EMAP has completed the buyout of its defined contribution (DC) pension scheme, Flexiplan, with assistance from Mercer. With assets before the transaction of around £140 million, this is one of the largest defined contribution (DC) schemes to go through the buyout process.
Historically, it has been defined benefit (DB) plans that have been the subject of most buyouts, as companies look to remove the financial and investment risks from their balance sheet by passing their DB scheme and its liabilities to insurance companies. However, buyouts of DC schemes mark an emerging trend in the market as cost-conscious companies look to use the same type of financial arrangement to reduce their DC administration costs.
Akash Rooprai, a Principal at Mercer and Project Manager for the transaction, commented: “Companies that have undergone a restructuring are often left with a DC pension scheme with a smaller number of members. Often, it’s not cost effective for them to administer the scheme in-house so it makes sense to pass the administrative elements to a specialist provider that has economies of scale. Essentially, this is a transfer of assets or funds, but there are implications so effective management of the process is essential.
“The new provider may use different managers and charge different fees with implications for members,” continued Mr Rooprai. ”It’s important for companies to use outside advisers who can save them transition costs and ensure that these differences don’t negatively impact members’ retirement funds.”
The EMAP DC scheme had just over 6,000 members. As part of the buyout agreement, and depending on their membership status and level of benefits, the members were provided with a number of different options. These included taking their benefits as a lump sum or transferring to their employer’s new group personal pension scheme or a provider of their own choice. A majority of around 3,500 members with assets of around £100 million had their benefits transferred to the buyout plan with Standard Life. The remaining members opted for cash sums or their own choice of provider.
Mercer assisted the trustees with the selection of the provider, advice on the default funds and the transition of assets from the various funds held with the Trustees’ investment manager, to the insurer. Mercer was able to assist with the issues associated with such a large asset transition, using their specialist asset transfer team, Sentinel™.
Rosemary Kennell, Chair of Trustees added: “This is a good outcome for the members in particular, as wind-ups can become very drawn out. We would not have made the swift progress we did without everyone involved pulling together including Mercer, our investment adviser and consultant.”
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