Smaller DB pension schemes, comprising those less than £1bn, may be unprepared for the diversified investment strategies needed to manage risk and should look to consolidate, according to a leading economist.

The claim was made by Dr Andrew Sentance, who was speaking alongside broadcaster Andrew Marr, at a recent event called ‘DB Consolidation: The Complete Picture’, which was hosted by TPT Retirement Solutions

The firm claims DB schemes “face an uncertain future in the midst of a changing investment landscape, which is likely to demand they pursue more diversified investment strategies to achieve long-term security”.

Dr Sentance said: “In order to adjust to a ‘new normal’ slow growth environment, DB schemes are likely to have to fundamentally rethink their investment profiles.”
 
“With stubbornly low interest rates and minimal gilt returns, DB schemes are likely to have to reconsider their investment approaches and place greater focus on pursuing a more diversified strategy to reduce deficits and ensure liabilities are met.”

TPT says small to medium sized schemes (less than £1bn) may be poorly prepared to make this change.

Such a strategy requires a hands-on approach from trustees, underpinned by strong knowledge of a complex investment landscape, the firm said.

Pursuing a diversified strategy will demand cost effective access to asset classes which are likely to be out of reach for many of these schemes.
 
Improving the risk management framework around these schemes requires expertise and a level of governance often beyond the reach of smaller schemes, it was claimed.

Leveraging the economies of scale offered through consolidation is “more likely to create an environment in which member benefits are more secure”.
 
Mike Ramsey, CEO at TPT Retirement Solutions, said: “The benefits of consolidation for small to medium size schemes (up to £1bn) are clear.

“There is political will, industry interest and regulator encouragement to capture the benefits of consolidation and improve the chances of members’ pensions being fully met.
 
“There are several consolidation vehicles now available, however the Master Trust solution is an option that schemes should explore closely.

“It offers the convenience, cost savings and governance that sponsors and trustees are looking for and, in TPT’s case, the scale to construct the investment options needed to manage risk and volatility, and generate investment returns.”