Manx Telecom calls time on DB, offers suite of DC options

An increasing number of corporate sponsors have closed their DB schemes to future accrual in an attempt to stem deficits.

Manx Telecom, based on the Isle of Man, took the decision to close its DB section to future accrual in August last year as it battled a rising deficit.

Gary Lamb, chief financial officer at Manx Telecom, said: “Over a number of years we’ve injected a fair amount of money into the DB but we were still seeing a fairly significant deficit.”

As at Dec 31 2014 the scheme held £76m in assets.

Following the closure the deficit fell to £7.7m from £14m. The company will continue to make annual contributions to the scheme of £1.2m.

Manx said it also helped protect DB member benefits with a one-off additional contribution of £800,000 upon closing the scheme.

The company said it consulted with members and unions on derisking options over a period of 12-18 months and concluded closure was the most appropriate option.

“The scheme had been closed to new joiners some years ago and we’d also entered into a [career average] arrangement… Despite all those things and looking at other options, the only thing would be to close,” said Lamb.

He said the process had been challenging but a high level of communication had helped boost member understanding.

The 150 employees transferred from the DB section were offered a range of DC options.

“We did have to put a favourable arrangement in place for members to transfer into. We gave them a number of options in terms of the level of contributions they would put into the scheme,” said Lamb.

“Members had a choice of three options. We deliberately tried to give them different choices to allow for the fact they had differing personal circumstances.”

Scott Kendrick, head of benefit change at consultancy KPMG, said proposing change generates two fundamental questions for members.

“The first question is ‘Why is this particular change necessary now?’,” he said.

He said employers need to articulate the case for change robustly and coherently. “Unless they explain what the consequences of not making the change are you find that people don’t necessarily engage,” said Kendrick.

“Once you address the why, people tend to move on and ask the second big question of engagement, ‘How am I impacted?’”

He urged companies to go the extra mile to engage members, adding “glossy booklets” do not address emotional issues people may have when facing a scheme closure.

“Although you need to produce lots of material to initiate the consultation and satisfy the requirements the best thing organisations can do is go out and talk to their staff in briefings and seminars,” he said.

Alternative savings options

Manx Telecom issued a number of free shares to its workforce during 2014 following an initial public offering. Then in December 2014 following the DB closure it launched a sharesave scheme, which saw 82 per cent take-up from the 300-strong workforce.

While Lamb said this was approached separately from the DB closure, Kendrick said there is an increasing convergence between pensions and alternative savings vehicles among employers.

“They’re seen as one of the ways of sweetening the deal,” said Kendrick.

Charles Cowling, director at JLT Employee Benefits, said it was important for corporate sponsors to consider the peripheral benefits that could be offered to members alongside DC arrangements.

“Sharesave schemes can be used very effectively and I have seen very good take-up. [They’re] part of a change of philosophy where employees have a stake in the company,” he said.