Any other business: With hundreds, thousands or even tens of thousands of members paying in every month, much of the strength of pension schemes as investors is based on the power of economies of scale. But can this effect be compounded further when schemes pool resources?
Sharing resources is a common practice among public sector schemes wanting to take advantage of scale, and it looks to be growing in popularity, but private sector schemes have been slower to take advantage of the increased clout that size can bring.
Karen McWilliam, head of public sector benefits at consultancy Aon Hewitt, said of public sector resource sharing: “It’s definitely becoming more and more frequent compared to 10 or more years ago.”
She gave the example of the National LGPS Frameworks, which was set up in 2012 to help local authority schemes tendering for actuarial and benefit services. It will be available until June 2016.
“There is evidence that they’ve saved a lot of money… Every year we’re hearing about more examples of funds doing this,” she said.
Frameworks have been introduced for schemes tendering for investment consultancy, global custody and legal services.
But despite its prevalence in the public sector, scheme collaboration is less popular among private sector schemes.
There is evidence that they’ve saved a lot of money… Every year we’re hearing about more examples of funds doing this
Karen McWilliam, Aon Hewitt
Richard Butcher, managing director at professional trustee company PTL, said this was down to both the scale and interconnectedness of “statutory” schemes.
“By and large, statutory schemes are very large,” said Butcher. “Most of them are in the billions of pounds. The second thing is that the ultimate paymaster is central government.
“That gives them a common objective; they are obligated to work together, or are being pushed to work together.”
Butcher said that while the decision is often made by the corporate sponsor, “the trustees have to engage with it in a positive and constructive way”.
Group mentality
Roger Mattingly, director at professional trustee company Pan Trustees, said collaboration of this kind is unusual among private sector schemes, except where they share a sponsoring company or are part of a group.
For example, one of Pan's clients is looking to set up a centralised covenant evaluation system among its schemes.
“Trustee boards and employers will be looking at all options for getting economies of scale,” he said. “It will be explored because every effort will be made. There’s no doubt there, a real momentum‘s building in terms of scrutiny of costs.”
Though few private sector schemes are considering collaborative approaches, Butcher said the drive for cost savings was affecting the industry in other ways.
“We are seeing the emergence of mastertrusts, which are a drive for economies of scale. So we see analogous things but not [collaboration] directly.”
However, pooling resources does not always create cost savings, McWilliam said. But where savings are not created, collaboration can drive an increase in quality.
However, she warned trustees not to view collaboration as a way to reduce workload. “The one thing I do worry about is in order to collaborate effectively you do need to put the time in to do it,” she said.
“Be absolutely clear about what you’re trying to achieve. Be clear about who makes the decisions, about the governance structure in the collaboration.”
