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January 31, 2019

Encouraging consolidation will drive greater security for members and realise investment for the UK

Pension consolidators can deliver a more secure future for defined benefit pension scheme members over the next decade, according to Clara-Pensions. Continuing to regulate these vehicles as pension schemes will enable the UK to deliver safer pensions, rather than a weakened form of insurance.

These are among the main conclusions from the response to the Department for Work & Pensions consultation on defined benefit consolidation by Clara, the member-first consolidator.

The response argues that the proposals from Government must strike a careful balance that ensures consolidation will be available to those members and employers who would benefit most from it.

Adam Saron, CEO of Clara-Pensions, said:

“A strong, principles-based authorisation and regulatory regime is welcome. It is imperative to get this right. We cannot lose the opportunity to provide meaningful improvement in outcomes for members. Insurance remains the gold standard for any scheme member, but it is out of reach for so many. Consolidation can be an attractive, better option for exactly these members.

While the evidence of the possible benefits is strong, consolidation remains in its early stages. The positive reception it has already received from the pensions industry and sponsoring employers shows we have an opportunity to greatly improve member outcomes. This consultation is an opportunity to establish the right framework now to deliver the pension benefits of thousands of members in future.”

Adam Saron
Clara’s Chief Executive

In particular, Clara’s response notes five key arguments for the shape of the consolidation market:

  • Consolidation offers safer pensions today: It is not a threat to the bulk purchase annuity market and indeed, Clara’s model provides a bridge to buy-out. The nature of consolidation must not be confused with the insured market and must be properly regulated for what it is: a way to deliver a much safer pension for members.
  • Being member first is vital: consolidation is not a solution for every scheme, but it will be an option for many and represents an opportunity to deliver a safer pension to their members. The focus must be on member outcomes first.
  • A principles not rules-based system will serve best: Clara believes that consolidation does require a strong authorisation and regulatory regime. Where possible this must be principles rather than rules based, given the often unique circumstances facing Britain’s 5,450 defined benefit schemes.
  • A focus on policy not individual solutions: as with any developing industry, a healthy choice of models will be essential for the development of consolidation. Trustees need to be able to properly consider a range of options to best serve their members.
  • Investment in the UK economy: consolidation is encouraging investment in UK pensions schemes from both new capital providers and scheme sponsors. Bringing assets together into pension consolidators could create pools of capital with the governance and scale to be providers of long-term, patient capital to the UK economy.

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