UK Consultant: Slow Plan Wind-Ups Cost Money

October 30, 2002 ( - Pension fund members have gone without £800 million of benefits because their plans have been closed inefficiently, a study by a UK pension consultant said.

HighamNobbs Consulting’s report said the plan wind-ups take too long and don’t always realize potential cost savings. The report said more than four out of 10 final salary pension plans take four years to terminate their activities when they should take 24 months.

The research also suggests that:

  • Around 80% of pension plan members would benefit from greater focus to be placed on cost cutting when a plan terminates. Hiring an independent advisor can often speed up the process and significantly reduce cost, HighamNobbs said. Many trustees believe prompt action is required in a wind up situation to protect members’ benefits by, for example, moving plan assets to a more lucrative environment.
  • Market testing of the incumbent advisors and administrators fees currently takes place in only 10% of cases.

While company insolvency remains the foremost reason for pension plans to wind up, the threat of FRS17, rising compliance costs, and the demands on cash flow caused by government funding level requirements are quickly becoming the more important factors, HighamNobbs said.

FRS17 requires that pension assets must be accounted for at market price, and liabilities discounted by the yield on corporate bonds. A shortfall or surplus must be reflected on the company’s balance sheet.

Numerous studies have indicated that the UK’s stricter regulatory environment has helped persuade many firms to drop their defined benefit plans. (See  UK DB Plans Closed, More to Follow  .)