Industrial thread manufacturer Coats has proposed merging its three UK Defined benefit schemes to cut costs. It is another sign of panic in the DB sector. Seasoned observers wonder if the Public sector will ever start to recognise their own liabilities!
The value of the Coats scheme is in total over £2bn. Although a massive amount of money, it barely compares to BT scheme which tips the scales at £50bn. But the problem is that according to The Pensions Regulator, the average cost of running schemes per member is nearly three times more for small schemes than larger schemes.
For schemes over 1,000 members the average cost is £77. For schemes of less than 100 members the average cost is £211 per member. (source pension week)
Unsurprisingly the Sector has seen a massive consolidation drive that serves to further fuel doubt about final salary scheme guarantees which, combined with the new pensions freedoms has led to a massive boom in final salary scheme transfers that can be seen below.
Number of DB Pension Transfer Payments
Interestingly the chart of increasing payouts by number is not matched by volume. See the attached. According to anecdotal sources, the most enthusiastic DB transferers are former directors and trustees of the scheme, who have an in depth understanding, more educated view of risk and, a cynic would say, have already taken their money out!