Smaller defined benefit pension schemes frequently lack the time and resources to plan their endgames effectively, which could impact member outcomes.
This was the conclusion of new research carried out by Stoneport. Its ‘Paths to the End Goals’ survey said these smaller schemes, which make up around 80 per cent of the total DB market, were at at a major disadvantage when compared to larger competitors, and may benefit from consolidation into larger pension vehicles.
Nine out of 10 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 per cent 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.
The survey sought the views of 100 trustees from large and small DB pension schemes (86 per cent DB and 23 per cent hybrid) about their ideal end game scenario, their decision-making challenges and how they might be eased.
Stoneport managing director Richard Jones 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.”
