The Pensions Endgame
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Defined benefit pensions in the private sector have proven to be a failed experiment.
Employers overburdened by regulation and the dawning realisation of the real cost of final salary guarantees are calling time.
But legacy schemes still need to be managed and the highest
quality actuarial and administration services are essential
as employers and trustees manoeuvre through…
The Pensions Endgame. -
1. Closure to new entrants
For smaller companies only 10% of defined benefit pension schemes remain open to new entrants. Defined benefit pensions are no longer core to recruiting and retaining staff.
The closure of a pension scheme to new employees has long term implications and the legacy liabilities need to be carefully managed.
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2. Closure to accrual
Closure of a pension scheme to future accrual is a major step for an employer and pension scheme members.
Members should be consulted on proposed changes so they fully understand the implications. Any alternatives should be considered.
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3. Enhanced transfer exercise
The cost of retaining benefits long term is significant. It may be many years before buy out becomes viable.
As an alternative employers can offer members a financial inducement to transfer, in the form of an enhancement to the transfer value or even a cash payment.
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4. Management of a closed scheme
A closed scheme represents little, if any, commercial benefit to an employer but still carries obligations and costs, both in terms of contributions and associated time and expense.
Closure to further accrual presents an ideal opportunity to seek efficiency improvements.
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5. Buy out
Companies ultimately want to remove pension risk completely, whilst ensuring members’ benefits are fully protected.
This is achieved via a buyout arrangement. Increased competitiveness in the market has made buy out more realistic but the timing and the process requires specialist advice.
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Pension Protection Fund
It is a fact of life that companies fail, particularly in difficult economic times. In the past, members have lost part or even all of their benefits.
The PPF now offers some guarantees but the transition process is complex. The need for professionals to take control of the process is paramount.
