Making Sense of Pensions

Alan Collins

If they had a competition to name this Green Paper, they’d call it Dampy MacSquibface.

The much-anticipated pensions Green Paper in response to the demise of BHS dropped into the industry’s inbox yesterday.

It contains many more questions than answers, saying no to lots of things and yes to nothing.  If this was a squib, it would be very much of the dampest kind. Dampy MacSquibface if you like.

The bluster of the Work and Pensions Committee is nowhere to be seen.  The Paper is littered with phrases like “we do not feel there is sufficient evidence”, “all of these options have significant drawbacks”, “we would need to be certain” and “it would not be appropriate”.  The world of pensions is slow enough to change – do we really need yet another agnostic consultation? Read more »

Richard Smith

There have been a plethora of news articles in recent weeks commenting on the sharp increase in the levels of transfer values available from defined benefit pension schemes. Whilst these values have dropped back from their peak, they still remain substantially higher than they had ever been previously to this. The sometimes eye-watering sums on offer are now tempting even the most prudent to consider cashing out their benefits. However, some commentators are warning members against losing the longevity protection provided by a DB scheme and taking on all the investment risk themselves. What are members to do?

Subject to a few exceptions, anyone who is a member of a funded defined benefit pension scheme and has not yet started to draw their benefits, has the right to “transfer out” their pension and pay the cash value into another pension scheme. Doing this gives members much more flexibility in how they take their pension – increasing the cash available (even potentially taking it all as one large cash sum), re-shaping the benefits to release more value in the early years of retirement, and could also lead to significant increases in survivor benefits if the member were to die early. Read more »

Alan Collins

2016 – A year in review

Wow – what a year 2016 has been.  Brexit, President Trump, Hibs winning the Scottish Cup – who saw that coming?  Seriously, Hibs won the Scottish Cup.

What have we learned?  The dictionary definition of “pollster” might have to change to “people who predict things and always get it wrong”, said the actuary throwing stones from his glass-house.  My lesson to the pollsters is to quote a much bigger margin of error and include lots of caveats.

At least when it comes to 2017, it is now a reasonable stance to say that I’ve got no idea what’s going to happen. Read more »

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 »

Richard Smith

If nothing else, 2016 has shown us that predicting the outcome of future events is a mug’s game. If we can learn one thing from the likes of Brexit, Donald Trump, and Leicester City, it is to expect the unexpected. As such, it was with some trepidation I accepted the challenge to pen a short blog on what I expect to see from the Chancellor’s Autumn Statement next week.

Due to the proximity of the “Autumn” Statement to the festive season, I’m going to take some artistic licence and predict a visit from Aladdin’s Genie of the Lamp, who will offer me three wishes for what I would like to see in Mr Hammond’s first Statement. Bear with me, it doesn’t sound as unlikely as certain other events that have happened! What would I wish for….??

1. No tinkering with the pensions tax system. As attractive as it might be as a target for raising some much-needed revenue for the Exchequer, now is not the time for tinkering. Pensions are already far too complicated, and any changes will just add unwelcome complexity to a tax system that is already creaking and few people understand. As a nation, we need to be encouraging saving and shifting the goalposts just doesn’t help.

2. Do something to help (those members of pension schemes run by) distressed employers. There is a growing clamour in the industry about the impending problem of distressed employers – those 1000 companies who are sitting on schemes they have no realistic chance of funding. Do we just sit and wait for these companies to fail and their pension schemes to fall into the PPF, with benefit cuts for members and job losses for employees, or can something be done to help both the members and the sponsors? This is a very difficult problem to resolve, and not one for which there is a magic bullet, but a number of ideas have been floated over recent months. The Government is there to make difficult decisions – there is a danger that if something isn’t done soon they may run out of time on this one.

3. Improve the investment opportunities on offer. Providing more investment in income-generating infrastructure projects, as well as providing a government guarantee for the early years of such investments (which are traditionally the riskiest period). Allow mayors to issue “city bonds” so that pension schemes can invest in local projects. Issue more long dated index linked bonds – there is huge demand and at current yields what’s not to like for the Government?

So there you have it. I’m sure that come Wednesday Mr Hammond will have some very different policies to the above. It might be too late to put the genie back in the bottle for defined benefit pension schemes, but there’s plenty that can be done to improve the UK’s long term savings arena.

Richard Smith

With 31 December being the most common date for corporates to have their year-end, Finance Directors will soon be turning their minds to their annual accounts. After a number of years of falling yields and growing deficits, they might be hoping for a Christmas present of an easing of the pensions problem, particularly if they have read recent headlines around improving pension scheme funding levels

Whilst there is still some time before the year-end, and (as the US election has recently reminded us) anything can happen, we will aim to give sponsoring employers advance warning (unfortunately this wording is chosen deliberately) of what they can expect come the year-end. Read more »

Alan Collins

So far, nothing much….

The last week brought much hyperbole to the description of financial markets (using the BBC website as my barometer):

Early in the morning of 9th November (UK time), Donald Trump gave his victory speech as his election victory became certain.

9th November, 8.01 – “FTSE Sinks” – the FTSE 100 has plunged.  Wow, what has happened?  “Plunged” by 2% – that’s not really a plunge is it?

9th November 17.01 – “FTSE 100 Closes Higher” – the FTSE actually closes 1% higher on the day.

So, in other words, like lots of other days. Read more »

Andrew Kerrin

Well, the wait is finally over. Horton v Henry has been decided. After hearing arguments in April and deliberating over this important decision for 6 months, the Court of Appeal released their much anticipated judgment on 7th October 2016. Unfortunately for me, this came a week after my summary of the case history was published in PMI News with a “wait and see” conclusion on the Horton decision. The Lord Justices clearly forgot to give me a heads-up… so rude!

Anyway, as mentioned in my article and earlier blog this decision has been a long time coming. A controversial and potentially devastating judgment for bankrupts (Raithatha in 2012) has been put to bed, meaning bankrupts can now breathe a sigh of relief that their entire pension pots post Pension Freedoms are not at risk of an Income Payment Order.  Read more »

Andrew Kerrin

One thing you can be sure of is that there is no shortage of pension updates hitting your inbox on an almost daily basis – updates we don’t always get round to reading.  Here at Spence we like to be helpful so to save you time, the team have scoured the news and developments which have impacted the pensions world in the last quarter and produced an update of the most topical, newsworthy and essential matters that you need to see to keep you updated and informed.

This quarters highlights include

  • 5 investment questions to ask post Brexit.
  • We are still  in Europe so how does this affect risk assessment frameworks?
  • Gilt yields have been detrimentally effected by Brexit but what does this mean for transfer values and funding?
  • We explain HMRC’s latest announcement on VAT and pension schemes.
  • What’s been happening with the Pensions Ombudsman and in the Court?
  • Governance has been tightened up for DC Schemes.  We explain how.

Read more »

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