Case Study: Redefining Pension Scheme Governance for Long Term Success

Introduction

A hybrid pension scheme sponsored by a UK-based property investment and development business faced increasing challenges managing its complexities. The scheme, comprising 1,800 members, included a closed DB section with approximately £22 million in assets, an open DC section valued at around £35 million (used for automatic enrolment), and a legacy AVC arrangement under a separate trust.

Appointed in 2016 via the Dalriada.Together model, Dalriada served as Chair of the trustee board, comprising senior employees and ex-employees with limited pensions expertise. The trustees relied heavily on advisers amidst a challenging regulatory environment and faced issues with third-party administration services, including oversight and member service quality. Legal uncertainties, complex benefit rectification, and governance concerns compounded the difficulties. While relatively well-funded on an ongoing basis, the scheme’s £7 million buy-out deficit, narrow investment strategy, and volatile funding levels presented significant hurdles.

Challenge

The trustees needed to better align their governance framework with the scheme’s strategic goals. Collaboration with the sponsor was limited, and decision-making lacked the structure and insight necessary for effective management. Persistent administrative issues, including historic data inaccuracies, undermined the scheme’s operations, while legal complexities and suboptimal investment components created additional strain.

The sponsoring employer to the Scheme, sought to reduce the scheme’s deficit and improve its operational framework without placing undue financial burden on the business.

Solution

Dalriada initiated a comprehensive review of the scheme’s governance, investment strategy, and administrative processes. Working collaboratively with the trustees and sponsor, Dalriada implemented a streamlined decision-making framework aligned with the scheme’s medium and long term objectives.

A transition to Dalriada’s automated administration platform enabled a thorough audit of the scheme’s data, rectifying errors and facilitating GMP equalisation. Enhanced oversight by the Dalriada team ensured that members received improved support and communication.

Dalriada deployed a multidisciplinary team to address specific challenges, including legal experts resolving legacy issues related to the scheme’s governing documents. This included the closure and wind-up of the historic AVC arrangement, consolidating governance provisions and ensuring compliance. Covenant specialists also advised on corporate transactions, including a private equity acquisition, merger, and group restructuring.

Within six months, a rationalised investment strategy was implemented, optimising the risk-return profile and reducing costs. The Mantle platform provided trustees and the sponsor with real-time insights, further enhancing decision-making capabilities.

Benefit

Dalriada’s integrated approach ensured that there was  a significant reduction in the scheme’s buy-out deficit, which decreased from £7 million to £3.8 million by 2020, and thereafter led to a surplus of £0.9 million by 2023,all without additional sponsor contributions. This positioned the scheme for a buy-out, with Dalriada appointed as Sole Trustee to oversee the process.

With risk settlement specialists joining the team, Dalriada prioritised data cleansing and streamlined the buy-out process, securing competitive pricing for a relatively small scheme. As part of the wider strategy, the wind-up of the historic AVC arrangement was completed, simplifying the scheme's structure and ensuring that members' benefits were properly aligned.

The DB section achieved a full buy-in in 2024, with progress underway to convert this to a buy-out and wind up the scheme. Simultaneously, Dalriada is collaborating with the sponsor on transferring the DC section to a master trust, ensuring member interests remain central to all decisions.

Results

Dalriada’s expertise and collaborative approach transformed the scheme’s governance and operations. Trustees and the sponsor benefited from enhanced decision-making, reduced risk, and improved outcomes for members. The scheme is on track to achieve full wind-up, marking a successful resolution to years of challenges and ensuring long-term security for its members.