UK - Smaller firms are putting themselves at risk of bankruptcy by opting to wind-up their pension schemes, industry experts warn.
Actuaries say smaller firms want to limit their pension fund liabilities in the face of falling equities markets. But they believe many are acting without knowing the scale of scheme liabilities in wind-up.
PMI president Ian Eggleden says that such ill-thought out moves could lead to many firms going bankrupt as a result. However, he also admitted many smaller firms are in a Catch-22 scenario.
“By winding-up a scheme a firm crystallises its liabilities to a debt that could wipe it out. But if you keep the scheme going the costs remain an unknown and this poses its own threat to the firm.
“Whatever they do, these smaller firms are in danger and must seek professional advice.”
Legal & General head of corporate annuities Denis Canham was also sympathetic to the plight of smaller firms with big pension liabilities.
“Big schemes, because of the economies of scale, have the luxury of carrying on as a closed fund for a while and waiting for an upturn in the market, which would correct funding deficits.
“This is not the case for smaller schemes where it seems the cheapest option is to wind-up.”
Hymans Robertson head of actuarial practice Ross Russell agreed. He said: “Some firms have ran on closed schemes for a decade or more to run off the liabilities of the scheme. But there’s a size threshold somewhere.
“If you are running a smaller scheme there is a worry you cannot do this – you still need administration and actuarial services, which are disproportionately high.”
This week's top stories included Legal & General acquiring MyFutureNow to provide a dashboard service to customers, while also agreeing a hybrid buy-in with a Hitachi scheme.
NEST has signed up to the government-backed Star Initiative, taking all of its 8 million members' pension pots with it.
It is perhaps inherently difficult to find an agreed definition of value for money, but some methodologies could act as a stopgap, argues Jonathan Stapleton.