Over half, 51 per cent, of pension professionals would support mandatory consolidation of defined benefit pension schemes in some circumstances.

A survey of Pensions Management Institute (PMI) members, which included trustees, administrators, actuarial, legal and investment professionals, was part of the PMI’s response to the government’s DB green paper. Support for mandatory consolidation involved circumstances such as employer insolvency (90 per cent), to keep a scheme out of the Pension Protection Fund (84 per cent), to allow smaller schemes to be managed more effectively (71 per cent) and to improve governance standards (59 per cent).

Speaking at the PMI Annual Conference in London, 11 May, PMI president Kevin Le Grand noted that the idea of mandatory consolidation is “gaining traction” and if the same question had been asked a few years ago there would have been a greater number against it. Despite this support, the survey highlighted a lack of consensus around the issue. The two principal barriers to consolidation were perceived to be a difference in funding level (89 per cent) and a difference in employer covenant (83 per cent). Furthermore, 53 per cent also believed that a different level in scheme maturity could also prevent consolidation.

LeGrand also highlighted responses from PMI members on DB consolidation which questioned whether small schemes would be able to afford consolidation. Quoting a member, LeGrand said: “Some of the very smallest schemes have poor governance because they cannot afford better governance and they may not seek advice when they should because of a wish to cut costs. There may be a case of consolidation in such schemes, however, one has to question whether the employers involved would be able to afford the consolidation.”

The survey also found that a third, 30 per cent, believe it should be possible to renegotiate accrued DB benefits under certain circumstances. When asked whether the government should consider a statutory override to allow schemes to move to a different index, provided that protection against inflation is maintained, 55 per cent of pension professionals said that the government should be permitted to revaluate both the preserved benefits and the indexation of benefits in payment. However, 31 per cent said that the government should not allow it.

Furthermore, in response to the question of whether schemes should be allowed to suspend indexation in some circumstances, views were equally divided with 57 per cent of pension professionals against. Of the 43 per cent in favour to suspend indexation, 34 per cent would permit it to keep a stressed scheme out of the PPF and 21 per cent would allow it when funding levels fall below a predetermined threshold.

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