FTI Consulting Report Evaluates Pathways and Pitfalls in Consolidating the UK’s Defined Contribution Pensions Market

London, 12th September 2024 — As the Labour government pursues its drive towards greater consolidation within the pensions industry, FTI Consulting, Inc. (NYSE: FCN)  convened a panel of experts to assess the opportunities and challenges posed by consolidation across the defined contribution (“DC”) landscape. The panel’s findings are compiled in the firm’s report, The Consolidation Conundrum: Unpacking the Future of Defined Contribution Pensions.

This report looks at the complexities of the fragmented DC market, offering an analysis of the potential implications of transitioning to a more consolidated model, the areas where consolidation could deliver benefits and the overall feasibility of achieving successful implementation in the UK.

Key insights from the report include:

• Advantages of Consolidation: Concentrating assets within fewer, larger schemes and providers could enhance regulatory oversight and provide economies of scale within the workplace pensions market. This would enable capital deployment in alignment with policymakers’ proposals.
• Boosting Investment in the UK: While consolidating pension scheme assets into large pension  providers can create the scale required for increased investment in the UK economy, the report emphasises that investment strategies must be driven by member needs rather than political agendas.
• The Future of Master Trusts: The report cautions against consolidation that is solely focused on reducing the number of players in the master trust market. It instead advocates for actions that improve the quality of pension providers.
• Consolidation Framework: While current legislation offers the opportunity for consolidation across workplace schemes, more specific bulk-change mechanisms could be introduced with similar consumer safeguards applied to trust-based schemes.
• Addressing Future Small Pot Pensions: The report highlights the inadequacies of the current transfer processes, which are too complex and place undue burden on individuals. While the pensions dashboard will help, this solution does not sufficiently support members planning for retirement.

In light of the government’s agenda for greater consolidation in the pensions industry, FTI Consulting’s report aims to reframe this debate, focusing on where and when these investments serve the best interests of the member.

Tim Middleton, director of policy and external affairs at PMI, comments: “Is it the role of the pensions system to act as financial backer to the UK economy? The bottom line: pension schemes are not going to invest in UK assets unless they provide the right risk-return profile.”

“The reasons for consolidation have been well voiced by both politicians and regulators citing the advantages of larger, more professionally governed schemes that have the scale and expertise to invest in a broader array of assets,” said Sophie Mayall, a Managing Director in the Strategic Communications segment at FTI Consulting. “However, uncertainty remains around the time and consideration that is being taken to understand the complexities of the UK pensions market. Through this report, we aim to raise awareness of this complexity and the realities of moving towards a more consolidated market across different areas of the pensions landscape, while also emphasising a fundamental question: ‘How will this benefit the end member?’

The expert panel included:

• Andy Cheseldine, professional trustee at Capital Cranfield
• Elizabeth Fernando, CIO of Nest
• Tom Barton, Partner at Pinsent Masons
• Tim Middleton, Director of Policy and External Affairs at PMI
• Maggie Kearney, Director of Defined Contribution at Redington