance facilitates quicker responses to economic changes, regulatory requirements, and shifts in the financial landscape. Improved governance is, therefore, a cornerstone for navigating change effectively and securing the long-term sustainability of pension obligations.

Risk management is significantly enhanced through DB scheme consolidation. Combining multiple pension schemes enables greater diversification of investment portfolios, reducing the impact of market volatility on pension fund assets.

The consolidated approach allows for the pooling of resources and assets from various schemes, enabling a more strategic and diversified investment strategy. This broad diversification of risk across a spectrum minimises vulnerability to individual investment underperformance and economic uncertainties. As a result, DB schemes can achieve a more resilient risk profile, ensuring financial stability and security in the face of changing market conditions.

Accessible funding is a key aspect that arises from the consolidation of DB schemes. The creation of larger, diversified pools of assets provides pension schemes with greater investment capacity and access to a broader range of investment opportunities. This scalability allows for direct investments in various asset classes, including private equity, infrastructure, and alternative investments.

Access to a diverse array of investment options enhances the potential for improved risk-adjusted returns, enabling consolidated DB schemes to optimise their investment strategies and navigate market fluctuations more effectively.

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