Bringing together DB schemes may make it harder to decide which solution is best for your plan.
Bringing together DB schemes may make it harder to decide which solution is best for your plan. Jonathan Jackaman, Head of Business Development at TPT, highlights the opportunities that are now available to you, regardless of where you happen to be on your desired journey.
Since the Department for Work and Pensions (DWP) issued its white paper on 'protecting defined benefit pension schemes' in 2018, the sector has seen the development of a slew of new goods and services aimed at assisting trustees and sponsors in adopting consolidation strategies.
Aside from the public sector, the vast majority of UK enterprises now provide defined contribution (DC) schemes to their current employees. For newer projects, integrated DC setups are 'the standard'. Over the last decade, numerous previously 'unbundled' own-trust DCs have also adopted a consolidated arrangement.
The success of consolidation in DC will be a big impetus for trustees and sponsors to look into how they might profit from similar efficiencies and economies of scale on the DB side. And, with the range of options currently available for DB plans, there is bound to be a consolidation method that can benefit your plan, regardless of where you are on your journey.
Combining some or all components of your plan's operation can result in significant time and cost savings while also improving quality and reducing (or, in some cases, removing) the burden on your trustees.
Jonathan Jackaman, noted, "Each consolidation option has particular advantages. As with other things, it all boils down to determining the best method for your scheme, sponsor, and members. In many circumstances, it may be advantageous to apply various consolidation methods as you proceed throughout your end-game trip.
For instance, transitioning to a single supplier for all services to address both data and illiquid asset difficulties, then to a master trust, and lastly ensuring members' benefits by the buyout."
The Best Aspects of DB Pension Scheme Consolidation
Cost Minimisation
Pension schemes and the consolidation of defined benefits provide a significant cost-saving benefit. In an environment where administering pension obligations can be difficult and resource-intensive, integrating various DB schemes into a consolidated structure enables economies of scale. This consolidation simplifies administrative processes, avoids duplication of work, and capitalises on the benefits of bulk buying. Organisations may save a lot of money by centralising functions like investment management, administration, and regulatory compliance.
Furthermore, integrating DB systems frequently allows for more effective communication with pension scheme participants, which leads to increased involvement and awareness of their retirement benefits.
Improved Regulation
Combining various schemes into a single structure allows for the creation of a more efficient and robust governance system. This centralised approach improves decision-making processes by clarifying roles and simplifying communication routes. Improved governance allows for faster reactions to changing economic situations, regulatory needs, and changes in the financial environment.
A consolidated DB scheme frequently benefits from a dedicated governance team that can focus on strategic planning, risk management, and maintaining compliance with changing pension regulations, promoting a proactive and informed approach.
Risk Management
Organisations can diversify their investment portfolios by integrating various DB pension systems. This diversification reduces the effect of market volatility on pension fund assets. A consolidated approach permits the pooling of resources and assets from several schemes, resulting in a more strategic and diverse investment plan.
As a result, the pension scheme's total risk profile is distributed throughout a wider range, making it less vulnerable to individual investment underperformance and economic concerns.
Accessible Funding
Consolidation enables the establishment of bigger, more diverse pools of assets, giving pension funds more investment capacity and access to a wider choice of investment options. Larger asset pools frequently allow for direct investments in a broader range of asset classes, such as private equity, infrastructure, and other alternative assets that smaller, fragmented schemes could struggle to access on their own.
This increased access to different investment alternatives may result in higher risk-adjusted returns, allowing consolidated DB schemes to optimise their investment strategy and better handle market swings.
About TPT
TPT is a prominent supplier of pension services, providing creative alternatives for defined benefit pension plans. TPT is dedicated to assisting trustees and sponsors in navigating the changing pension market, and they offer experience, assistance, and bespoke solutions to meet their specific requirements.
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