Consolidating company pensions

02-Aug-2015 22:38 by 4 Comments

Consolidating company pensions

Other risk management strategies, such as bulk annuity purchase, plan design changes or the implementation of additional member options, can also look more attractive when assessed on a larger scale.Companies that have decided to merge schemes to take advantage of the efficiencies have also been able to use the process of winding-up the old legacy schemes (to create the new, larger scheme) to conduct a wind-up, lump sum operation.

While plan mergers should not be initiated solely for the purpose of implementing a lump sum exercise, they do offer companies the opportunity to significantly reduce their overall pension liability and risk. The governance of running one scheme is simpler and there is greater transparency for companies that have been sponsoring multiple plans, with multiple portfolios, investment advisers, funding plans, trustee boards and administrators.

A single plan, with one over-reaching investment and funding plan that works for the entirety of the company’s pension plan assets, offers much greater simplicity and transparency.

Also, many CFOs and FDs who have gone through this process have expressed relief that time commitments from pension plan meetings and reporting has been radically reduced – an intangible but nonetheless often hugely significant benefit to mergers.

It’s not just the Finance department that benefits.

Many companies are currently having discussions with the trustees of their UK pension plans to agree funding commitments that will eliminate – over time – their pension fund ‘gaps’.

This, together with the solutions discussed below, make it an opportune time to consider plan merger.

Organisations may not have given recent consideration to the potential benefits that are available from merging their pension plans.Merging two or more schemes can significantly contribute to improved cost management and can achieve a net saving – after taking into account project and implementation costs – over a relatively short timeframe.The savings arise because merger would avoid duplication of certain activities, for example, in relation to actuarial funding valuations and scheme audits.There are also other benefits to merging company plans.Creating larger pension plans can make implementation of some risk management strategies, such as longevity, interest rate and inflation hedging, more accessible.These tools have been evolving because plans have been seeking to minimise pension plan risks, but the governance and implementation requirements can make the cost-benefit analysis of these products more attractive for larger funds.

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