Consolidation across the defined contribution (DC) sector has the potential to offer advantages, but policymakers must ensure that members interests remain the top priority, FTI Consulting said.

In light of the government’s agenda for greater consultation in the pensions industry, FTI Consulting convened a panel of experts to evaluate the opportunities and challenges presented by consolidation across the DC landscape.

Its report on the findings, Consolidation Conundrum: Unpacking the Future of DC Pensions, revealed that concentrating assets with fewer, larger schemes and providers could improve regulatory oversight.

This approach would also provide economies of scale within the workplace pension market, both of which would enable capital deployment in alignment with policymakers’ proposals.

FTI added that consolidating pension scheme assets into large pension providers can generate the scale required to boost investment in the UK economy. However, it emphasised that investment strategies must be driven by member needs rather than political agendas.

In addition to this, it warned against consolidation efforts that are solely focused on reducing the number of players in the master trust markets and instead called for measures that focus on improving the quality of pension providers.

The report recommended changes to the consolidation framework, noting that while current legislation enables consolidation across workplace schemes, specific bulk-change mechanisms could be introduced with similar consumer safeguards as those used in trust-based schemes.

It also highlighted the inadequacies of the current transfer process, which is described as overly complex and burdensome for individuals. According to the report, while the pension dashboard will help address this issue, it does not sufficiently support members planning for retirement.

FTI Consulting managing director of strategic communications, Sophie Mayall, said: “The reasons for consolidation have been well voiced by both politicians and regulators citing the advantages of larger, more professionally governed schemes that have the scale and expertise to invest in a broader array of assets,

“However, uncertainty remains around the time and consideration that is being taken to understand the complexities of the UK pensions market.”

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