21st February 2022 - Smaller Defined Benefit Pension schemes, which make up 80% of the market, are at a major disadvantage in planning their end game strategies as they lack the time and resources to explore all their options, according to new research, ‘Paths to the End Goals' from Stoneport.
Over 100 trustees from large and small DB pension schemes (86% DB and 23% hybrid) were surveyed about their ideal end game scenario, their decision-making challenges and how they might be eased.
The majority highlighted that smaller DB schemes with fewer than 1,000 members have many size-related disadvantages.
Nine out of ten trustees said smaller schemes cannot achieve economies of scale, as they have many fixed costs spread across a smaller number of people, resulting in a higher cost per member. Achieving value for money from service providers and meeting the costs of investment are other challenges.
Smaller schemes also struggle to make the right investment decisions at the right cost and, the growing compliance and regulatory workload is a major source of stress for boards. Despite these issues, 90% felt that they were confident their schemes offer value for money to members, although an industry standard measure of value for money for DB schemes is yet to exist.
Richard Jones, Managing Director of Stoneport says, "The Pensions Regulator has said that achieving economies of scale and value for money is a key goal for trustees and those who can't demonstrate this should consider consolidation. Trustees have to seriously weigh up the pros and cons of consolidation. They need to decide whether to continuing to operate as a smaller scheme, with the challenges this might entail or whether they need to consider their end goals again and include different consolidation options, such as master trusts and pooled structures."
Stoneport is a consolidation vehicle for occupational defined benefit pension schemes in the UK with fewer than 1,000 members. It was conceived and developed by Punter Southall and will be managed by Stoneport Pensions Management Limited, a wholly owned subsidiary of Punter Southall. Barnett Waddingham will provide administration services plus the actuarial and investment advisory services required to operate Stoneport. Stoneport will be regulated by the Pensions Regulator, just like the small schemes it provides a solution for.
This post was funded by Stoneport