The test applied by many small employers with super mature residual DB schemes is the “pot money in the Scheme decreasing by more than {say} 5% p.a. per annum“.  If not, the fund is likely to run out with a surplus to be returned to the employer.

If it the fund is decreasing by more than the appropriate target then the employer considers itself [similar to the FSCS with regard to annuities] as being on the hook to pay the residual annual pensions after the fund has run out. Given that this is likely to be a number of years into the future and will be affected by scheme experience and investment returns, they consider these future annual “contributions” as their deficit recovery plan.

To capitalise these contributions by requiring an accelerated capital cash injection into the pension fund to match some actuarial estimate based on a volatile and irrelevant discount rate is both “currently putting” and “has historically put” the company at risk.

What really annoys us them!

The matter that really annoys “them” is the high level of unnecessary administration costs forced on them

– Why do they need administrators costing £000s per annum when they could much more efficiently just add a couple of score pensioners to their existing payroll and then take a corresponding (or smaller) “dividend” out of the pension fund?

– Why do they need to pay for actuaries to provide them with a largely meaningless and now proved as historically inaccurate estimates of the future pension liabilities?

– Why do they need to pay upwards of £1000 per member to undertake a GMP reconciliation exercise to show that the maximum difference to any pension is less than £1 per week?  Would it not be more cost effective just to increase all potentially affected pensions by £50 p.a.?

– Why do they have to pay for very costly and largely meaningless to the member or the employer:

–  Implementation statements

–  Own Risk Assessments and documented Effective Systems of Governance

– Investment Consultants, when they have purchased a managed pooled fund many years ago on which they have been drawing for decades.

– Professional Trustees or Trustee training when they have all the appropriate skills to run out the pension fund in house?

-Do any of these costs improve the members’ experiences?  After all in most small firms the pensioner or their relatives first port of call when they have a query about their pension is their former employer.

Has the employer not already paid unnecessarily inflated Pension Protection Fund levies to ensure that the pensioner can continue to receive  their (albeit with increased future inflation risk) pensions should the employer no longer be around?

After all those employers whose pension schemes are subject to this onerous and costly regime have by now survived for more than 20 years.

 

SME employers feel they have been regarded as the enemy by the regulators and are being taken as suckers by a large and very powerful “pensions industry” for ever increasing administration costs. Why should employers wish to pay even more administration costs to prepare data for any form of consolidation or capital injection that results in the loss of the prospect of a future residual surplus distribution out of the “their” pension fund.

At present SME employers appear to be on the hook for every increasing DC contributions which do not improve the employer’s business prospects one iota and are effectively yet another employment tax.  No wonder they are looking to see if they could not use their existing DB scheme assets in a more efficient way.  Given they are already incurring all these administration costs, re-opening DB accrual seems a very attractive option to allow the company to recover some element of control.

SME employers are struggling to have their voices heard.  Even on the CBI’s pensions board there is currently only one representative out of 19 of an SME employer; and of the other 18 half are themselves in the pensions industry! How are they being consulted in pensions reviews and legislative changes that are key to the growth prospects of their businesses and ultimately to UK growth?