News / 27.11.18

Aggregated buy-out could save small DB schemes up to £700,000 in costs

Up to £700,000 could be saved by ambitious smaller Defined Benefit (DB) schemes that group together when targeting full buy-out, according to data from established DB master trust, Citrus.

With 25 years of experience as a DB master trust, Citrus analysed how much, on average, schemes would expect to save from aggregated buy out.  It found that schemes with assets under £10 million could expect to save around £400,000, while for schemes with assets under £50 million this saving could jump to around £700,000. These notable savings can be attributed to a 50% reduction in adviser costs, a 30% reduction in wind-up costs and a 3-5% reduction in insurance premiums.

Explaining the cost savings, Michael Penny, Trustee at Citrus says:

“Our experience has shown us that, for those DB schemes targeting buy-out, joining together in a DB master trust can provide huge cost savings - of as much as £700,000.  In many cases it can help schemes reach that goal sooner and in some cases, were it not for joining together, smaller schemes might not be able to secure buy-out terms at all.

“A closely managed, streamlined aggregated approach is attractive to insurers.  Schemes adopting this approach can take advantage of more attractive insurer pricing and savings on administration and wind-up costs. Previously lengthy and costly implementation processes can be significantly improved by consolidating the transactions and pre-negotiating contracts.”

Commenting on the importance of DB master trusts as a consolidation option, Michael continues:

“Employers are having to navigate the ever increasing complexities associated with running DB schemes.  As they face ongoing cost and time pressures many are now looking at consolidation in an attempt to ease these and other burdens. Across the range of consolidation vehicles available, different options will be appropriate for different schemes. For those employers who are finding it a challenge to meet the demands of running both their business and their DB pension scheme a master trust could now be the best option - enabling them to gain from a range of efficiencies while bringing the goal of full buy-out within reaching distance.”