Scheme closures and strategic advice
Strategic pensions advice to a Company

Background

Our client is the UK division of a world-leading industrial manufacturing conglomerate. Ten years ago they closed their defined benefit (DB) final salary pension scheme to new employees, setting up a defined contribution (DC) scheme for new entrants after that date.

Fast forward ten years and the employer decided to completely close the DB scheme to existing members who continued to accrue benefits, then moving them into the DC scheme. Their key aims? Have a consistent policy worldwide in terms of the type of pension arrangement and reduce the risks and costs related to running a defined benefit scheme.

They turned to Premier Pensions Management’s Consulting practice to provide advice and act as the company’s advisor throughout the consultation process with the Trustee Board, with the remit to avoid any conflict, tension or controversy between the parties.

Solution

Aligning trustees and members with a move from a DB to a DC scheme requires considerable diplomacy, sensitivity and negotiation skills. Let’s face it – no one wants to lose existing benefits. And the last thing our client wanted was for the trustees to terminate and wind up the trust. This would mean our client contributing in excess of £40million to make the scheme solvent.

Two of our consultants formed part of a project team, alongside two directors from our client’s corporate headquarters in Europe, plus the UK Finance Director, HR Director and Pensions Manager. We also recommended a legal firm that joined this team.

The six month long process included due diligence and costings around the company’s options under the trust deed & rules, how they had to effect these changes through the deed, the legal aspect of consultation with affected members, and negotiation with trustees and their own legal advisors around transitional arrangements. One particular problem surrounded conflicting legal interpretations over an aspect of the closure to future accrual. All parties agreed to compromise through an independent counsel’s opinion, which ruled in our client’s favour.
With agreement finally reached, we developed all the member communications, which were fully endorsed by the trustees. Letters were sent and we led a series of presentations and Q&As to over 600 people across the UK to further explain the transition arrangements and process. A dedicated telephone helpline and email account were set up for any subsequent enquiries. These also served as feedback loops for future communications.

While all this was going on, we were also asked to review the ten year old DC scheme. It had been set up under an old style insurance contract and didn’t take into account forthcoming legislation changes. A consultant from Premier Benefit Solutions, our FSA regulated business, reviewed the existing contract and negotiated revised terms based on the increase in members to the DC scheme.  This resulted in a future-proofed, modernised DC scheme with a new governance structure and ongoing advice. Charges for members and the employer would be halved.

A 90-day member consultation period ensued. Minimal changes were needed. Thanks to our own past work on the closure to future accrual for the defined benefit scheme, we were able to anticipate what might be asked.

The trustees signed the deed of amendment, the DB scheme was closed, and we set up another round of written communications and countrywide presentations and Q&As about the revised DC scheme to all staff, whether they were already members, were transitioning from the DB scheme, or not members at all.

Nearly 90% of the workforce are now members of the DC scheme – a clear reflection of our client’s initial desire to avoid conflict and be supportive to members.


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