The Pensions Trust to open doors to private sector DB as employers outsource

Consultants have previously reported more small and medium-sized schemes are bundling services under a single provider in response to a growth in legacy arrangements. The multi-employer scheme is currently only open to employers within the not-for-profit sector.

As well as offering this to the third sector, TPT is considering offering this service to the wider private sector

Paul Murphy, The Pensions Trust

Paul Murphy, head of strategy and business development at The Pensions Trust, said private sector employers will be put into their own section of the scheme’s deed, ensuring “their liabilities are their liabilities". This will cater for all aspects of a scheme’s management including investment, actuarial and administration services.

The trust currently has 26 sections, seven of which are multi-employer schemes, while the remaining 19 are standalone arrangements.

Murphy said: "With the increase in regulation, funding costs, cessation of contracting-out and the flexibility of [defined contribution], TPT is aiming to capitalise on these changes by offering a solution to employers who have closed or are looking to close their DB schemes.

"As well as offering this to the third sector, TPT is considering offering this service to the wider private sector." 

The scheme anticipates being better suited to schemes with 1,000 members or fewer and with assets up to £100m.

“When you get down to the smaller end it’s most probably just the [finance director] or HR manager trying to run a closed scheme and they’ve got a business to run,” Murphy said. “But if it’s closed but still open to accrual then in essence it can quite often take up a disproportionate amount of their time.”

Rosalind Connor, partner at Taylor Wessing, said The Pensions Trust would be entering a crowded market, but added: "There's a lot to be said for people that have been [doing it] for a long time, that they'll at least have the processes in place and they have a good track record for providing services for small employers."

Smaller schemes cost more to administer per head. Research commissioned by the Pensions Regulator found the mean annual running cost for schemes with 100-999 members was £154,437 while for schemes with 12-99 members, it was £52,126.

The mean annual running cost per member for small schemes was £1,054, versus £505 for medium-sized schemes and £281 for large schemes

Simon Kew, director at covenant specialist Jackal Advisory, said increasing competition among service providers could help drive down fees.

“There could be a move to reducing the number of advisers, or there could be a move to pressing the advisers or going to tender far more often,” Kew said.

Year in the making

The Pensions Trust has been considering plans to accept private sector employers for the past year, analysing the market to assess whether there is room for the one-stop-shop product it could offer. 

The charges employers will be subject to will depend on factors including the level of active management within its schemes' portfolios.

“What we say then is, ‘Look there [are] some people who want a particularly sophisticated level of investment management so we give them an active portfolio that gives them a slightly higher charge’,” said Murphy.

While the trust will not offer a buyout service, it would be “perfectly happy to work with an employer to put them in a position where they would enter into a buyout contract", he added.

One of the primary ways employers can reduce the cost of running a legacy DB scheme is by lowering the risks involved.

Jim Bligh, head of pensions at the Confederation of British Industry, said the most important thing employers can do is look at ways to reduce their deficit.

“That often means that they make their investment strategy safer,” said Bligh. Looking to reduce the Pension Protection Fund levy is another way employers can seek to drive down costs, he added.