The closure of most private sector DB schemes presents trustees and employers with problems, including rising costs and less relevance as an employee benefit, but there are ways to reduce costs and improve service.
Due to rising longevity, increasingly rigorous regulations and escalating scheme costs, the majority of private sector defined benefit (DB) pension schemes are no longer admitting new members. However, many are still open to existing members; this impacts on the trustees, employers and members in various ways.
The challenges
Employers and the trustees of DB schemes face increasing servicing and regulation costs and other financial pressures arising from lengthening life expectancy. This problem is especially true for DB schemes of up to £50m.
Many of these schemes were originally set up with various insurance companies, and since then the trustees have transferred the administration and actuarial services to large employee benefit consultancies for administration and actuarial services while the insurance company has retained the funds for investment. Generally, this has led to higher servicing costs and limited investment management.
Furthermore, for some members they are a source of financial concern. They could feel locked into a career with their current employer offering a generous DB scheme, which will probably not be replaced if they change jobs or move to another employer.
Smith & Williamson offers a comprehensive approach to help resolve the issues faced by employers and trustees of DB pension schemes. We bring together individuals from our pension consultancy and investment management disciplines to deliver a complete solution.
Our services
Pension consultancy services
Our team of professionals offers an independent approach, securing administration and actuarial services efficiently and at potentially lower cost to the scheme.
Investment consultancy services
We provide an independent investment consultancy service to bridge the gap between trustees and investment managers. Our active investment advice can help reduce the volatility of a scheme's financial position and potentially improve investment returns.
Working with the trustees and scheme actuary we formulate, establish and review an appropriate investment strategy that reflects the scheme's changing liability profile and the current market conditions and opportunities
We also provide performance measurement and manager review services and regularly report to and meet with investment managers. Our advice is tailored, ongoing and independent, with no conflicts of interest.
Using specialist fund managers for each asset class, rather than one or two fund managers with a generalised approach, provides a multi-asset, multi-manager approach to investment management. This can help to maximise returns for a stated level of investment risk.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
