The consolidation of small defined benefit pension schemes might save millions, which could then be used to invest in businesses, according to Stoneport.
Consolidation promises many benefits for the 4000 plus smaller defined benefit pension schemes in the UK with fewer than 1000 members. The advantages include the ability to run the business more efficiently, improve governance, generate better economies of scale, and provide more secure outcomes for members.
According to Stoneport, one of the most neglected arguments in favour of consolidation for smaller schemes is that it might generate £100 million in investment from UK enterprises over the next 20 years. Stoneport says the reason for this is that many scheme sponsors are currently overpaying – their operating costs are significantly greater than any of the new consolidator possibilities.
A small scheme sponsor could be paying £1,200 per member per year in operating costs, with the majority of these members no longer employed by the sponsor. If a scheme has 50 members, the annual operating costs might be roughly £1.2 million over a 20-year period. This cost might be reduced to as little as £200 per member per year through consolidation, which is the level currently enjoyed by larger plans. Over the course of 20 years, the operating expenditures per member might be reduced to just £200k, resulting in £1 million savings that could be reinvested in the sponsoring company’s operations.
Stoneport managing director Richard Jones says: “If just 100 of the 4,000+ small schemes in the UK reduced their costs, we could see around £100m retained and invested in the sponsoring companies, instead of being used to pay for the costs of running the pension. If more schemes choose to consolidate, then the impact could be significantly bigger.”
According to Jones, if corporations save £1 million on pension expenditures, this might have a multiplier effect because the money could be utilised for investing objectives outside of the pension programme, resulting in even more money being generated for the company.
At a time when businesses are dealing with a slew of new realities such as the pandemic, Brexit, and inflationary pressures, focusing on long-term expenses could result in more stable organisations that are better positioned to prosper and develop.
Jones adds: “We only have capacity for around 100 schemes to join our consolidator scheme, Stoneport, but for those that join we can really help reduce their pension scheme running costs significantly. Through being smart and focusing on reducing defined benefit pensions costs, businesses will realise knock-on benefits that reach further than just the pension scheme itself, and could benefit more than just the individuals in the old defined benefit scheme.”