The consolidation of small DB pension schemes could lead to millions being retained to invest in business says Stoneport

Consolidation promises many benefits for the 4000 plus smaller defined benefit pension schemes in the UK with fewer than 1000 members that are responsible for providing the retirement benefits for almost one million members. The benefits include the opportunity to be run more efficiently, improve governance, enjoy better economies of scale and achieve more secure outcomes for members.

But according to Stoneport, one of the often overlooked arguments in favour of consolidation for smaller schemes, is the fact it could create £100m of investment by UK businesses over the next 20 years. The reason for this is many scheme sponsors are currently paying over the odds – far higher running costs than any of the new consolidator options available would require.

On average, a small scheme sponsor could be paying running costs of £1,200 per member per year, with most of these members no longer being employed by the sponsor. If a scheme has 50 members, this could add up to running costs of around £1.2m over a 20-year period.  Through consolidation, this cost could be brought down to as little as £200 per member per year – the level currently enjoyed by larger schemes. Over 20 years, the running costs per member could reduce to just £200k, creating a saving of £1m that could be invested within the sponsoring company’s business.

Richard Jones, Managing Director, Stoneport 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.”

Jones says that if companies achieve savings of £1m on their pension costs, this would potentially create a multiplier effect because this money could be used for investment purposes outside the pension scheme, and the actual money generated for the business could be far higher.

At a time when companies are grappling with the many new realities arising from the pandemic, Brexit and inflationary pressures, by focusing on controlling long-term costs, this money could result in more stable businesses better positioned to thrive and grow.

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.”

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