Written by Gary Howes.
28th October 2013
Life & pension providers with legacy portfolios are in danger of overlooking the risks posed by their closed books, which frequently need attention at a level that is disproportionate to their value.
The warning comes from Equiniti, one of the leading administrators of closed books in the UK.
For every life or pension product open to new business, there are many more closed products that preceded them, as providers adapt and respond to changing requirements arising from competition, regulation, distribution and changing customer needs.
Equiniti estimates that for every new policy type there can be between 10 to 20 previous generations of policies for similar products. Significant benefit entitlements to customers still remain in-force, requiring administration through the long run-off of the remaining policies through to maturity or vesting.
Recent research by the Association of Consulting Actuaries estimated that of the final salary schemes run by employers, 91% are now closed to new entrants and, of these, 37% are also now closed to future accruals by existing employees.
In addition, every day approximately 1,000 businesses close and many company closures result in closed pension schemes of all types.
Providers should not overlook the importance of servicing their closed schemes and legacy product portfolios, however small. They need to be administered compliantly and efficiently, given the specific issues present: –
· Risk of failure of unsupported technology platforms
· Inability to process regulatory changes
· Brand and reputational risk from failure to deliver customer and ultimate member support
· Over dependence on key operations and IT staff in increasingly short supply
· Inability to find and engage with ‘deferred’ members
Keith Boughton, Director, Equiniti Paymaster, commented:
“Closed pension schemes, life assurance portfolios and annuity books often bring about the biggest headaches. Historically providers had concerns about outsourcing as it was often feared that new providers would end up competing with them.
“While there is now general acceptance that this fear was unfounded, many companies still waste millions of pounds running legacy portfolios that must be fit for purpose to fulfil customer requirements.
“They could instead manage the inherent risks better and have them addressed more quickly and cost-effectively by outsourcing to a specialist in closed book administration.”
Source: Director of Finance Online