While the Department for Work & Pensions issued a consultation on consolidators back in 2018, there has been no meaningful regulatory update since.
John Baines, partner in the Risk Settlement Group at Aon said: “It's likely that many scheme sponsor covenants will be placed under real stress in the coming months which could raise concerns over the security of member benefits. Many schemes will be even more focused on finding some form of endgame for their scheme. But it will need to be both affordable and secure – and most importantly, provide real safeguarding for members' benefits.
“Consolidation may well be the right answer for some schemes but without more regulatory clarity and the blessing of the Pensions Regulator (TPR), no trustee would realistically take the leap of faith needed to currently transact with a consolidator.”
John Baines continued: “We all know that this is not an easy task for TPR - they have a tough balancing act. The still thriving risk settlement market has shown that insurance can provide a more secure destination for pension schemes, but it's too expensive for many - especially if they're facing real financial stress. On the other hand, trustees and the wider pensions market need comfort that any consolidator is sufficiently secure to give members a very high chance of having benefits paid in full.
“As things stand, the hiatus since the 2018 announcement makes planning very difficult for schemes. Put simply, they can't plan for an option that doesn't have regulatory certainty. However, events may be creeping up on us which could see a wider need for the option to be there. The alternative could be reductions in member benefits and added stress on the Pension Protection Fund – and that will be to no one's benefit.”
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