Trustees unconvinced by commercial consolidator’s security benefits

Trustees remain unconvinced by the merits that commercial consolidators could provide to the security of member’s benefits, new research has revealed.

The study of DB scheme trustees by Hymans Robertson found that just 25 per cent of trustees believed that moving to a commercial consolidator would improve the security of members’ benefits.

Commenting on the findings, Hymans Robertson head of corporate DB, Alistair Russell-Smith said: “Even if an employer has previously been reluctant to make significant upfront cash contributions, the ability to get a clean break from their DB scheme at a lower cost than buyout could now be the incentive that drives a significant cash contribution today.

“Trustees concerned about the long term covenant support should also seriously consider this option if the cash is now available. Without fully understanding the options available there is a chance that Trustees could miss an opportunity to improve member security.”

Hymans Robertson also revealed that some DB pension trustees were unaware of the commercial consolidator options available to them.

It found that 35 per cent of respondents had not heard of the Pension SuperFund and 60 per cent had never heard of Clara-Pensions.

Russell-Smith added: “There is clearly a widespread lack of knowledge in the industry about the new players in the commercial consolidation market, so it is highly likely that trustees won’t be giving them the right consideration at the moment.

“Commercial consolidators, such as the Pension Super Fund and Clara-Pensions, could benefit a significant minority of schemes so it is vital the industry builds and grows its understanding about them.

“Trustees must also be aware of the differences between the main commercial consolidators so that they choose the path that’s right for their scheme and ultimately its members.

There are fundamental differences between the structures of Clara-Pensions and the Pension SuperFund, and while Clara focuses on member security, the Pension SuperFund offers the potential for higher member benefits.

“It is absolutely vital that trustees make it a priority to get to grips with the details of these new consolidation vehicles. There is now an established process of regulatory guidance and clearance to follow, ahead of the full authorisation regime coming into force.

“This means there is nothing to stop transactions happening now, and indeed early mover advantage means some of the earlier transactions are likely to be on very good terms as the providers build scale.”

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