Industry organisations have raised concerns over the impact of the government’s proposed public defined benefit (DB) consolidator, despite welcoming plans to introduce greater investment flexibility for DB scheme trustees.

The government previously launched a call for evidence around how defined benefit (DB) pension schemes could increase the amount invested in productive asset classes, also confirming plans to introduce a permanent regime for DB superfunds.

In its response to the consultation, the Pensions and Lifetime Savings Association (PLSA) said that DB pension schemes are keen to have a range of options as to how they provide and secure pension benefits for their members, especially in cases where they are closed to new accrual and are approaching the “DB end game”.

Given this, it backed options that provide more flexibility under The Pensions Regulator's (TPR) DB funding code for their investment decisions, arguing that, without this, the potential for greater investment by open DB schemes in UK growth assets will not be possible.

And whilst the PLSA acknowledged that the draft code is currently under review, it said that it is "imperative" that the government acts quickly to ensure the new code is amended to reflect the government’s aims regarding growth.

In addition to this, the PLSA backed the government's plan to establish a statutory basis for the regulation of DB Superfunds, revealing that as many as 44 per cent of PLSA members are in favour of more flexibility for surpluses to be returned to sponsors, but only in circumstances where the benefits of scheme members are secure.

Association for Consulting Actuaries (ACA) chair, Steven Taylor, also expressed support for the plans to introduce more flexibility on the use of DB surplus, agreeing that this could encourage more investment in productive investments.

"It may be possible to design a statutory over-ride allowing refunds of surplus to take place where scheme funding is above a given threshold, perhaps in combination with discretionary benefits to members or with more flexibility for schemes which remain open to future service," he stated.

However, the PLSA said that its members do not currently support the creation of a public “consolidator” of DB pensions, given the lack of evidence of a market failur, and believe it is better that Pension Protection Fund (PPF) continues to operate as a successful compensation scheme instead.

"We believe it is too early to opt for a public sector solution given that the private sector DB Superfunds have not yet been placed on a confidence-enhancing statutory basis nor have reforms to Solvency II which might alter the options within the buy-in and buyout market," the association stated.

In addition to this, the PLSA argued that, if PPF is given a role as a public consolidator, it should only operate for parts of the market, such as smaller schemes that cannot easily get a buyout or buy-in solution from an insurer or cannot move to a DB master trust.

This was echoed by Taylor, who said that any public consolidator would need to be restricted to prevent market distortion and concentration of risk.

"ACA agrees that any public sector consolidator should be focused on schemes ‘which are not attractive to commercial consolidators’, provided this assessment assumes the scheme assets would be sufficient to meet the commercial premium," he continued.

"This is likely to mean that a public consolidator would focus on smaller schemes for which buyout is not a realistic prospect.”

Instead, Hymans Robertson partner and senior actuary, Patrick Bloomfield, suggested that there could be a role for a voluntary DB public consolidator.

"It would be more effective if it stimulated the DB consolidation market, rather than becoming a monopoly consolidator with taxpayer backing," he explained.

The PPF has a natural head-start to be a voluntary public consolidator, but its objectives also need reorienting to support open, ongoing schemes.

"We wholly oppose any public consolidation vehicle appropriating assets from the existing PPF employer insolvency arrangements, as this would be tantamount to asset appropriation for a government investment initiative.”

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