News & insights

The rise of DB pension scheme consolidation

Managing an occupational pension scheme has become an increasingly onerous task for trustees and employers in recent decades due to factors such as:

• More complex regulation and pension legislation;
• the need for professional advisers across areas like investment, actuarial and administration;
• the time burden on pension trustees and sponsoring employers;
• rising costs from advisers, regulatory levies and service providers;
• pressures on sponsors to reduce pension risk exposure.

To address these challenges, the UK government and The Pensions Regulator have been driving a shift towards greater consolidation of DB pension schemes. The goal is to improve governance, reduce costs through economies of scale, and enhance security for scheme beneficiaries members' benefits.

Since the 2018 DWP white paper 'Protecting Defined Benefit Pension Schemes', additional consolidation options for pension schemes have emerged. This includes combining core services through one provider, while keeping the current legal framework of the pension scheme, through to fully transferring all scheme functions to expert consolidation entities such as superfunds and DB master trusts.

What is DB Connect?

For many pension scheme trustees, the lack of a flexible "middle ground" consolidation option that allowed them to retain overall control has been an obstacle. This is where TPT's pioneering DB Connect solution comes in.

DB Connect enables trustees of an occupational DB pension scheme to consolidate core services like investment management, Scheme actuary, covenant, accounting, and administration with TPT as a single provider. However, crucially, the existing trustee board remains in place to oversee the scheme's strategic direction. 

Through integrating and streamlining core services, DB Connect aims to achieve:

• Greater operational efficiency and better alignment between functions;
• access to sophisticated investment strategies and fiduciary management;
• significantly reduced running costs from economies of scale;
• more time for pension trustees to focus on oversight rather than day-to-day tasks;
• support with long-term planning and journey to buyout or self-sufficiency.

Retaining oversight through the existing trustee board means trustees can take advantage of consolidation benefits, without fully outsourcing or changing the scheme's legal structure and trust deed and rules.

As Jonathan Jackaman, TPT's Head of DB Distribution, recently stated:

"DB Connect was introduced to provide a genuine consolidation model for pension schemes where the trustee wants to remain in place. Integrating services leads to lower costs and greater efficiency." 

What is DB Complete?

For some pension schemes, fully outsourcing the trusteeship governance could be a better approach to consolidation. TPT's DB Complete proposition is a Defined Benefit Master Trust (DB Master Trust) designed to meet this need.

With DB Complete, TPT replaces the existing trustee board and takes full legal responsibility for the scheme as the sole corporate trustee. This comprehensive solution allows the sponsoring employer to offload all trustee duties and governance burdens.

Scheme assets and liabilities are ringfenced. The existing scheme benefit structure is retained, with a bespoke investment and funding strategy tailored to their specific circumstances and journey plan. TPT's expert pensions team provides all the services required to run an occupational pension scheme.

As with DB Connect, services like administration, actuarial and fiduciary investment management are integrated for efficiency.

Key potential benefits of DB Complete include:

• Full offloading of trusteeship responsibilities from the employer
  Scheme liabilities and assets ringfenced from other schemes;
• tailored investment strategy and journey plans based on each scheme's circumstances;
• greater consolidation efficiency from fully integrated services;
• security of professional trustee oversight and governance from TPT;
• potential cost and liability reduction for the employer.

Ultimately, both DB Complete and DB Connect aim to create a more efficiently run pension scheme at lower cost, with sophisticated integrated services and strong governance tailored to each arrangement's specific requirements.

Find out more on our Defined Benefit solutions page.

How to choose the right consolidation path

With so many potential consolidation solutions available, it can be challenging for pension trustees and sponsoring employers to establish the best fit for their scheme's specific circumstances and end-game objectives. Here are some key considerations:

Maintain current Trustee Board or move to a new trustee?

A critical factor is whether you wish to keep your existing trustee board and trust structure or are open to consolidating under a new professional trustee model. Master trusts like TPT's DB Complete require a transition to their pension trustee.

End-game planning and journey

Your scheme's funding position and end game journey plans will help influence the ideal consolidation path. Many take a phased approach, consolidating services first, before moving onto fully integrated solutions, such as TPT’s DB Master Trust.  

Attitude to investment management

Pension schemes worried about underperformance, risk control, and the ability to move quickly to take advantage of arising opportunities may value a fiduciary manager like TPT, which is an integral part of both the DB Connect and DB Complete propositions.

TPT's consolidation solutions

To cater for the diverse needs of DB pension schemes, TPT has developed two pioneering consolidation solutions - DB Connect and DB Complete:

• DB Connect - Integrated services with the existing scheme’s legal structure staying in place.
• DB Connect is TPT's answer for schemes wanting to consolidate services whilst reducing costs and governance burdens. The existing trustee board remains in place.

Under this model, all key services like administration, actuarial support and investment are bundled under TPT's integrated provider model. This ensures seamless data flows, removes duplication of advisers, and gives trustees one point of contact.

Crucially though, you keep your existing trust structure and the final say on strategic decisions like investment principles, scheme funding and end-game planning.

The benefits include:

• Significantly reduced running costs from consolidating all services;
• time savings by removing the burden of managing multiple advisers;
• access to sophisticated investments usually only available to larger schemes;
• TPT's award-winning administration and innovation;
• support from experienced pensions professionals across TPT's in-house teams;
• fully integrated ESG and responsible investment approach aligned to your investment principles;
• option to transfer to TPT’s DB Complete in the future.

DB Complete – Moving to TPT’s DB Master Trust

Where trustees are ready to completely exit their trust-based model and governance burden, TPT's DB Complete master trust can be the ideal consolidation solution.

As a leading DB master trust, DB Complete provides a comprehensive outsourced solution where all scheme management is handled by TPT's expert in-house pensions team and trustee board.

Key advantages of DB Complete include:

• Full outsourcing of trusteeship and governance to TPT's experienced Trustee Board;
• TPT’s economies of scale can result in substantial cost savings;
• ability to leverage TPT's substantial £6.5bn of DB scheme assets, for improved investment opportunities; 
• removal of all scheme management burden and associated employment/legal responsibilities;
• sponsor maintains a link and oversight through regular reporting;
• potential to use as stepping stone to eventual buyout or superfund at end-game.

Whether DB Connect or DB Complete is the ideal solution will depend on each scheme's unique requirements and end-game objectives.

The beauty is pension schemes don't have to decide their final destination today. TPT offers the flexibility to transition between the two models or at some stage exit completely to other options including an insured buyout, or a superfund - future-proofing for schemes on their consolidation journey.