UK - A shift by mid-market firms from defined contribution schemes to low-cost stakeholder plans could trigger a new wave of closures, consultants fear.
They believe a growing number of firms will axe their DC plans because they have underestimated the cost, time and effort of running them.
One firm which has already made the move is jewellery maker Charles Green & Sons. It has closed its 11-year-old DC scheme and transferred staff into a group stakeholder with Scottish Equitable.
The firm will run a small self-administered scheme for the company directors.
Charles Green financial director Richard Sutton said trust-based schemes had become less economic for employers.
He explained that by using a group stakeholder arrangement the firm has been able to “simplify trustee responsibilities, lower contract charges and offer a wider investment choice”.
And he said it was “no surprise” that other firms were considering closing their DC schemes.
Momentum Financial Services national accounts director John Robbie said an increasing number of “mid-market” companies were looking to close their trust-based DC schemes.
He added: “Proposed changes in pensions legislation and the sheer costs of running a non-insured DC scheme, are prompting many firms to look at the stakeholder option.”
He cited “direct costs” such as external consulting fees and administration costs as key drivers. But he also pointed to the “indirect costs” such as senior management and trustee fees as issues facing employers.
Cartwright Consultancy director David Pettitt said many companies had underestimated the commitment required to run a DC scheme.
“One of the big reasons people move out of DB apart from costs is that it is a major hassle.
“For firms who say ‘I don’t want anything to do with members, apart from contribute to their pensions’, the logical thing to do is go GPP and stakeholder.”
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