FAQs

We have put together a selection of answers to the questions most frequently asked about Stoneport. If you have a question that isn’t covered here and you’d like an answer to please drop us an email at questions@stoneport.co.uk. We’re here to help.

Complementing the FAQs, you will find a wealth of information across our website. The Explanatory guides and Scheme documents pages are an important resource, providing a wealth of practical and technical information on Stoneport’s operation.

Q: What is Stoneport?

Stoneport is a purpose-built, innovative new consolidator for smaller defined benefit pension schemes. It’s the first to address the growing challenges facing trustees and sponsoring employers of smaller schemes, specifically those with fewer than 1,000 members.

By harnessing strength in numbers, Stoneport will help these schemes cut the costs they incur for each member by thousands, boost investment returns, radically reduce risk, and improve benefit security and governance to ensure members receive the retirements they are entitled to.

Q: Why was Stoneport set up?

Increasing legislative and regulatory pressures have placed a heavy burden on trustees and employers alike. Large schemes, those with 10,000 or more members, hold 90% of total assets and have the resources to run efficiently. Smaller schemes, those with fewer than 1,000 members, can be more than ten times as expensive to run and cannot possibly adhere to the same standards of governance, at least not without incurring very substantial costs relative to their size. A new approach is required that leverages economies of scale and address the risks inherent in running these smaller schemes separately.

Q: What are the key benefits of Stoneport?

Stoneport slashes running costs, delivers significant improvements benefit security, and a stronger governance framework.

On costs: The average DB pension is around £5,000 a year, but the smallest schemes shoulder average running costs of well over £1,000 per member per year, compared to £100 for the very largest schemes. Stoneport is able to radically reduce running costs for smaller schemes, by as much as 80% .

On security: The risk of benefit loss for members is virtually eliminated – within Stoneport the chance of members receiving their pension benefits in full is increased to more than 99%. By way of comparison, even the strongest schemes face a risk that their members’ pensions will have to be reduced; 1 in 20 on the PLSA’s analysis.

On governance: Stoneport scale and resources enables it to ensure all issues are considered in appropriate depth, ensuring the highest levels of expertise underpin its operation with three professional independent trustees, a level of service not usually be available to smaller schemes. Stoneport’s robust governance framework will also be expected to translate into higher investment returns.

Q: Why was Punter Southall best placed to develop Stoneport?

The team at Punter Southall is backed by over 30 years of history operating in the DB market, with long-standing DB professionals at the helm. Punter Southall’s own small DB scheme was expensive to run, struggling to operate as well as it could or should, given the significant costs simply to meet the compliance burden. Stoneport was developed to address this very problem. Having our scheme as the first customer demonstrates our belief in the proposition.

Q: How will Stoneport cut costs?

Stoneport’s unique structure allows it to operate like a single scheme and spread the fixed costs of running a complex DB pension scheme across a much larger number of members. The Trustees have long-terms contracts in place with their key advisers to deliver these cost savings across Stoneport’s life.

Stoneport will also incur lower investment management costs, reduce the risk-based element of the protection levy payable to the PPF and free-up management time. If a transfer to Stoneport were to free-up one day a month of a senior employee’s time, the capital value of that saving could be £0.5 million over the lifetime of Stoneport.

Q: What are the running cost savings?

Once Stoneport centralises, the running costs of the smaller schemes that join will reduce dramatically, by up to 80%. Even schemes with close to 1,000 members could typically expect running cost savings of 50 – 60%, or more. For the smallest schemes this will mean costs falling from in excess of £1,000 per member per year, to under £200.

The impact is dramatic, because of Stoneport’s unique structure. Whilst a number of other consolidation options exist for smaller schemes, most notably DB Master Trusts, none come close to delivering the level of cost savings Stoneport does, nor do they enhance members’ benefit security.

Within the ‘Joining Stoneport’ area of our website you will find a modeller which quickly enables a scheme to understand the cost savings that are possible by joining Stoneport. The ‘Bespoke’ version of the modeller allows a scheme to input their own costs in detail, to fully understand their level of spending and the saving from switching to Stoneport. The simple version only requires the scheme’s assets (in £ millions) and number of members to be input, to provide a good understanding of the transformative impact.

Q: What will the benefits of improved governance be?

Good governance is recognised by the Pensions Regulator as the bedrock of a well-run scheme, for clear reason. When risk is managed effectively it can be minimised, and opportunities can be maximised.

Smaller schemes often struggle to access the range of investments available to larger schemes, failing to achieve the same level of investment returns, not for want of trying.

As the DWP highlighted in their 2018 White Paper, Protecting Defined Benefit Pension Schemes, better governance is linked to better outcomes and worth pursuing. Compared to less well-governed schemes, good governance through effective investment has been shown to add a ‘good governance premium’ of 1 – 2% per annum to returns. Stoneport will be more effective at making your money work harder, for you and your members.

The modeller within the ‘Joining Stoneport’ area of our website provides an illustration of the potential value of a good governance premium.

Q: Who is Stoneport for?

Stoneport is for schemes:

– With fewer than 1,000 members. Stoneport has been purpose-built to address the issues and needs faced by smaller schemes. If your scheme has fewer than 1,000 members, Stoneport can make a positive difference.

– Who are strong enough to provide appropriate support to their members. To protect the interests of all employers and ensure fairness between those who join, Stoneport has strict entry criteria to confirm each employer is willing and able to provide appropriate support for their pension scheme commitments.

– Who have a longer-term goal. Stoneport is designed for those schemes and their employers who have a longer-term goal in mind for meeting their pension commitments. Stoneport will run-off members’ benefits over the next 25 years, targeting an insured buy-out of the remaining commitments in 2046. If your scheme is close to achieving full funding of an insured buy-out or aiming to achieve this within the next few years, Stoneport is less likely to be suitable for your scheme.

– Recognise the benefits Stoneport can bring. Stoneport can bring very significant cost savings, alongside dramatic security and governance enhancements for members. To realise these benefits, schemes must be willing to invest in the work necessary to join Stoneport. We have streamlined this process to make it as easy and straightforward as possible for schemes to join.

Q: What are Stoneport’s entry criteria to join?

Each employer must meet the Covenant Test to be able to join. It acts to protect the security of members’ benefits and ensure fair treatment of all employers and schemes that join by ensuring employers are of an appropriate quality.

The test requires each employer to demonstrate they are strong enough to support the pension obligations they are bringing to Stoneport and also, that they could handle an immediate, material shock to their scheme’s financial position.

This test is first applied before a scheme joins Stoneport, and then again in the run up to centralisation, which is targeted to occur on 31 December 2022.

To help schemes and their employers quickly understand their eligibility to join Stoneport, early on their journey to joining, we have put together a simple approach explained on the ‘Employer eligibility’ page of the ‘Joining Stoneport’ section of the website. By simply submitting their latest actuarial valuation report and the name of the sponsoring employer who would support their obligations within Stoneport, schemes can easily confirm their eligibility.

If you need any more guidance on the entry criteria or joining process, please contact us at joining@stoneport.co.uk. We are here to help.

Q: How is Stoneport different from a DB master trust?

Stoneport is a real industry first and whilst some may draw similarities to DB Master trusts, which is how Stoneport’s journey begins, it goes one big step further from centralisation on 31 December 2022.

DB Master trusts do not offer increased benefit security, as individual schemes maintain their independence. In contrast, Stoneport is able to increase the chance of all members receiving their benefits in full to more than a 99% likelihood.

Alongside this, Stoneport is able to radically reduce running costs by optimising its structure to truly offer the highest standards of governance and advice to smaller schemes at the lowest cost. Whilst DB Master Trusts would offer a 20 – 30% running cost saving, Stoneport can achieve savings of up to 80%.

Q: Why would small schemes want to join Stoneport?

Stoneport has been specifically designed for and is targeted at small schemes, those with fewer than 1,000 members, who face the biggest challenges from running alone and therefore stand to benefit the most from the economies of scale and risk reduction that consolidation can bring.

By joining Stoneport the trustees, members and employer to a small scheme can:

– Increase the likelihood of all members receiving their benefits in full to 99%, meaning members can relax in the knowledge their retirements are safeguarded.

– Reduce running costs by as much as 80%, with further significant savings on top (for example, the risk-based PPF levy is expected to reduce by 90% or more).

– Expect the highest standards of governance at the lowest cost, previously only available to the largest schemes or at a significant cost where borne individually.

Q: Are you effectively a totally outsourced FM provider?

Stoneport does not have a fiduciary investment management approach. The Trustees are responsible for ensuring the investments are managed in accordance with the Trust Deed & Rules and Statement of Investment Principles (both of which are available on the Stoneport website). In fulfilling these obligations, they are independently advised by Barnett Waddingham, the appointed investment consultants of the Trustees.

Stoneport is as noted, a fully outsourced solution. The administration, actuarial and investment consulting services are provided by market leading firm Barnett Waddingham, with further services (such as legal, audit and so forth) provided by other established firms.

Stoneport’s objective, and reason for establishing, is to solve the significant problems faced by small schemes – problems that were faced by Punter Southall with its own small defined benefit scheme – the first scheme to join Stoneport. Services will be delivered by the best providers in the market, independently chosen by the Trustee to the Stoneport Pension Scheme.

Q: What is meant by “pooling covenants”? Does this mean that employers will be on the hook for liabilities relating to members associated with other employers? / Post 2022, are you a multiple independent employer DB scheme with joint & several liability for employers?

Stoneport’s strength and its transformational cost savings both stem from employers coming together to deliver the pension promises they originally made individually to their members. This does mean the provision of ongoing contingent support for the other employers’ obligations. However, it is unlikely to result in the payment of additional (cash) contributions given the safeguards that have been put in place to guard against such a risk, most notably:

– First, there is the Covenant Test, which is applied on entry and again at the point of centralisation, along with the Combined Covenant Test. These tests are designed to ensure that the employers who join Stoneport are able to look after their share of its obligations both individually and as a collective.

– Second, whether it is the granting of funding or investment flexibilities to employers, any risks that employers are allowed to take in Stoneport are always measured, monitored and managed – from the point of being admitted to join Stoneport – right through its operational life, to the eventual buy-out.

Together with the appropriate funding of their share of Stoneport’s obligations, these help ensure that if and where an employer was to become insolvent, the risks to the remaining employers are, and can be expected to remain, low.

Further detail on the safeguards in place to protect employers can be found in the document Protecting against affordability risk, available on the Stoneport website.

Q: What is the difference between Stoneport and a DB master trust?

Stoneport starts life operating like a DB Master Trust but its goal is to centralise, to pool together the assets, liabilities and covenants of the schemes who join. In doing so, it completely transforms the cost and risk experience of schemes who join. From centralisation on 31 December 2022:

– Running costs will reduce by as much as 80% with further significant savings on top (for example, the risk-based PPF levy is expected to reduce by 90% or more).

– The likelihood of all members receiving their benefits in full increases to 99%, meaning members can relax in the knowledge their retirements are safeguarded.

– Stoneport can offer the highest standards of governance to all the schemes who join at the lowest level of costs previously only available to the largest schemes from the economies of scale its unique structure brings.

Q: How do you plan to address the risks associated with exit payments for employers? / Can you leave the scheme? At what cost? / Can an employer or scheme exit Stoneport in the future, post centralisation i.e. is a joining decision reversible?

It is Stoneport’s unique structure, coupled with the economies of scale that are only achievable by bringing many schemes together, that enables it to achieve transformational reductions in cost and risk.

Schemes joining Stoneport will have done so in full knowledge of its long-term funding target to be fully funded on a buy-out basis and with all the assets invested in a strategy mirroring how insurers invest by the end of 2045. Leaving Stoneport voluntarily would therefore be somewhat counterintuitive given the reasons for joining, and counterproductive given how the transformations are achieved.

All the same, we recognise that with a longer time horizon there may be some circumstances where an employer needs to leave Stoneport, and this is accommodated under the Trust Deed & Rules. To do so, the employer would need to pay its ‘exit debt’, normally calculated as that employer’s buy-out deficit (if any, given its notional assets, and share of Stoneport’s liabilities).

More details on the exit debt mechanism and the protections that exist around it can be found in Chapter 8 of the 5th technical guide, Funding and Investment, available to download in the ‘Explanatory guides’ subsection of the ‘How it works’ section of the Stoneport website. (The full Trust Deed, including the exit debt provisions, can also be found on our website in the ‘Scheme documents’ section).

Q: Is Stoneport a non-segregated multi-employer scheme?

Yes, or at least, that is what it will become on 31 December 2022 (the centralisation date) when Stoneport completes its consolidation by pooling together the assets and liabilities of all employers to form one larger, stronger scheme. Until centralisation, Stoneport is a fully segregated multi-employer scheme. Thereafter, on its journey to a buy-out at the end of 2045, it is a non-segregated multi-employer scheme.

Q: Can you challenge your covenant assessment?

The Trustees of Stoneport encourage employers to be open in sharing information and analysis on the extent of the covenant they provide, to facilitate their understanding. However, like all schemes, it is the Trustees’ independent view of the covenant, having taken suitable advice, that will be considered when decisions are made, and those decisions are ultimately theirs.

For Stoneport, that means it is the Trustees who will determine whether the Covenant Test is met, both on the entry of an employer to Stoneport and at the point of centralisation, as well as in making decisions about the appropriateness of each employer’s funding and investment approaches through Stoneport’s operational lifetime.

Q: To achieve the less than 1% default on member benefits, what is your assumed overall covenant credit rating?

The covenant supporting Stoneport after it completes its consolidation on 31 December 2022 and becomes a centralised scheme will be rated as “strong” under the Pension Regulator’s grading approach. This strength and the overall equivalent credit rating is garnered from the diverse pool of covenants that together, form the overall covenant strength provided to Stoneport, with an expected overall risk of default lower than that provided by a AAA-rated company.

Q: For the key votes, how do you define the majority needed? 50+%, 75% or 90%?

Where a vote of the employers is required under the Trust Deed & Rules, a simple majority will be required, i.e. more than 50% voting in favour. The decisions covered by such a vote include Stoneport’s centralisation, any variation to the date of centralisation, any variation to its target date (i.e. when it aims to achieve full funding on a buy-out basis), a decision to buy-out before the target date when full funding has been achieved, and a decision to wind-up the arrangement.

Q: How can Stoneport cope where the sponsor is purchased or simply wants to buy out before 2045?

Stoneport has procedures in place to both assess and address the consequences (if any) of an employer being acquired by a third-party firm, or more generally any other corporate event which may be material to the covenant support provided by the employer. Employers are required to notify the Trustees of Stoneport if any agreement in principle is reached to sell their business, so that the Trustees can consider and assess the implications of this, in terms of any change in covenant strength for the funding and investment strategy of that employer.

If an employer wishes to buy-out before 2045 and stop providing covenant support to the scheme, the Trustees would consider this at the relevant time, whether as part of the sale of the business in whole or in part or not. Generally though, the aim is for employers to remain other than in exceptional circumstances, which will be considered by the Trustees on a case-by-case basis as required (see the response to Question 2 for more information in this regard).