UK - Firms looking to cut costs by closing their final salary pension schemes could in fact be adding to their cost base, according to Aon Consulting.
According to research carried out by Aon, 85% of firms that have switched from defined benefit to defined contribution have done so in an effort to keep costs under control. Paul McGlone, Aon principal and actuary, said: “In some circumstances a new DC scheme might actually cost more than the old DB scheme.”
As an example, Aon claims that if a company has a low staff turnover rate, then closing the DB scheme to new members will have “little impact”. There is little point in closing the DB scheme to new members in this instance as it will cost more to setup and maintain the DC plan, according to Aon.
Aside from legal and administrative costs and obstacles, one major problem could be communication with DC scheme members, a challenge that Aon claims is “inherent in DC arrangements”.
The high level of participation required of scheme members means that communication becomes more than a case of simply delivering information, according to Aon.
The consultant claims that in most cases, delivering information - and educating members in making effective investment decisions - will require more time and resources from the plan sponsor than it had originally committed to its DB scheme.
By Geoffrey Ho
Fidelity International has created global retirement savings guidelines to help employers and employees understand how much is needed to save for retirement, writes Kim Kaveh.
The Local Authority Pension Fund Forum (LAPFF) has announced the sudden death of its chairman, Ian Greenwood, on Monday (12 November) night at age 68.
Jonathan Stapleton wonders whether we need a thorough review of the principles for institutional investment decision-making