The Pension Protection Fund consolidator could offer harmonised member benefits under a design proposed by government, while insurers and large schemes might be expected to continue to deal with different benefit structures. Should there be greater support for the industry to do what the government is offering the PPF? 

Benefit structures would be standardised on transferral into the public sector consolidator, the Department for Work and Pensions said in last week’s consultation on DB options, in a move one commentator has described as “huge”. 

“We propose that the consolidator pay the actuarial equivalent of full scheme benefits to the members of transferring schemes but does so under a small number of standardised benefit structures,” the DWP’s consultation, published last Friday, reads, citing high fixed costs as a barrier for small schemes.

“The available benefit structures would seek to achieve the optimum balance between reflecting scheme benefit structures and reducing complexity and cost. They would also be designed to ensure no reduction in the headline level of benefits was necessary,” it adds. 

At the Pensions and Lifetime Savings Association’s Investment Conference on Wednesday, a panel discussing consolidation suggested the pensions industry might want to profit from similar easements if the PPF is able to harmonise benefits. 

Consolidation would be aided if benefit restructuring was easier, argued Carol Young, chief executive of the Universities Superannuation Scheme.  

There are ways pension funds can take advantage of size and scale without full consolidation, she said.

“If you want to get the benefits of consolidation for DB though, we would need to at least think about [whether it is] possible to in some way harmonise benefits. Because if all you do is bring together what's effectively a huge multi-section scheme and you still need to administer each one in line with its own benefits, protected retirement ages or whatever, I can see that that could be a barrier to really unlock the advantages of true consolidation,” she said speaking at the event. 

However, she added that doing so might simply be too difficult. While there could be industry-wide or societal benefits to supporting consolidation through benefit harmonisation, Young also questioned if a set of trustees would share this view. 

"If you're a trustee looking at the primary purpose of your current trust, and the members' benefits as they're currently specified, how do you get to the point of concluding that you can accept a certain level of harmonisation? So without that support, I do think it will be difficult,” she said.  

For independent commentator Toby Nangle, the section on benefit harmonisation was “one of the bits that really jumped out” from the DB options consultation.   

“I was thinking, wow, that's huge. Because if you're a buyout insurer, that's one of the three big things which is impeding your business flow, right? It's the illiquids, it's the benefit assessment and replicating that, and then the third thing is pension administration and bad data,” he said.

The consultation implies that this type of harmonisation would only be available for a public consolidator, “but if it was more broadly available, then I would have thought that that would really kickstart consolidation to a great degree”, Nangle added. He acknowledged that benefit harmonisation would create "winners and losers" among members.

However, there might be less need for such a change among insurers than anticipated. Speaking on the same panel, Barry Kenneth, chief investment officer at the PPF, said he believes commercial consolidators already have more standardised benefit structures than individual schemes.

“So it already exists from a commercial consolidator’s perspective,” Kenneth said. 

He said benefit harmonisation was an “open question” in the consultation, but that "from my perspective, if you have four or five different benefit structures, you'll find one that looks very similar to the scheme”.   

However, if industry does not agree, “then we have to see that feedback coming through and see how we can accommodate that”, he said. “I don’t think it’s off the table to be more specific on benefit structure. Clearly there’s going to be scale and standardisation and making it a little more simple, but actual equivalence, as you know, is not the easiest thing to calculate either.” 

The Association of British Insurers, which represents more than 300 insurers operating in the UK, did not comment on benefit replication or harmonisation.