Archive for September 2015

Alan Collins

Spence & Partners latest blog for Pension Funds Online –

With many schemes currently receiving confirmation of a hike to their Pension Protection Fund (PPF) levy (the invoices for 2015/16, the first year where Experian risk ratings apply, have begun to arrive), the PPF has just issued their consultation document for the computation of the 2016/17 levy.

Given the substantial shift brought in for 2015/16, it is some comfort that the PPF have “chosen to keep the levy rules substantially the same for 2016/17”. In particular, the main levy calculation parameters (such as the scaling factor, the scheme-based levy multiplier and levy bands) will remain unchanged. Read more »

David Davison

Spence & Partners, the UK pension actuaries and administration specialists, today shared their concerns that more charities will become trapped in multi-employer pension schemes with damaging liabilities unless government amends Section 75 legislation.

In March of this year, the Department for Work and Pensions (DWP) were seeking views on the operation of the employer debt regime for non-associated multi-employer defined benefit schemes in a call for evidence which closed in May. As of yet no proposals have been made and the DWP website warns that it was published under the Coalition government and therefore might not be a priority for the current regime. Read more »

Brian Spence

Spence & Partners, the UK pension actuaries and administration specialists, today announces that it has appointed Martha Quinn as Consultant. The newly created role will provide legal support throughout the Spence Group and will benefit the business and its clients. Martha will also assume responsibility for managing and strengthening relationships with key law firms.

Brian Spence CEO of Spence and Partners, commented: “While pension freedom has resulted in far more choice and clarity for members, the complexity behind the scenes has grown enormously. It will be Martha’s role to ensure that our team and clients fully understand the new world we are now in, along with all the nuances within it. We already have a leading role in advising in the charity sector and Martha’s wealth of experience around multi-employer pension schemes, public sector out-sourcing and wider legal and governance issues will further enhance our offering in this area. With two decades of experience in pension law, and advising on everything from industry wide schemes to mergers and acquisitions, we are very much looking forward to Martha joining the team, and the contribution she will be able to make.” Read more »

Alan Collins

Spence & Partners, the UK pensions actuaries and administration specialists, scooped their third award of the year last night at the 2015 Workplace Savings and Benefits Awards. The company was awarded the Pension Consultant of the Year title for their ‘Spence Approach’* for defined benefit (DB) pension schemes at a ceremony at London’s Royal Garden Hotel.

Spence were recognised amongst their peers for their work, most notably their innovative approach to Defined Benefit (DB) scheme management, and the role they have played in helping schemes complete DB to DC pension transfer requests.

Alan Collins, Director at Spence & Partners, commented: “It is important not to lose sight of the fact that the primary objective of a pension scheme is to provide accurate benefits and information to members. Our technology, with robust systems and procedures, goes a long way to improving scheme management but it’s what we do with it and the impact it has had on our clients’ schemes which matters most. All schemes, no matter their size, now have access the same level of analysis and advice that is usually reserved for only the largest of schemes. Ultimately giving trustees and sponsors the confidence to manage their schemes towards an end goal.”

Collins added: “Being recognised at the Workplace Savings and Benefits Awards highlights that we are meeting the needs in the market and challenging the manner by which consulting services are delivered within the pensions industry.”

This award follows Spence & Partners’ success with the Consulting Innovation of the Year award at the 2015 UK Pensions awards in May and the Pension Scheme Administrator of the Year title at the European Pensions Awards in June, both again for the ‘Spence Approach’.

WSB Award 2015 pic

Neil Copeland

Wikipedia has no entry for “Improvisational Pension Scheme Administration Standards”. I know because I’ve just checked, to save you the trouble. Improvisational Theatre – yes!  Improvisational Comedy – yes! Improvisational Pension Scheme Administration Standards – No!

An element of the recent Pension Ombudsman decision in the case of Mr Philippe Pollet v Optimum Capital Limited  (“OCL”), together with some earlier Ombudsman decisions, suggests that Wikipedia is in need of such an entry. Read more »

Richard Smith

A recent independent survey found that actuarial fees are decreasing, and are considerably lower than those from five years ago. This drop in fees was attributed to the use of technology to deliver these services.

It’s clear that technological advancements are changing the industry, so with all of the system choices available to trustees, now seems to be a good time to assess what defines a good daily valuation system and determine whether trustees are actually getting the best value for money for their specific scheme from the use of these tools.

In an article published in September’s PMI News, our very own Richard Smith takes a closer look at the industry to develop a 5 point checklist for trustees to analyse what’s available to them.

Download the full article from PMI News here: Daily valuations – what should trustees be getting out of these systems?

Neil Copeland

There are clear advantages of mastertrusts for DC pensions – economies of scale in terms of costs and purchasing power around investment, administration, advisory services and compliance costs, and improved governance due to an engaged professional trustee, for example.

This is because most employers need the same thing from a DC scheme. It’s essentially just a tax efficient savings vehicle, so every member and employer benefits from these advantages.

To a degree, one size can fit all for employers with regard to DC pensions.

However, a bit like Tolstoy’s families, unhappy DB pension schemes are all unhappy in their own way.

One of the advantages of scheme specific funding, and this has become even more important in recent years, is that it does provide trustees with a lot of flexibility in dealing with specific issues related to their scheme and employer or sponsor.

There have been a number of announcements recently putting forward DB mastertrusts as a potential solution for legacy DB schemes – I’m not sure how many we need to constitute a bandwagon, but we must be getting close.

DB mastertrusts are not a new idea, but existing examples have been unable, to date, to respond to the needs of trustees and employers in the current dynamic pensions environment.

DB mastertrusts have often limited the flexibility available to employers to deal with issues in a way that best suits their specific circumstances, covenant and business plan. So for employers who currently have their own standalone DB schemes, DB mastertrusts may hold little attraction.

In DB schemes the one-size-fits-all approach is the antithesis of what is required – you do not want a one-size-fits-all investment strategy, you do not want a one-size-fits-all funding plan and you do not wants a one-size-fits-all strategic plan for your pension scheme.

There have also often been hidden cross subsidies between employers in traditional DB mastertrusts which in our experience are not clearly understood by employers and sponsors.

A number of existing DB mastertrusts operate on a last man standing basis meaning there is the potential for employers to end up funding the benefits of Scheme members who never worked for them or made any contribution to the employer.

In a true mastertrust the professional trustee will be responsible for the decisions, although there are suggestions in some recent examples that existing trustees would stay in control of their section when they join.

It might be possible to construct a governance structure at a sectional level that allows the former trustees to retain some influence but the less of a collective approach you have the more you undermine the rationale for a “mastertrust” in the first place.

To allow the mastertrust to be effective in terms of minimising legal costs and a consistency in documentation, all the meaningful powers reside with the professional trustee.

The suggestion with some of these new DB mastertrusts appears to be that the sections will remain segregated, so presumably each section can have its own investment strategy, funding plan etc, but if you actually retain the flexibility of a standalone DB scheme to any real and meaningful extent then you lose the potential cost savings that the collective approach of a true mastertrust is claimed to deliver. (Although an employer trapped in a non-segregated last man standing DB mastertrust. Such employers might find a transfer to a segregated DB mastertrust as the least bad option)

And finally we come to the biggest issue of all.

We spend a lot of time and effort trying to extricate clients from DB mastertrust arrangements where they no longer want their pension strategy dictated to them regardless of their specific circumstances and needs.

The traditional inflexibility and restrictions on exit from DB master trusts are major barriers for clients using them developing scheme specific scheme management plans and a major disincentive to new clients taking them up.
Possibly in recognition of these barriers we have seen commentary from some of the new DB mastertrust providers stating that exit is “possible”.

We deal regularly with employers trapped in DB mastertrusts where, on first glance, exit appears “possible”. However the conditions that can be applied to any actual exit often make exit impossible or prohibitively expensive and a trustee or employer would need to take legal advice on how any exit strategy would work.

And the power sits with the professional trustee.

We actually think professional trustees are a good idea and can play a very positive role in working collaboratively with employers to deliver outcomes that work for the trustee, the members and the employer.

However, where the employer believes that a change is necessary it is important that they retain the ultimate sanction of being able to change the professional trustee.

Being stuck with a trustee with whom your relationship has broken down or about whom you have concerns, where all meaningful power in the relationship resides with that trustee, is not a comfortable place for any employer to find themselves.

On balance, for the vast majority of employers and scheme sponsors who currently have their own standalone DB scheme, being master of their own DB destiny will continue to trump a DB mastertrust.

David Davison

The Pensions Regulator has produced 65 pages of guidance for pension scheme trustees and sponsors on assessing and monitoring the employer covenant. We have provided some generic guidance via the attached link – TPR’s guidance on assessing and monitoring the employer covenant.

Helpfully in Appendix B and C from pages 54 onwards there is specific guidance for not for profit organisations. The key recommendation is that commercial operations and donations need to be considered independently with the guidance providing examples where donation income represents a low and high proportion of overall income. Read more »

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