Defined benefit schemes are set to reduce by more than 80 per cent over the next 25 years, according to Hymans Robertson.
In its white paper, DB Scheme Consolidation – a better future for members and employers, launched today (8 February 2018), Hymans Robertson said that it expects the number of schemes to drop from roughly 5,500 today, to around 1,000 in the next 25 years.
The firm has predicted that DB schemes will begin to consolidate in a drive to reduce running costs, improve member security and manage risks, of which is “already happening”.
Hymans Robertson partner, Jon Hatchett, said: “Along this road we’ll see the popularity of consolidation solutions such as sole trusteeship, DB master trusts, investment platforms and other ‘mid game’ consolidation vehicles take off. We’ll also see new innovations enter the market, ranging from non-insured risk transfer vehicles to superfunds."
Hatchett urges the industry to be more resilient to bad outcomes and says it has not learned its lesson in reducing risk to the system.
“There are still vast and unnecessary levels of risks in the system – to the tune of £400bn. There is no obvious barrier to reducing this affordably and should be the priority for the industry. It would improve security in the system by £250bn - transformational for both scheme members and sponsors”, he said.
Furthermore, Hyman Robertson’s findings also predict that benefit sections will reduce within schemes by 90 per cent, that the number of trustees are set to fall from 30,000 to around 2,000 and assets will halve to around £700bn.
The white paper also suggests that the combined UK deficit will shrink from £800bn to £200bn, that we will see a further 500,000 fall into the Pension Protection Fund and that one million people will transfer out of DB as a result of the freedom and choice reforms.
Hatchett believes that ultimately these moves will help improve the security of peoples' pensions and reduce costs for employers as members move into DB master trusts.
He said: “We’re reminded all too often that DB pensions are not ‘gold-plated’ or ‘guaranteed’, and there is a real risk for a significant minority that they won’t receive their benefits in full.
“In terms of the members of these schemes, we could see around 1m consolidated into DB master trusts. These are already popular in the DC space, but they already exist and are gaining ground in DB too for similar reasons: reducing cost and improving governance.
“Our estimates suggest around 2m members will reach the ‘end game’ and move into the ‘gold standard’ of consolidation vehicles: buy-outs with insurers."
