DB schemes “must consolidate and prepare” for demands of a shifting investment landscape

News | Updated: 11.04.19 Share this:
Andrew Sentance at TPT's DB Launch Event

Smaller schemes (less than £1bn) may be unprepared to pursue the diversified investment strategies needed to manage risk ahead of a global economic slowdown

DB schemes face an uncertain future in the midst of a changing investment landscape, which is likely to demand they pursue more diversified investment strategies to achieve long-term security, according to the leading economist Dr Andrew Sentance CBE, who along with the renowned journalist and broadcaster Andrew Marr was speaking at a recent DB Consolidation: The Complete Picture event hosted by TPT Retirement Solutions.

Dr Andrew Sentance, CBE said:

 In order to adjust to a ‘new normal’ slow growth environment, DB schemes are likely to have to fundamentally rethink their investment profiles.

“With stubbornly low interest rates and minimal gilt returns, DB schemes are likely to have to reconsider their investment approaches and place greater focus on pursuing a more diversified strategy to reduce deficits and ensure liabilities are met.

Small to medium sized schemes (less than £1bn) may be poorly prepared to make this change. Such a strategy requires a hands-on approach from Trustees, underpinned by strong knowledge of a complex investment landscape. Pursuing a diversified strategy will demand cost effective access to asset classes which are likely to be out of reach for many of these schemes. 

Improving the risk management framework around these schemes requires expertise and a level of governance often beyond the reach of smaller schemes. Leveraging the economies of scale offered through consolidation is more likely to create an environment in which member benefits are more secure.

Commenting on how consolidation gives access to more diversified investment opportunities, Mike Ramsey, CEO at TPT Retirement Solutions said:

 The benefits of consolidation for small to medium size schemes (up to £1bn) are clear. There is political will, industry interest and regulator encouragement to capture the benefits of consolidation and improve the chances of members’ pensions being fully met.

There are several consolidation vehicles now available, however the Master Trust solution is an option that schemes should explore closely. It offers the convenience, cost savings and governance that sponsors and trustees are looking for and, in TPT’s case, the scale to construct the investment options needed to manage risk and volatility, and generate investment returns. 

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