Industry experts have admitted that there will be “winners and losers” in the push to consolidate, with particular concerns raised around the ability to harmonise defined benefit (DB) benefits.

Speaking at the PLSA Investment Conference 2024, panellists discussed the potential benefits of consolidation, including economies of scale, and benefits to the economy, as well as improved governance, technology and communications.

However, Universities Superannuation Scheme (USS) CEO, Carol Young, said that there are ways DB schemes can look to take advantage of size and scale, for instance by “slip streaming” behind a bigger scheme, without having to go all the way to full consolidation, warning that some barriers still remain to this.

“If you want to get the benefits of consolidation for DB, we would need to at least about whether it is possible to in some way harmonise benefits.” she explained.

“Because if all you do is bring together what's effectively a huge multi-section scheme and you still need to administer each one in line with its own benefits, I could see that being a barrier to really unlocking the advantages of true consolidation... that may well just be too difficult though."

Adding to this, independent analyst, Toby Nangle, pointed the Department for Work and Pensions’ recent consultation on the potential for a Pension Protection Fund (PPF) consolidator, the government acknowledged that it would be complicated for small schemes to have their benefit structures replicated, citing this as a key barrier of buyout.

Nangle pointed out that the DWP therefore discussed the idea of having a choice of a selection of a small selection of fixed benefit structures that savers can consolidate into, highlighting this as a “huge” change, given that this issue has been impeding business for buyout insurers.

And whilst Nangle acknowledged that the consultation papers suggest that this would only be available for a PPF consolidator, he argued that making it more broadly available would “really kick start consolidation to a great degree across the industry".

However, Young argued that getting DB pension trustees to conclude that they can accept a certain level of harmonisation would prove difficult.

“We can maybe all see that there might be industry-wide and society-wide benefits to consolidation and assets being available to be put into productive use, but if you're a trustee looking at the primary purpose of your current trust, and it is the members’ benefits as they're currently, how do you get to the point of concluding that you can accept a certain level of harmonisation, so without that support I do think it will be difficult," she stated.

“There is going to be winners and losers though, right,” Nangle responded.

Adding to the debate, PPF chief investment officer, Barry Kenneth, aslo suggested that commercial consolidators already have a more standardised benefit structure than individual schemes.

And despite the concerns, Kenneth suggested that these are issues that can be addressed in the design stage.

He stated: "From my perspective, if you have four or five different benefit structures, you'll find one that looks similar to the to the to the scheme, but if that's not what's desired, then I think in the benefit design of the consolidator.

"I don't think it's off the table to be more specific in terms of benefit structure. Clearly there's economies of scale through standardisation that make it slightly more simple, but equivalents are not the easiest thing to to cut to to to calculate either.

"So I don't think it's off the table, it's just it's a question of trying to get the design correct."

"If we could get to a concept where the value of the benefit is equal, but the shape will always be different if you do this, so there will always be winners and losers in this game," PLSA policy board chair and session chair, John Chilman, stated.

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