Katy Harries: To consolidate or not to consolidate, that is the question

We have now reached 10 years of automatic-enrolment, which has led to an increase in the value of pension savings and the number of people saving for their retirement.  The vast majority of these people were enrolled into defined contribution (DC) schemes.

As more people joined DC schemes, the government raised governance standards, introducing requirements around costs and charges, disclosure and, for larger DC schemes, climate change reporting.

Increasing governance standards means running a single employer DC scheme has become costly, in terms of money, time and resources, not to mention the reputational risk if things goes wrong. This had led some employers to consider whether it would be preferable to outsource their pension provision.

It is not necessarily a bad thing to want to look elsewhere. The government’s pensions policy is based on DC members moving into bigger schemes, where costs are spread among a wider group. These schemes also have the resources to keep on top of the ever-increasing governance standards, as well as investing in the wider member experience, such as digital access to pension scheme information, contribution modelling and learning resources.

There are a variety of options out there for dealing with DC benefits, but the most common are transfers into master trusts. A DC master trust can be used by multiple unconnected employers and is authorised by The Pensions Regulator.  But employers could also transfer a DC scheme into another DC scheme or buy-out DC benefits with an insurance policy, depending on what they are trying to achieve.

If an employer is considering what to do with its DC scheme, it should think about: whether it is consolidating several schemes or a single scheme; what it wants to do for its employees going forward, for example, low charges, a wide investment choice, a better member experience; if it has any tricky members, for example, overseas members and members with tax protection; how much involvement it wants going forward; and if it has the right people and resources available.

There are no right or wrong answers but, as with any successful project, the key for employers is to plan ahead and work out what they want for their employees, past, present and future, before pressing the ‘go’ button.