Zombie schemes put insurers at risk: Equiniti

The director of closed books administrator Equiniti Paymaster said that for every life or pension product open to new business, there are many more closed products that preceded them.

He pointed to estimates from Equiniti which claim 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.

He said providers should not overlook the importance of servicing their closed schemes and legacy product portfolios, however small, which need to be administered compliantly and efficiently.

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Mr Boughton said: “Closed pension schemes, life assurance portfolios and annuity books often bring about the biggest headaches.

“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.”

Tony Catt, compliance officer at East Sussex-based IFA True Potential, said: “I see an awful lot of pension switching business in my various duties. Much of this is out of closed schemes and is often done without the level of research regarding ceding schemes that the FCA would wish to see.

“The assumption is that it is just an old over-charging personal pension and unlikely to have any guarantees. If they check into the terms of the plan, quite often the charging structures are better than they appear because the contract was front-loaded and over time the charges are actually relatively low.”

He said it was important to get all the ceding scheme information to make a valid judgement about whether to transfer.

Mr Catt added: “The onus must be on any company buying a book of business to ensure that all of the plans are properly put onto systems so that all the information is stored correctly. The legacy systems used by various providers do not help this. A genuine investment should be made to ensure the clients are treated fairly.”

ACA figures

This follows research by the Association of Consulting Actuaries, which found that, of the final salary schemes run by employers, 91 per cent are closed to new entrants.

Of these, 37 per cent are also now closed to future accruals by existing employees.

Every day, roughly 1000 businesses close, resulting in closed pension schemes of all types.