Making Sense of Pensions

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 »

Neil Buchanan

The UK has made its choice, and has voted to leave the EU. What does that mean today for occupational pension schemes? In the wake of the result on 23 June 2016, significant market volatility ensued. With the yields on UK Government bonds falling, the majority of schemes will have experienced an increase in liabilities. However, the impact on funding will depend on a scheme’s investment strategy.

We therefore posed some of the questions which you may want answered to our own Chief Investment Officer, Simon Cohen. Read more »

Emer Cox

Cabinet reshuffles. Turmoil in the financial markets. The pound tumbling against the dollar. Not to mention, real concerns about Britain’s Eurovision future!  We have witnessed a lot since the EU referendum.

Trustees have already felt the impact of Brexit, with their defined benefit pension scheme deficits climbing as gilt yields have fallen to record lows. In truth, it isn’t surprising that the financial markets experienced significant turmoil in the face of such economic uncertainty.  As a result, the value of Sterling in relation to other currencies has plummeted to its lowest point in over two decades, having fallen 12% against the dollar. Read more »

Gillian Lister

21st Century Trustees

The Pensions Regulator’s 21st Century Trustee initiative inspired a previous blog by one of my Dalriada colleagues recently “Trustees in the 21st Century” and is now the subject of a discussion paper.  What should a modern trustee look like and is regulation required?

Let’s face it, being a pension scheme trustee was never an easy job but it just seems that it is becoming more and more demanding.  The demands being met by trustees require them to have a complex knowledge in the minefield that is now pensions and they are coming under increased scrutiny. This means that effective trustees need a high degree of knowledge and understanding. Trustees need to be knowledgeable of the whole pensions landscape, understanding such things as scheme funding, investment decisions, employer covenant and above all else the best interests of their membership in relation to that pension scheme. The wisdom of Solomon and patience of Job would seem apt for a trustee job description. Read more »

David Bogle

For those outside the world of pensions, triple lock is perhaps a term from the sedate world of canal cruising holidays. However for pensioners of the future it is a term they should acquaint themselves with and the impact it has on their future prosperity.

This fairly new chestnut of the pension triple lock raised its head recently. Baroness Altmann, former Pensions Minister in the Cameron Government, has voiced the opinion that the triple lock would not be affordable after 2020. Baroness Altmann has been vocal on pension policy in the past few weeks, (well since she left Government), with her earlier comments on Tata Steel and pension provision. Yet what does the pension triple lock mean and why should our future pensioners care so much? Read more »

Andrew Kerrin

Christmas presents? Fine. Out of season clothes? Sure. Those trainers you bought two years ago that you’ve worn once but you’re definitely going to go running with again? Absolutely, chuck them out. How about your retirement savings? Under the bed!? Surely not.

As the Brexit splash continues to ripple through the economy, we are now facing the very real possibility of the UK joining the growing club of major states with negative base interest rates. In terms of pension schemes themselves, this won’t be a significant shock – they have been feeling the pain on their funding levels for a number of years with the low interest rate environment. Putting a ‘–‘ in front of the base rate isn’t going to shock schemes who have been seeing the number behind the ‘–‘ in their funding results growing year on year. Their pain will continue, but it’d hardly be a game-changer in the current environment.

The group that could truly be shocked are savers, and in particular, pensioners. To finally make some sense of my opening, Ros Altmann reacted to the news that Natwest had warned corporate customers that they may have to charge interest on accounts in credit, should the Bank of England dip the interest rate into the sub-zero waters. Should that happen, many will anxiously wait to see if those charges seep across to personal savings accounts too. If that levee were to break, the outgoing Pensions Minister said “the danger is many people will just think, “I’m going to put the money under the mattress.””

In truth, pensioners have been feeling the pain of low interest rates for some time now, right across Europe. Despite showing real patience – or perhaps acquiescence – with little to no returns, surely those same people would jump into action if their savings actually started to shrink. For many, it could be the watershed moment and see them rescue their savings and bring them closer to home. After all, if it’s good enough for the Commerzbank in Germany (who are reportedly considering shifting billions of euros to their vaults, rather than pay for the ECB to hold it under its negative rates) why isn’t it good enough for Joe Bloggs Snr.

While it may be reasonable to follow the actions of a big bank with its hundreds of financial advisors, Mr Bloggs Snr is different – he doesn’t have a vault. Should pensioners take such action, there have to be real security fears for their savings, as well as their own health and safety. Beyond the concerns of large amounts of cash being under beds, there is also the real possibility that these concerned pensioners may be more susceptible to pension/investment scams, offering a safe haven with fantastic (aka. positive) returns on their savings, just like they used to have. Should negative interest rates come our way, the industry should be alive to these risks arising.

Some may sneer and feel this is an overreaction. Some may say that it will never come to that. Well, we live in a world where Brexit is happening, Donald Trump is 270 electoral college votes from the White House and Leicester City are preparing to defend their Premier League title. Stranger things have happened…

Baroness Altmann (or perhaps her successor) may yet have to fetch Workie out from under the bed.

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.

David Davison

It’s often difficult for charities to access up to date technical information. Local Government Pension Schemes provide a myriad of information but it tends not to be focussed on charities. Over the last couple of week there have been some really helpful information published which could be of benefit to charities struggling with the management of their LGPS Pension:-

  • In conjunction with Charity Finance Group (‘CFG’) leading legal firm Charles Russell Speechlys has produced an LGPS Charity briefing. The guide outlines the risks and options for charities considering joining LGPS, and the problems faced by those considering exiting. The CFG accompanying blog can be found here.
  • Leading representative body Pension & Long term Savings Association (‘PLSA’), formerly the NAPF, have launched the first two guides in a series covering charities in LGPS. These cover:

More guides are on the way from PLSA over the next few months to assist LGPS participants with managing their continued participation in LGPS, and also options for those considering an exit. CFG are also re-launching their ‘Charity Pensions Maze’ publication which contains a wealth of helpful information. More information to follow on these when available.

Alan Collins

Spence & Partners latest Blog for Pension Funds Online –

An optimist sees the glass as half-full; the pessimist sees it as half-empty.  The actuary sees it as somewhere between 40% full and 40% empty, depending on a large number of assumptions.

As a pensions actuary, I have felt more like the harbinger of doom in recent days, delivering valuation results, accounting disclosures and funding updates with 30 June 2016 effective dates.  The PPF barometer of pension scheme funding, the 7800 index, is now showing an aggregate deficit of £384 billion and an aggregate funding level of around 78%. Read more »