DB consolidation could unlock '£100m' for investment

Greater consolidation of smaller defined benefit (DB) pension schemes could lead to around £100m being retained for investment by UK businesses over the next 20 years, according to analysis by Stoneport, part of Punter Southall.

The firm warned that many scheme sponsors were currently paying over the odds, with "far higher" running costs than any new consolidator options available would require.

According to the research, the average small scheme sponsor is paying running costs of £1,200 per member per year, equating to an annual cost of around £1.2m over a 20-year period for a scheme with 50 members.

However, Stoneport argued that consolidation could bring this cost down to around £200 per member per year, similar to the level currently enjoyed by larger schemes.

Over a 20-year period, this could reduce running costs per member to £200,000, creating a saving of £1m that could be invested within the sponsoring company’s business.

Stoneport also argued that this could also create a multiplier effect, as money could be used for investment purposes outside the pension scheme, and the actual money generated for the business could be far higher.

Stoneport managing director, Richard Jones, commented: "If just 100 of the 4,000+ small schemes in the UK reduced their costs, we could see around £100m retained and invested in the sponsoring companies, instead of being used to pay for the costs of running the pension.

"If more schemes choose to consolidate, then the impact could be significantly bigger.

"Through being smart and focusing on reducing DB pensions costs, businesses will realise knock on benefits that reach further than just the pension scheme itself, and could benefit more than just the individuals in the old DB scheme.”

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