Schemes can benefit from cost efficiency by sharing services with their peers, says PTL's Matt Riley.
However, sometimes new approaches are not available to all schemes because of a small membership or limited amount of assets.
But sharing services with other schemes in a similar situation could enable them to take advantage of a wider array of providers and opportunities.
All schemes have been through service provider reviews and often the type of provider available is dependent on the size of scheme.
In the past when considering a service provider, the smaller the scheme, the more likely it was that certain providers would have been unavailable to them.
In the past when considering a service provider, the smaller the scheme, the more likely it was that certain providers would have been unavailable to them
This was due to a lack of cost efficiency for the scheme in employing a particular provider, or the provider in question did not offer the service to schemes with funds or membership size under certain levels.
Trustees and employers could also have been restricted in implementing certain investment strategies due to fund size.
Often you will hear investment managers state their particular fund is only suitable for pension schemes with assets above a certain level, say £100m.
Grouping together
If you look carefully at most businesses, there will be some form of shared services in operation somewhere within that particular organisation.
This could be anything from shared HR, to having one provider for stationery requirements to take advantage of bulk buying to reduce costs across the organisation.
If companies or trustees took time out to consider their arrangements, the idea of shared services could easily be implemented within their scheme.
If, for example, 10 x £10m funds approached a provider, they would stand more chance of being considered by the provider than if they enquired on a scheme-by-scheme basis
Why should pension schemes not consider such a solution for their own needs?
By grouping together with other like-minded schemes or employers, pension plans can take advantage of economies of scale and obtain access to more opportunities and strategies.
If, for example, 10 x £10m funds approached a provider, they would stand more chance of being considered by the provider than if they enquired on a scheme-by-scheme basis.
Sharing services can also reduce costs for schemes by securing a better deal on fees based on the size of the combined assets.
This sort of practice has already started among local authority schemes that are buying shared services and, in some cases, employing one pensions manager for two authorities, resulting in cost savings for each authority.
Good governance has grown in importance across the pensions industry over the past five years and has led to increased costs for both schemes and employers.
An increased governance budget means that a scheme has less money to spend on member benefits.
In addition, an increase in pension budgets ultimately hits the employer, which in turn diverts money away from possible company improvements.
Pooling resources, in an arrangement such as a mastertrust, allows a standard approach to be taken across a number of schemes, with efficiencies from better technologies and experience being passed down to all the participating schemes.
An alternative is to use a professional trustee to drive efficiencies of time and cost across a number of schemes.
If schemes are considering a way to improve their services or investment options and make cost and time savings, then now might be the time to consider a shared service approach.
Matt Riley is a manager at PTL
