Posts by David

David Davison

David Davison

Specialist consultant on pensions strategy for corporate, public sector and not for profit employers
David Davison

Fortunately my expectations for the Green Paper published last week weren’t high which was good as at least I didn’t have to deal with crushing disappointment. I did have some hopes that after a myriad of working parties and consultation on Section 75 and multi-employer schemes over the last few years, that expectant charities at last may see some revelation on an issue that has been dogging the sector for well over a decade. There was indeed a revelation, of sorts! It was just that they needed more consultation!! How could anyone not understand the issues here? The problem isn’t about lack of understanding of the issues, but about lack of will to do something about them.

The commentary on multi-employer DB schemes is contained in paragraphs 400-407 in the ‘Consolidation of Schemes’ section, which is somewhat ironic given that most of the necessary change for multi-employer schemes results in anything but consolidation!!

In point 405 there is one tantalising comment, namely “We intend to consult on a new option employers can consider to manage the employer debt in these circumstances.” Ah, what could this be, and why was it not actually in the Green Paper?

My greater concern is that at the end of the Consolidation section there are three key questions posed in relation to multi-employer schemes:- Read more »

David Davison

Many charities participating in local government pension schemes (‘LGPS’) have been increasingly frustrated by the lack of recognition of the issues they face by the schemes they participate in and, indeed, from Department of Communities and Local Government (‘DCLG’) who oversee them. The issues are not new but there remains an element of denial and finger pointing, and it’s very easy to see how charities could be understandably frustrated.

I often experience a feeling amongst charitable admitted bodies that Councils and LGPS encouraged them to join Funds, without ensuring independent advice was sought or providing any risk warnings about the step they were taking, and have now just abandoned them to their fate. Whilst, to a great extent, the problem has been capped over recent years as admission to Funds has become much more rigorous, this unfortunately does nothing for all those employers admitted before that stable door was closed.

For those employers, LGPS have sat on their hands allowing organisations to continue to accrue liabilities even when they clearly couldn’t afford to do so, and without providing the flexibility to address the issue. Many charities I’m aware of have approached LGPS over many years looking to stop accrual, and arrange a payment plan and were just provided with pay up or keep participating as options. Now, as funding positions have deteriorated and funding costs have increased these same schemes are pointing fingers at these same trapped charities for their inability to be able to continue to participate.

For many charities there is also a growing recognition that Councils have adeptly transferred historic past service liabilities in £millions to them, due to LGPS inability to segregate service between employers and without making employers aware of the impact. This has been hugely expensive for charities and DCLG and LGPS continue to try to ignore this issue and sweep it under the carpet. Indeed, LGPS continue to do this with unsuspecting Academies being a prime example.

A limited number of Funds and Local Authorities have sought to deal with the issues however, the response has been at best patchy and has lacked any level of standardised practice. Indeed these ore enlightened approaches attract a “nothing to do with me” response when raised with pension managers from Funds not employing them and for many admitted bodies they are completely unaware of the alternative options explored and implemented elsewhere. A lack of consistency of approach also means that each exercise needs to be looked at on an individual basis, adding complexity and professional adviser costs when helping charities through the maze.

The Shadow Scheme Advisory Board (SSAB), which was established to encourage best practice, increase transparency and coordinate technical and standards issues for LGPS as well as providing recommendations to Government for future regulation commissioned a report from PWC as part of its deficit management project kicked off in summer 2014.

The report was published in July 2015 and the key recommendations which will be of specific interest for admitted bodies are:

  • More flexibility on when exit debts are triggered. The proposals suggest that debts would not be automatically triggered by the exit of the last member. The paper recognises that some minor changes to regulation will be required.
  • Establishing a maximum level of prudence when calculating exit payments. Currently Schemes tend to use a gilts basis to calculate the exit cost despite schemes not investing assets in this way. This effectively means that employers paying a cessation debt are cross funding other employers who remain. This is recognised as inequitable and is also a discouraging factor for charities wishing to look at an exit. This proposal would effectively reduce cessation debts for those looking to exit the Scheme, for many to a point which may be affordable.
  • Flexible exit arrangements. These could include continuing to pay contributions on an on-going basis for a prescribed period and for employers to pay their cessation debts over a much longer period. This would be extremely welcome flexibility for many small employers and is a more consistent approach with that adopted in the private sector.
  • Employer exit on weaker terms. It is recognised that, in some circumstances, it could be in the interests of the Fund, the remaining employers and the admitted body to allow them to exit on weaker terms and small charities are cited specifically as an example.

These items certainly reflect much of the commentary supplied by charity representative bodies, charity advisers and charities themselves although at this stage they haven’t fully addressed issues around the transition of prior local government liabilities to charities but it is hugely helpful to charities’ positions and it has been a welcome addition to the debate, especially given that it comes from such a reputable source.

Unfortunately however, it has disappeared in to something of a black hole, possibly overtaken by other more pressing global events. The proposals however need to be addressed by the SSAB and implemented by Government and LGPS as quickly as possible. The issues faced have been created by local government, LGPS and the admitted bodies and there needs to be a commitment to co-operatively finding solutions, and a desire to do it soon. Charities need to be vocal with their Funds and local authorities about the issues they face and get them to look to address them positively. Charities should also be working collectively and in conjunction with their representative bodies to make sure their voices are heard.

David Davison

Playing the waiting game

In our fast paced society no one really likes waiting for anything, however for those financial directors of charities participating in local government pension schemes in England & Wales I’m sure they wouldn’t mind waiting a bit longer for their valuation results given everything else going on around them.

Read more »

David Davison

LGPS Discretions

An issue often over-looked by employers participating in a Local Government Pension Schemes is that each admitted body is required to have a Discretions Policy in place.  This Policy must be published, kept under regular review, and a copy must be sent to the administering authority. Read more »

David Davison

Spence & Partners, the UK pensions actuaries and administration specialists, was awarded the Pension Consultant of the Year title for their ‘Spence Approach’* for defined benefit (DB) pension schemes at the 2016 Workplace Savings and Benefits Awards ceremony at London’s Royal Garden Hotel last night.

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.

David Davison, Director at Spence & Partners, commented: “Having won the same award category at the Workplace Saving and Benefits awards last year, we are so proud and excited to have won again in 2016!

Workplace Saving and Benefits Awards 2016

Davison added: “Further advancements this year to our offering provides schemes with even greater integrated risk management and more confidence when making investment decisions. Ultimately schemes, no matter their size, can access a level of analysis and advice that is usually reserved for only the largest of schemes.  This gives trustees and sponsors the confidence to manage their schemes to a long term strategy whilst providing accurate benefits and information to member, which is of course their primary objective. We have further developments planned for this year which we believe will take the approach even further”.

David Davison

Taking the Strain

When faced with cost constraints, considering a reduction in staff is an obvious early consideration. However, for those employers with staff in LGPS great care needs to be taken as ‘strain costs’ imposed by the Fund could result in very significant payments, often well in excess of any salary savings made. So what do you need to look out for? Read more »

David Davison

As a participant in LGPS you will have been contracted out of the state second tier pension scheme. This means that you as an employer and those members participating will be paying lower rate national insurance contributions.

However, you’ll probably have noticed that you’re not doing this any more!! This is because contracting-out of the second state pension was abolished from 6 April 2016, to coincide with the introduction of the new single tier state pension. This will have increased the national insurance contributions (NIC) required from employers currently in LGPS, as well increasing the contributions required from employees. Employers will see an increase in contributions of 3.4% of band earnings (earnings between £5,824 and £43,004 for the 2016/17 tax year) on their pensionable payroll and employees an increase of 1.4% of band earnings.

Clearly organisations need to budget for these increased costs and make sure staff are aware of the changes, especially as given the low level of salary increases in the sector at the moment, staff may actually notice a reduction in their salary. In LGPS you have no option other than just to pay the increased costs and maintain the level of benefits provided.

Organisations in these schemes may also see some additional correspondence from their provider, and possibly some linked additional work, as they seek to reconcile their GMP information and communicate with members on the impact of the changes.

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