Posts by Neil

Neil Copeland

Neil Copeland

Director, pensions consultant and adviser to trustees and employers on all aspects of work based pension schemes.
Neil Copeland

I wouldn’t try to claim supernatural power’s of prophecy, but my review of the year way back in December 2014 did ponder whether the changes announced to pensions and ISAs in the budget that year were a harbinger of the demise of personal pensions.  LISA may just have delivered them a fatal blow and confirmed my crystal ball was in particularly good working order when I wrote that blog.

Personal pensions may not have been killed outright by LISA, but in the eyes of the under 40’s they must be staggering blood stained towards their final resting place, coughing up tar-black bile and generally just looking very unattractive. Read more »

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 »

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.

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. Read more »

Neil Copeland

Annuity freedom announced in Budget, but the devil, as always, will be in the detail.

“People who’ve worked hard and saved hard all their lives should be trusted with their own pension.” George Osborne 18 March 2015.

As widely trailed the Chancellor announced yesterday that the Government will extend its pension freedoms to around 5 million people who have already bought an annuity. This will be achieved via legislation to remove the restrictions on buying and selling existing annuities to allow pensioners to sell the income they receive from their annuity without unwinding the original annuity contract.  The change will be effective from 6 April 2016.

They can either take it as a lump sum, or place it into drawdown to use the proceeds more gradually, extending the flexibilities due to come into effect on 6 April this year for those who have yet to draw benefits. Read more »

Neil Copeland

Following the horrendous suffering of WWI the French were determined never again to be invaded by Germany. There was a tremendous focus on fortifying the Franco-German border. A tremendous focus on building a line of concrete fortifications, obstacles, and weapons installations between themselves and the Germans. A tremendous focus on building the impregnable Maginot Line. In 1940 the German Army simply drove around it in their tanks and conquered France in about 6 weeks. Via Belgium.

Such is the folly of focusing on the wrong thing.

There has been a lot of worthy stuff going on around DC pensions of late. Regulatory guidance, upping governance, capping charges, auto-enrolment and, especially,  pension freedom. Master trusts have a lovely new, shiny, impregnable assurance framework. You don’t have to hand your money to an insurance company any more. Read more »

Neil Copeland

It’s that time of year again. Chestnuts roasting on an open fire. The holly and the ivy. The bittersweet knowledge that you will be picking pine needles out of the carpet until at least April.

The turning of the year has always been imbued with a mystical significance, as lengthening darkness gives way to the first hint of longer days and a promise of rebirth and renewal.  A time for reflection on the year that has past. And across the land at this time of year the siren call goes out from marketing departments “can someone write a review of the year?”!

This year it’s my turn. My usual approach would be to trawl through each month pick a slightly quirky topic and make a, hopefully, pithy and insightful comment about it. Read more »

Neil Copeland

Fawlty Towers. Series 1 Episode 6. Comic genius John Cleese’s finest half hour. Well, except for episode nine of the first series of Monty Python’s Flying Circus. You know. The one with the Lumberjack Song in it. And the films, obviously, but they were more than half an hour. So comic genius John Cleese’s second finest half hour, not counting the films. It was absolutely hilarious! “Don’t mention the war!”

Faulty pension scheme documents. Not funny at all.

A recent case (Honda Motor Europe Ltd and another v Powell and another (2014) highlights the risks associated with documenting amendments to pension schemes.

The first case related to the Honda Group UK Pension Scheme (the Scheme). Honda Motor Europe Ltd (HME) decided to extend membership of the Scheme to employees of Honda UK Manufacturing Ltd (HUM). The intention was that HUM’s employees would receive less generous benefits in the Scheme than those available to existing HME members. Although an announcement to this effect was made by HME to the HUM employees, the new HUM benefit scale was not formally incorporated into the Scheme’s trust deed at the time.

A deed of adherence in respect of HME was executed on 6 October 1986 with effect from 1 August 1986 which was expressed to “extend the benefits of the Scheme” to HUM’s employees. The HUM benefit scale was not formally documented until 10 December 1998. Read more »

Neil Copeland

Train kept a rollin’ all night long

The following is a true story. Only the names have been changed to protect the guilty…

Glasgow Central and its déjà vu all over again. Run GMP are on the night train to London, ready to rock the O2 Academy Islington as part of Mallowstreet Rocks 2014.

More déjà vu in the on board bar as Alan “I never used the Company credit card to buy you that drink last year” Collins gets a round in. So, let me be clear, Alan bought this round with his own hard earned cash. I know he did because, once he’d remembered the right combination,  I saw the notes emerge from his wallet, along with a surprising number of moths and a faintly musty odour. Not that I’m one for cultural stereotyping! Read more »

Neil Copeland

American author Chuck Palahniuk has written a lot of things. “Maybe humans are just the pet alligators that God flushed down the toilet”, for example. Or “All God does is watch us and kill us when we get boring ” The latter quote being of particular concern to my actuarial colleagues.

He also wrote “any behavior that is not the status quo is interpreted as insanity, when, in fact, it might actually be enlightenment.”

Everyone knows the pensions data status quo. Poor data, incomplete data, inaccurate data is rife… Yet when I make the, what seems to me entirely obvious, link between poor, incomplete data and a poor administration experience for trustees and members, the number of people who appear to fail to see that link leaves me uncertain as to whether I’m insane or enlightened. Well, it doesn’t really. I’m pretty clear that I’m enlightened, at least on this matter. Read more »

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