Spence & Partners, the UK pensions actuaries and administration specialists, have said that today’s announcement on the continued permission for DB to DC transfers should be a catalyst for trustees and scheme sponsors to work more closely together.
Marian Elliott, Head of Trustee Advisory Services at Spence, commented: “Immediate actions for trustees will be in communicating the outcome of these announcements to members and liaising closely with the administrators on the processes that will be needed to comply with the guidance guarantee. Trustees should also be prepared to collaborate with employers on any de-risking exercises that take place and consideration should be given to whether scheme design is affected by the announcements.
“Trustees should also monitor what impact the announcements may make to the scheme’s risk profile, should a significant number of members opt to transfer out. Trustees should not react by overhauling their strategy, however more consideration should be given to liquidity issues and funding monitoring, so that trustees can react quicker to the need for strategic adjustments. Other considerations for schemes will be around whether assets are sufficient to meet the needs of the potential increase in transfer requests on the back of this announcement, as this may involve an agreed funding top up with the sponsor.”
Alan Collins, Head of Corporate Advisory Services, added: “The announcements today should be welcomed and treated by employers as a trigger for positively managing their scheme liabilities. With the prospect of DB members looking to move to the far more flexible defined contribution market, employers should review their on-going plans for the scheme and target available resources to fund transfer exercises. Defined benefit schemes continue to present a significant risk to employers, but with this announcement building on recent easements in The Pension Regulator’s approach to funding, employers can start to manage that risk more effectively.
“More individuals have been contacting administrators to request transfer quotations since the proposals were first announced in the budget, so it is important that everything is managed correctly by the employer and scheme from the outset. I welcome the requirement for mandatory indpendent advice on DB to DC transfers. The time is right for employers to work with their trustees to make sure that this advice is on tap for all members making decisions in relation to their scheme benefits.”