Consolidation will not be – and should not be – the new goal for all pension schemes. It is unlikely to be attractive for schemes which have very strong sponsor support, or which have a clear plan to buy out. However, some schemes will be able to improve the security of their members’ benefits by transferring their liabilities to a consolidator. Consolidators are also likely to be better placed to run schemes more efficiently when these are combined to achieve sufficient scale.
The two consolidators which have already announced that they are open for business have very different business models. Following this consultation, we are expecting to see new entrants to the market, probably bringing more different approaches, increasing the choice available to trustees and employers. It will be important for schemes to fully understand all the options before deciding on a consolidator.
Martin Hunter, Principal at XPS Pensions Group, commented: “Consolidation is a great example of horses for courses. The pension scheme with a ‘stallion’ of a sponsoring employer may choose to run their own race, continuing to rely on the support of their employer to help them pay benefits over time. Or a scheme with a funding level at the front of the herd may feel there is no need to settle for anything less than full insurance protection for their members and opt to buy out. But for some schemes the option of consolidation should be a real front-runner.”
Colette Christiansen, Head of De-risking Solutions at XPS Pensions Group, commented: “We strongly believe that schemes should be encouraged to pursue options that are right for them. Each scheme has a unique set of circumstances and there are schemes for which the consolidator market is the optimal solution. We welcome the introduction of a defined framework for consolidators to operate in so that this market can grow effectively helping to secure pensions for members.”
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