Mansion House Speech 2024 in focus

Implications for providers - and how we can help

Consolidation is, itself, not a straightforward exercise. Providers seeking to acquire or dispose of their pension scheme offerings face not only the usual market challenges but also a complex regulatory overlay. For occupational pension schemes, including master trusts, authorisation from TPR is required; for contract-based schemes, the FCA will need be involved. It pays for providers expecting some form of consolidation to plan ahead, in order to understand how the regulatory framework will apply to them and what the process could and should look like. It may be possible to take preparatory steps in order to be better set up for a transaction later on.

Taking the example of a disposal of an authorised master trust, there are a number of options depending on the structure of the sale and the standing of the potential buyer. Last year, TLT led XPS through the sale of its master trust, the National Pension Trust, to SEI in a market leading example of consolidation. The regulatory requirements which apply on the sale of a master trust are not perfectly aligned to solvent consolidations, despite this having been a focus of the Government and TPR for some time. The obstacles we successfully navigated as part of that transaction are the same for any commercial sale or acquisition, as things stand. It was clear from our experience in this transaction that there will always be multiple potential structuring options, without a clear one-size-fits-all solution. Careful thought and planning at the outset is essential to manage all parties’ expectations both on structure of the deal and its timings.

What next for the proposals?

Any new legislative framework must avoid creating shockwaves in the industry and allow for value for money to be prioritised over a pure size threshold. We hope the legislation will be nuanced enough to allow a steady transition from enactment to the target date, with alternative options for smaller well-run schemes to continue to operate and thrive. We will be interested to see the response and details of the proposed legislation in due course.

There is also little detail at present around how the proposals would apply to new entrants to the market, and we think a significant challenge for the Government will be creating a framework which drives high growth, investment and returns for members whilst not stifling innovation and competition among providers.

On 27 November, TPR also announced that it will be looking at adjusting its approach to DC and master trust supervision in line with the proposed shift toward schemes of a ‘systemically important’ size, with different ‘tiers of engagement’ depending on the risks schemes present to market and saver outcomes. Master trusts should watch these developments closely.

Steps to consider now

If you are a DC provider you should be using this time to understand how any potential minimum asset size requirement would apply to you and your options for consolidating, if required. Do you understand where in the market you sit, in terms of size and scale – and how this compares to your competitors? Do you have an understanding of where the opportunities lie for you, if the proposals go ahead? We encourage you to engage early with these concepts; the changes proposed promote consolidation more strongly than ever - and where there is consolidation there are always opportunities to be had for the most astute businesses.

Employers should also be looking at their pension providers and whether they are likely to be affected. It might be a good time to review your pension scheme provision and whether it provides value for money and is meeting the Government's expectations for DC providers. What would happen if your provider is sold or merges? Would you consider changing your pension scheme provider if you had to assess value for money as opposed to cost?

How can TLT help?

TLT has the strength and depth of expertise to be able to advise on all aspects of DC consolidation. Our national Corporate and Pensions teams can provide a joined up approach to a transaction involving the acquisition, disposition or merger of a pension scheme offering.

Ellie Taylor, a Senior Associate in TLT’s Pensions team commented ‘we know there are existing opportunities for DC consolidation and we think these proposals, when enacted, will operate to place more pressure on certain parts of the DC market and force those borderline cases into the market’.

Chris Crighton, a Partner in TLT’s Pensions team notes that ‘our experience guiding pension providers through the process of consolidation is tried and tested and we look forward to working with more businesses in this area, to improve DC offerings in the UK market’.

Our sector-leading direct experience in consolidation of master trusts means that we understand the market and the regulatory challenges you face and can help you navigate them.

Speak to your usual TLT Pensions team contact for more detail on the proposals, or to discuss the implications for your DC pension scheme offering.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at November 2024. Specific advice should be sought for specific cases. For more information see our terms & conditions.