Defined Benefit Scheme Consolidation Under Review

The Pensions Authority recently published a consultation paper seeking views from stakeholders on the consolidation of defined benefit pension schemes. Our Pensions team reviews the document and provides key takeaways.

What you need to know

• Master trusts: Master trusts are posed as the model of defined benefit consolidation
• Impact of consolidation: Views are sought on the impact of consolidation on the market
• Operation of consolidation: Prospective providers of defined benefit consolidation are encouraged to give their views on how the consolidation would work in practice
• Regulation: Views are sought on the regulation of the consolidation

The Pensions Authority has recently published a consultation paper seeking views from stakeholders on the consolidation of defined benefit pension schemes.

Model of consolidation

The consultation paper focuses on defined benefit master trusts as the model of consolidation. Currently master trusts are largely defined contribution arrangements and this market is growing as trustees and employers respond to obligations under IORP II. However, the use of master trusts in defined benefit scheme is more complex. The paper seeks the views of stakeholders as to the suitability of master trusts as a model of consolidation. For the purpose of the paper, master trusts are trusts with the following characteristics:

• A single trustee board
• More than one participating employer scheme
• All participating employer schemes funded by defined benefit, although these could also contain some defined contribution members/benefits
• Each scheme keeps its own assets and liabilities separate, with no sharing of funds or risks between schemes or employers
• For the purpose of certain parts of pensions legislation, each scheme is treated as a standalone scheme
• Participating employers may be related or unrelated

The paper also requests views on the use of additional consolidation models that are operating in other jurisdictions.

Impact of consolidation

The paper emphasises the importance for clarity regarding the specific risks that could arise in a defined benefit master trust market, should one be facilitated. It seeks views on the impact of consolidation on the wider defined benefit market, its benefits, risks and barriers to access. It also seeks solutions as to the measures that can be put in place to reduce risk and barriers to defined benefit consolidation.

Operation of consolidation

The paper targets prospective providers of defined benefit consolidation and asks for details of how consolidation would work in practice. The questions posed relate to demand for consolidation, eligibility criteria and costs, among other matters.

Regulation of consolidation

The paper highlights the need for legislation to provide for an appropriate regulatory framework for consolidation. Views are requested as to the appropriate statutory obligations and requirements.

Conclusion

The closing date for submissions to the consultation is 4 July 2025. Stakeholders are encouraged to give their views in order to help shape the future operational and regulatory framework.

For more information and expert guidance, contact a member of our Pensions team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.