UK DB closures have already cost members e1.27bn
UK- UK pension fund members have missed out on up to £800m (e1.27bn) of benefits as a result of final salary schemes winding up inefficiently, according to actuarial consultants HighamNobbs.
Research conducted by HighamNobbs reveals that the wind up process is taking far too long. Over 40% of final salary pension schemes which go into wind up take over four years to complete, yet trustees believe that, with effective project management, the vast majority of pension scheme wind-ups should take no longer than two years.
“Cost savings are further being missed by trustees who do not generally review the experience, resources and proposed charges of schemes’ advisers at the start of the wind-up process,” says the research.
An estimated 80% of pension scheme members would benefit from greater focus being placed on minimising costs when a pension scheme begins to wind up.
Says Antony Miller, partner at HighamNobbs Consulting: "the growing trend in the closure of final salary pension schemes to new and existing employees will inevitably lead to a sharp increase in the number of schemes being wound up.
“Only a worryingly small number of pension schemes look to market test advisors quoted fees and ensure that their advisors are knowledgeable and experienced in winding up pension schemes.” The research suggests market testing only takes place in 10% of cases.
Many trustees believe prompt action is required in a wind up situation to protect members' entitlements. The scheme's investments, for instance, may need to be moved to a more appropriate environment. However, action is often delayed whilst trustees seek advice and their advisors get to grips with the complex legislation, risking further loss.
“It is imperative that all involved look to speed up the process as, where potential savings are not exploited, it is ultimately the individual scheme members who pay the price," says Miller.