Three million members of defined benefit (DB) pension schemes in the UK have only a 50/50 chance of receiving their benefits in full, according to a report from the Pensions and Lifetime Savings Association (PLSA).
It shows that despite employers spending £120bn in special contributions over the last decade, the collective deficit of schemes is still well over £400bn, leaving many covenants under pressure.
A PLSA Taskforce has made three recommendations to address this:
A new chair's statement: schemes would be required to produce an annual statement to demonstrate they are operating in line with best practice in areas such as governance, investment performance and cost transparency
Simplifying and standardising benefits: whether consolidating or not, government action could make it easier for schemes to simplify benefit structures while retaining full benefits for each member
Exchanging covenants for funding: schemes could turn their covenants into funding, and in exchange, employers would be released from their obligations, allowing schemes to transfer into newly created 'superfunds'.
"Our proposals have the potential to transform the industry," PLSA Taskforce chair, Ashok Gupta, said.
"They can help ensure more members get their full benefits, reduce sector inefficiency, and address the issue of stressed schemes, enabling sponsors to concentrate on growing their businesses."
The research involved a survey 100 businesses, finding that 65% of employers would support the principle of consolidation, with particular backing found for shared administration, external advisers and governance.
It is thought that the potential 'superfunds' could free up member resources, and of those who knew what they would do, 49% said they would invest directly into their employees via benefits, and 28% in business growth.
"More than 11 million people rely on DB pension schemes for their retirement income, but there is a real possibility that without change, we will see more high profile company failures such as BHS or Tata Steel," Gupta continued.
"The industry and government need to grasp this opportunity and tackle serious flaws that threaten the security of people's retirement."