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UK roundup: Association of Consulting Actuaries, PIC

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  • UK roundup: Association of Consulting Actuaries, PIC

UK – Small businesses in the UK appear opposed to greater scale within the pensions industry, with a survey by the Association of Consulting Actuaries (ACA) finding that more than two-thirds disagree that scale achieves better value for money.

With responses from several hundred companies employing fewer than 250 people, the ACA found that many did not agree with proposals for greater risk-sharing between members and employers, and that 67% did not believe a smaller number of multi-employer funds would lead to better value for money.

Unsurprisingly, a larger percentage of firms that currently do not have a pension fund supported government intervention, whereas 66% of companies with funds do not agree the government should encourage small defined contribution (DC) funds to merge.

The survey results come after the Pensions Regulator said smaller funds could struggle to comply with minimum quality standards, currently out for consultation.

Commenting before the consultation began, the regulator's chairman, Michael O'Higgins, said he did not support smaller schemes for auto-enrolment if they were unable to benefit from the economies of scale.

The ACA survey of 344 companies also found that one-third of firms would support auto-escalation measures, whereby members forego part of their raise to increase contributions.

Pensions minister Steve Webb has previously said the government was considering such policies, and the survey found that one in five companies would consider implementing it.

Discussing the results, ACA chairman Andrew Vaughan said it was important small companies took the opportunity to enrol in sustainable, low-cost pension funds on their staging date.

"It would be disastrous if smaller firms' employees are auto-enrolled en masse into products from 2014 that offer poor value and weak governance," he said.

Referencing the proposals for defined ambition funds Webb put forward late last year – the result of a working group chaired by Vaughan – the chairman said it was important to work with the opposition Labour party so changes could be agreed quickly.

He added: "It would be a missed opportunity if providers and employers are unable to offer some new designs because of reforms moving too slowly over the next year or so."

In other news, Pension Insurance Corporation has completed a £200m (€233m) buyout of the UK pension fund for SR Technics, allowing the scheme to avoid entry into the Pension Protection Fund (PPF).

The transaction, covering 2,500 employees, will now enable trustees to pay members more generous benefits than otherwise allowed under PPF regulation.

Colin Marsh, the fund's chair of trustees, said one of the reasons the transaction had taken so long to complete was that the fund needed to cleanse its data prior to completion.

He also said it was too early to say how much members would stand to benefit from the deal, only that many would.

"We know there will be an uplift, but we don't know the magnitude of the uplift," he said.

He added that the level of uplift would vary, depending on the individual.

SR Technics UK was allowed to cut its ties with its defined benefit (DB) fund in 2010, Marsh further told IPE.

A spokeswoman at the Pensions Regulator said it could not comment on individual agreements.

Jay Shah, co-head of business origination at PIC, said he expected the economic climate to put further strain on scheme sponsors, leading to further buyouts this year.

Discussing the SR Technics transaction, he said: "Due to the nature of the PPF's assessment period, this was a lengthy transaction, but one that now secures benefits in excess of the PPF minimum."

SR Technics, which services aircraft for a number of large airlines, was bought in 2006 for CHF1.6bn (€1bn) by a conglomerate headed by Mubadala Development Company, the investment vehicle launched by the government of Abu Dhabi a decade ago.

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