Tom Seecharan, Head of Pensions Insurance, considers lessons from the past to find guidance on whether consolidation will be a success or failure in the future.
There is a moment at the end of the 1985 film Back to the Future where the main character, Marty McFly, worries that he doesn’t have enough road ahead to reach the speed needed to travel through time. Marty’s worries are immediately eased by his eccentric companion Doc, who responds: "Roads? Where we're going, we don't need roads".
Substitute the word “roads” for “sponsors” and this could be a conversation pension trustees could soon be having themselves.
Will pension schemes still need sponsors in a few years’ time? For some of the new breed of consolidation vehicles the answer would be a definitive ‘no’. My aim here is not to debate whether this is the right or wrong answer today, but use history as a guide as to whether consolidation will be a success or failure in the future.
Consolidation is nothing new. Using economies of scale and pooling risk to better and more cost-effectively manage it is basic insurance. It’s been around for centuries. Pension schemes came later, but effectively do the same thing.
Even seeking to profit from consolidation is an established practice. This is exactly what insurance buy-out providers do. L&G started down this road 30 years ago, around the time Marty and Doc were imagining a future without roads.
What has gone right and wrong in those intervening years?
What has gone right?
What has gone wrong?
Sadly, I don’t have a time machine to definitively answer these questions. However, by applying the lessons that have made consolidation such a success in the past will mean we have equal success with a new type of consolidation – that provides more choice and greater security for pension scheme members – in the future.
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