For many of these small schemes the cost of running them can become inefficient especially where the cost of transferring all pensions to an insurer and winding up the scheme is relatively small in relation to the sponsor size. Sponsors of closed final salary schemes have effectively been granted a variable loan by the scheme trustees, with the expenses on the scheme representing the interest payable on the loan.
There may also be occasions where the sponsor can raise the cash needed to fund and wind up a scheme at a cheaper rate than continuing to fund it and pay the associated fees, including most significantly actuarial and administration costs.
The point at which a scheme reaches inefficiency is often difficult to determine and it can be useful to carry out a cost benefit analysis to check the viability of continuing to run on or wind up. Even if it is deemed wind up is not the right option, in many cases this exercise can drive a change of service provider which results in reduced costs as well as an increased understanding in scheme fees for the sponsor.
The Mazars team have carried out a number of cost benefit analysis on small schemes resulting in actions in all cases. Our approach encompasses the sponsors business structure as well as the scheme itself which allows us provide a holistic view on the viability of continuing to run a small closed scheme in the context of other debt and assets in the business.
* According to The Purple Book 2013