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DB pension scheme consolidation set to become ‘commonplace’

More than half of pension professionals in the UK believe superfunds will become an increasingly common solution for defined benefit (DB) schemes, a survey has found.

01 FEB 2019 | CHRIS SEEKINGS
Consolidation could change shape of DB schemes  ©Shutterstock
Consolidation could change shape of DB schemes ©Shutterstock


The research from Lincoln Pensions shows that 52% of the respondents expect consolidation to become more frequent, although just 11% are willing to be early adopters.

However, 27% of schemes think they will meet their ‘end-game’ funding targets within five years, which would prohibit them entering a superfund under new rules proposed by the government.

Jane Kola, partner at ARC Pensions Law, said the new regulatory regime must be tough enough to improve outcomes, but not so restrictive that it prevents superfunds from flourishing.

“Actuaries may find many schemes want advice on whether they can get through the proposed ‘gateway’ to consolidation,” she continued. 

“It involves estimating buyout pricing, as buyout will need to be at least five years away.

“Schemes wanting a superfund solution will need to make sure they are transferring correct benefits to the superfund – it’s never too early to spring clean the legal and data benefit details.”

The research shows that 60% of pension professionals believe that superfund regulation should focus on ensuring the covenant it stronger than that of the transferring scheme.

However, only 14% appear to support the government’s proposed regulatory approach, which Lincoln Pensions said only targets a minimum probability of success.

CEO Darren Redmayne said there is concern that too much emphasis will be placed on probability models to answer the “hugely complex question” of whether consolidation will mean covenant improvement. 

“While such modelling will likely play a role in the ‘covenant test’ for consolidation transactions, we believe it is only one element of a multi-faceted and complex assessment on whether or not to proceed with a consolidation transaction,” he added.


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