The Pensions and Lifetime Savings Association (PLSA) has launched the final report of its Defined Benefit (DB) Taskforce – 'Opportunities for Change'.

The report looks at a range of options for pensions schemes facing the challenges of underfunding, weak employer covenants, and lack of scale.

It makes three main recommendations: a new chair's statement for DB scheme trustees; making it easier to standardise and simplify benefits; and exchanging covenants for funding.

The chair's statement would be produced annually to demonstrate they are operating in line with best practice in areas including governance, investment performance, and cost transparency.

This would also provide the cultural impetus for trustees to consider consolidating services, investment or governance where it offers the prospect of improved outcomes for their members.

Standardising and simplifying benefits would enable schemes to retain member benefits while simplifying the structure of schemes.

The UK's 6,000 DB schemes manager tens of thousands of different benefit structures, PLSA said.

The report also proposes new measures to help schemes backed by weaker covenants, which would mean that schemes could benefit from turning the uncertain promise of future support into tangible funding.

To implement the changes, the industry and the Department for Work and Pensions would need to collaborate.

As part of the Taskforce work, PLSA also undertook employer research to ascertain the level of interest in consolidation.

Among surveyed employers, almost two-thirds (65%) said they would support the principle of consolidation with support for shared administration (72%), shared external advisers (66%), shared governance (64%) and pooling assets under one asset manager (54%).

Ashok Gupta, chair of the PLSA DB Taskforce, said: "More than 11 million people rely on DB pension schemes for some or all of their retirement income, but there is a real possibility that without change we will see more high profile company failures such as BHS or Tata Steel.

"It is vital that action is taken to address covenant risk, underfunding and the current lack of scale in the majority of schemes and our proposals have the potential to transform the industry – helping to ensure more members get their full benefits, reducing sector inefficiency, addressing the issue of stressed schemes and enabling sponsors to concentrate on growing their businesses.

Gupta added that the industry and government need to 'grasp this opportunity' and tackle serious flaws that threaten the security of people's retirement.

First published 28.09.2017

Lindsay.sharman@wilmingotnplc.com