Defined Benefit Scheme Consolidation

Summing up

SUMMARY 

This is the fifth in our series of articles on pension scheme consolidation. In previous articles we have provided an overview of the various options and then considered the main alternatives (shared services, master trusts and ‘superfunds’) in more detail. 

In this article, we “sum-up” the considerations for trustees and corporates when pondering consolidation and whether it is right for them. 

THE CONSOLIDATION ‘SPECTRUM’ 

As explained in previous articles, there are different forms of pension scheme consolidation. It is a ‘spectrum’ rather than a ‘binary’ option, as shown below:

Consolidation 5 image 1

Notes: 

  1. Sharing of services is available under all options 
  2. Under a master trust, there is no change to the employer covenant 
  3. Superfunds involve removal of the employer covenant.

ISSUES FOR DIFFERENT STAKEHOLDERS 

When deliberating over pension scheme consolidation, trustees and sponsoring employers are likely to have different perspectives in terms of the pros and cons of consolidation versus the traditional unconsolidated model. Their respective thought processes might look a bit like this –

Consolidation 5 image 2

 

For members of the pension schemes involved, the key consideration will be whether there is a better chance of benefits being delivered in full. Where the preferred consolidation model is ‘superfunds’, members may also be concerned about the possibility of the loss of any connection between the scheme an d the employers that participated in it. 
All stakeholders need to consider the extent to which a decision to consolidate is irrevocable; i.e. it is imperative to ‘get it right’. 

WHAT NOW? 

In the next, and final article in this series, we will set out w hat we think the next steps should be for trustees and sponsors who may be interested in or who could benefit from some form of consolidation or, bearing in mind you do not need to go straight from ‘unconsolidated’ to ‘super fund’, a consolidation process.

In the meantime, we hope you find this article of interest and if you require any further information on how consolidation might work for your DB scheme, please contact your usual JLT Consultant or our Head of Technical, John Wilson.