PEXIT – Why is there a consolidation crunch?



For years the Government has argued that there are too many occupational pension schemes and promised to make it easier for trustees of DB and DC pension schemes to resign their obligations , passing them to commercial organisations willing to take up the reins for profit. And the Government has provided a “not for profit” organisation known as the Pension Protection Fund for schemes that cannot meet their obligations and need a lifeboat.

Following the fast track outlined first covertly and more recently overtly by the Pensions Regulator, pension schemes have beaten a path to self-sufficiency from their sponsoring employers with a view to being consumed or consolidated. In the DC space, consolidation is happening with workplace master trusts taking on anything but guarantees. In the DB space, there are the insurers and there should have been the superfunds.

The superfunds should by now have been well into the process of consolidating pensions and estimates suggest that there should have been two or three with some £20bn of liabilities taken care of. To date no money has been consolidated by superfunds and indeed only one superfund has been approved. Whatever the reasons for this, it is creating a “consolidation crunch” with many DB schemes ready to buy out having to queue for a limited number of insurers to offer them a (p) exit.


Other than in Latin and in Portugal, Pexit doesn’t exist as a word – so I might as well coin it on this blog.

Pexit- Short for “Pension Exit” – the departure of pension liabilities from a trust to insurer.

In her departmental report on the Pension Protection Fund, Lesley Titcombe suggested that the PPF might be used for schemes at the back of the buy-out queue , unloved by insurers but in need of protection (not least from onerous regulation).

This adds a new player in the Pexit market but it’s one that will not be welcomed by the private sector who see the PPF as altogether too successful and potentially a more attractive option as it swings from being needy (of levies) to generating excess growth from its £37bn asset base.

The private sector feels that whatever the pickings from the corporate DB carcass, they are theirs and having seen off the incipient threat of superfunds, a further threat from a lifeboat turned container ship is no more palatable than Nest has been in the DC space. And the Government has a very large amount of pensioner liabilities as it is.  Nevertheless there is a “latency” about the PPF .

Lifeboat or containership?

The primary driver for consolidation (according to TPR) is to improve member outcomes and on this basis, the more consolidators available – the better. The secondary driver is to reduce the risk of poor governance screwing up small schemes and their sponsors. Since the lifeboat for such schemes is already the PPF, simply allowing the sponsor to bypass insolvency doesn’t seem a bad shout either. Small schemes have undoubtedly been hard hit by the LDI blow-out though how hard hit, we may never know. There are certainly some leaky vessels out there.

But the contrary argument holds – we should not be restricting the availability of DB consolidation as we are, the failure to get superfunds approved is unaccountable and the herding of pension schemes towards the narrow Pexit that it buy-out is already causing congestion.

But does the Government want to take on more pension liabilities? The PPF is there as the last resort and we should be grateful for it being the success it has become, but surely the answer to the Pexit problem is to increase capacity for those in the queue and to encourage schemes that want to stay open – to stay open?

Keep the PPF as a lifeboat, there are containerships out there. Pexit is a problem caused by a failure to increase capacity and can be solved through regulator will- power, demand is created through mistaken legislation – notably the DWP’s proposed funding regulations and TPR’s draft funding code. Dial down prescriptive legislation and regulation.

Pexit need not be an issue, loosen the reins and let private sector pensions be paid by the private sector

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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