Winding up of DB Scheme

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Bedlam

Registered User
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275
Hi,

In the above situation is it reasonable for the scheme adviser to charge €7,000.00 and the scheme trustee to charge €2,000.00. There is one person left in the scheme and the fund is small. Any observations / comments appreciated.

Thanks


Bedlam
 
The costs do appear high, but there might be good reason.

Some additional detail would help to give a better indication:-
1. has the always only been a single member scheme?
2. what are the scheme assets valued at?
3. is the scheme defined benefit or defined contribution?
4. if the scheme is defined benefit, is there a surlpus or deficit?
5. are legal fees included in your figures (to formally close the arrangement, and effect the appropriate deeds)?
 
Hi Azriel,

I have the following info.

1. Up to 12-18 months ago it was a 4 person scheme. With 3 now retired

2. Scheme assets valued at 50k

3. Defined Benefit

4. Deficit for last member who is to retire in deficit in 2014

5. Not sure on this


Thanks for your help and input any further comments would be appreciated

Thanks


Bedlam
 
1. Up to 12-18 months ago it was a 4 person scheme. With 3 now retired
So

2. Scheme assets valued at 50k

3. Defined Benefit

4. Deficit for last member who is to retire in deficit in 2014

5. Not sure on this
 
1. Up to 12-18 months ago it was a 4 person scheme. With 3 now retired
Were pensions purchased for the 3 retired members (what I am wondering is whether the wind-up now involves pension purchases?)

2. Scheme assets valued at 50k
Re q1 above, it looks like pensions were bought (as assets look very low)? Also, expenses are c. 20% of assets!

3. Defined Benefit
OK

4. Deficit for last member who is to retire in deficit in 2014
Question around whether the deficit will be made up is key - is there a sponsoring employer still in existence?

5. Not sure on this

The wind-up will involve the payment of the remaining assets to the remaining member (as the scheme is in deficit) - ie to a pension arrangement of the remaining member or to a Buy Out Bond. The only effort is the calculation of the entitlement to the single remaining member - but the total effort will cost < €1k never mind €9k!

The fees look like a shameless attempt to rip off the pension scheme / the Company. Plus the remaining member may get less than they were expecting (as the scheme is in deficit).

If you have the answers above I will give it more thought and maybe come up with some justification for €9k (unlikely though).
 
Hi Azriel,

Thank you for the reply.I will see if I can get further info and comeback

Bedlam
 
Azriel,
Yes Pensions were purchased for the 3 members. The windup arises as a result of a decision to place the last employee in a DC Scheme. It does not involve pension purchase now. Last employee to retire in 2014.

Thanks

Bedlam
 
Bedlam,

It looks as though there is nothing hidden here (ie I can see no justification for a cost of €9k in total - but this is my view only). Selecting a DC provider for 1 member can't cost that much, calculations as to contribution rates similarly. Looks even worse if the DC is already in place?

Some comments on the trail above:
1. The DC member may be suffering here - where the deficit is not made good
2. The DC member should argue for compensation in respect of the DB benefit he is losing (particularly as he is only 7 years from retirement).
3. The treatment of the four members looks uneven - 3 get pensions bought, 1 gets turfed into a DC scheme.
4. Where there is flexibility, the member should consider a PRSA (rather than an occupational pension scheme) as this will open up ARF options

I hope this helps - but I can't give comfort that this looks "fine". I think it may be quite the opposite based on my brief comments above (points 1 to 3).
 
A further point may be that the cost of winding up the fund - if deducted from fund assets - is effectively reducing the benefit available to the final member by this charge plus future investment returns.

If this is an insured plan (probable given size) it may be better to allow it to remain 'frozen' until the members retirement age; and to provide any additional / alternative benefits through the DC Plan mentioned.

I agree that the charges which are quoted for wind-up of what is effectively a one man scheme at this point are extraordinary and should be queried strongly as they directly affect this member.
 
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