As buzzwords go, “consolidation” is not one to trip off the tongue.

But if there is something that comes close to being a buzzword (a word or term for the latest trend/thing) in the pensions industry, it just might qualify.

It’s a prosaic description of the effort to make pension scheme management more robust and cost less by, among other things, combining assets, bolstering capital and being able to access investment opportunities previously denied by reasons of price tag and scale.

As in boxing, a good big’un will always beat a good littl’un. Joining up, the argument goes, also cuts duplication and reduces costs significantly, giving trustees and advisers more headroom to serve better the interests of their members.

Joining the fragments

Government can see the advantages and wants to make this happen where it can, so it’s no surprise that it is taking place in local authority pensions; councils have pooled their assets and centralised management, largely on a regional basis.

The Pensions and Lifetime Savings Association weighed in with its own initiative in the shape of a task force, to try to find a solution to ease the long-term pressure funded defined benefit schemes face.

What they found will surprise few in our world. The current system means thousands of schemes (there are approximately 5,400 in all) struggle with costs because the system is too fragmented.

The task force, to its credit, set a target beyond existing economies of scale and recommended government construct a framework in which superfunds could operate. The DWP is now consulting on this final stage.

So what are we waiting for, might be a fair question.

Pandemic muscles out pensions

Pensions are rarely top of any government’s “to do” list and a global pandemic, together with a looming exit from the EU has pushed them further down the legislative agenda.

If consolidation can be seen as a collectivising mechanism, then what we are seeing is a trend developing.

We’ve seen regulation reduce the number of smaller defined contribution master trusts, heard the volume increase in the debate over collective defined contribution schemes and witnessed the founding of more master trusts for defined benefit schemes.

It’s pretty clear in what direction we are travelling but, as I write, traffic is light on this road: for now.

Even though no scheme has yet to transfer to superfund status, I think they will be a new feature on the pensions landscape.

Not everyone – insurers, in particular – see them as a welcome innovation, principally because they will be competing in the buy-out market but will not have to hold as much capital as insurance companies are typically required to do.

And they do not offer a solution for the majority of schemes, only those able to meet the entry price, but for whom buy-out is not a realistic option in the near term.

Silver bullet breakthrough?

So, nearly five years on from the founding of the task force, there has been little in the way of concrete consolidation actually taking place.

What will be the catalyst for this to happen? For all the new ideas we see – and applaud – can we envisage any of these developments as a silver bullet for those defined benefit schemes outside the superfund/buy-out sweet spot?

The idea that we can look forward to a stronger future together is one of the principles driving this creative effort.

What’s missing, for now, is something which addresses the challenges sponsors and trustees face in a way they can immediately grasp and support.