In the run-up to recent market volatility, we surveyed stakeholders of defined benefit (DB) pension schemes on the challenges they are facing and the consolidation options they are considering. We also explored the topic of DB master trusts in more detail, looking at the benefits and the perceived barriers to entry.

Key findings: what did our survey respondents have to say?

Challenges facing DB schemes

The results of our survey varied between small and large DB schemes and stakeholder type (i.e. sponsoring employers), but the key challenges were clear:

• The high cost of running legacy DB schemes
• Access to the buyout market
• The time and cost of complying with an ever-increasing level of regulation
• The ability to react quickly and make decisions

Consolidation options being considered

Our results suggest that the consolidation industry is set for growth.

• The independent trustee model already has a high take-up
• 73% of schemes have an ultimate goal of buyout
• Over 1/3 of schemes are considering a DB master trust
• The number of schemes with fiduciary managers is expected to double

Benefits of a DB master trust

The respondents of our survey were positive about the benefits a master trust could bring, including:

• Improvements in governance
• Cost reductions
• Greater access to the buyout market

Perceived barriers to entry of a DB master trust

Some of the barriers highlighted by our respondents are set out below:

• Expensive due diligence for entry
• Data cleansing required for entry
• Loss of control in decision making

What has changed since our survey?

The significant period of volatility following the ‘Mini-Budget’ occurred after the closure of our survey, in addition to the launch of the new funding code consultation. We expect the views of stakeholders to have changed somewhat since the survey - in some areas more than others.

Do schemes need to revisit their liquidity and cashflow management processes? Can trustees and sponsoring employers react in a timely manner? Will the buyout market be able cope with the additional demand? If not, will we see a spike in interest in master trusts? Could fiduciary management and investment platforms provide a solution? Will we see our first superfund transaction?

Conclusion

We believe the results of our survey show the case for consolidation is becoming increasingly compelling for many schemes, and that further growth in this area is possible.

To find out why, read our in-depth themed survey articles (see links below):

Challenges facing DB pension schemes
DB consolidation: which options are schemes considering?
DB master trusts: the benefits and the barriers to entry