The DB lifeboat fund’s CIO Barry Kenneth highlights the importance of scale and diversification.
The Pension Protection Fund (PPF) is more than capable of fulfilling the role of pension scheme consolidator, according to its chief investment officer.
Speaking on a panel on consolidation at the Pensions and Lifetime Savings Association’s (PLSA) investment conference in Edinburgh, Barry Kenneth expressed confidence in the pensions lifeboat’s ability to expand its remit.
He emphasised that the security of member outcomes has to be at the forefront of any consolidation project.
“When it comes to cost and efficiency of investments, diversification is probably the only free lunch left in investment,” Kenneth said.
Optimal asset allocation was “very hard to do with small scale”, he continued, highlighting that there were approximately 3,500 schemes in the UK with less than £50m in assets.
The consultation from the Department for Work and Pensions (DWP), published in February, will “tease out” answers to many of the questions and help deliver “an executable solution that weighs to our skill set”, the CIO said.
Kenneth added: “We will need to demonstrate delivery, scheme investment and administration, and to have a proven track records in these three areas for consolidation.
“Obviously I’m biased, but we believe that we have that.”
Carol Young, chief executive of the Universities Superannuation Scheme, agreed that scale gives large schemes a head start as consolidators through having sufficient size, scale and skills.
She added that continuity of culture would also be important for members.
“Canadian, many Australian and our own schemes also have a connection of purpose, as they’re usually set up for the state or for the sector,” Young said. “If consolidation is to come, then how will we replicate their scheme benefits from where there is still a connection to employers?
“That places an even greater responsibility on trustees to make sure that they’re truly [focused on] members.”
DC consolidation
During the session, Julius Pursaill, a strategic adviser with Natwest-owned pension fintech Cushon, said consolidation projects should start with better governance, which delivers better member outcomes, but has been the “poor relative” in the past.
“Good DC governance is at least as intellectually demanding as good DB governance,” he said. “I’d go further to say that it’s more demanding, but I have I have some bias in the in the debate.”
He added that the “Amazonification” of DC pensions may provide an “app-based experience for DC members with personalised content prompts that genuinely drive better outcomes”. However, this remains some way off and will require consolidation if it is to be achieved.
