Making Sense of Pensions

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 »

Martha Quinn

A more modern approach to complaints handling from the Pensions Ombudsman

Data protection is a big issue. It is not just at the forefront of pension scheme trustees and administrators thoughts.  Embracing modernity and the prevailing approach to increased protection of personal information, the Pensions Ombudsman has announced that it will in future anonymise all new published decisions.

This will involve removing the name and other personal data of the person making the complaint from its published decisions, unless it considers it essential for understanding or in the wider public interest. Read more »

Hugh Nolan

Brexit – now what?

So the country has spoken in a momentous and slightly surprising result!  We now enter a period of extreme uncertainty while we wait to see what happens next.  Markets don’t like uncertainty and we’ve already seen sterling fall to levels last seen 30 years ago but there is no need to panic. Our legal framework today remains exactly the same as it was yesterday and we have some time to decide what changes we’ll make and watch how negotiations go.

As far as pension schemes go, we can take comfort from the fact that funding is a long term proposition and we can afford to avoid any knee-jerk reactions.  There may also be some opportunities for funding levels to increase, especially if we see a rise in gilt yields (which may be needed to attract international money into the UK coffers).  Trustees can potentially take advantage of the expected volatility in markets to reach their investment objectives.  Setting clear targets in advance and monitoring market movements will allow schemes to trigger investment switches whenever market conditions are favourable, locking in improvements as they happen without needing extensive discussions that lead to missed chances. Read more »

Simon Cohen

Spence & Partners latest blog for Pension Funds Online

I believe that clients should be using and taking more advantage of their investment consultant. I see clients paying for actuarial valuations, reviewing actuarial factors and other matters but generally not making full use of their investment consultant. Clients legally have to do a valuation or other compliance work, but often see investment work as something that is secondary to this. For example, there is not a legal requirement to carry out an investment strategy review like there is for a triennial valuation, it is just considered best practice, so sometimes one isn’t carried out.

I sometimes see cases of trustees who haven’t reviewed their investment strategy in over 10 years and their Statement of Investment Principles in a similar period of time. Read more »

Matthew Leathem

Here we are, at the end of Q2 and Spence are pleased to be publishing our topical round up of developments over the last three months with time saving summaries, helpful links to papers and blogs and action points for Employers and Trustees to consider.  It’s an essential tool for Employers and Trustees who need to keep up to date with developments that affect them and their schemes.  Highlights for this quarter include:

  • A brief summary of George Osbornes 2016 Budget
  • An outline of the new Lifetime ISA
  • How might the Brexit Referendum affect schemes?
  • Notwithstanding Brexit what has been happening in Europe and what will it mean for schemes?
  • Important changes for Corporate trustees: Persons with Significant Control Regime

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Download your Quarterly Update here

Andrew Kerrin

(The ‘H’ on my keyboard is in for a tough afternoon!)

Good news for bankrupts. Bad news for creditors.  Important news for trustees in bankruptcy and pension scheme trustees alike.  The High Court, in the case of Hinton v Wotherspoon, has delivered a judgement that provides real clarity on how the pension income of a bankrupt can be subjected to an Income Payments Order (“IPO”).

Now, it has to be said at the outset, that a case on the same issue (Horton v Henry) – that Hinton proclaimed as “plainly correct” – was heard by the Court of Appeal in April. That decision will be crucial, as it will represent a binding decision from a higher court, unlike Hinton and Horton that are both first instance decisions in the High Court. Read more »

David Davison

Recognising the many difficulties charities who participate in Local Government Pension Schemes face, a series of really helpful guides have been published over the last few weeks:-

Read more »

Hugh Nolan

Spence & Partners latest blog for Pension Funds Online:

The Pensions Regulator’s annual funding statement for 2016 includes the following comments about the latest mortality projections available:

“The 2015 version of the Continuous Mortality Investigation model (CMI2015) produces life expectancies that are lower than the 2014 version. We would consider it reasonable for trustees who use data from the CMI, to update to CMI2015 if they wish. However they should consider with their advisers what the effects would be if this reduction is reversed in the coming years. The CMI model is driven by assumptions, one of which is the single long-term improvement rate, and we would consider it unlikely to be appropriate to make any changes to this assumption until it is clearer that recent experience is indicative of being a trend over the longer term.” Read more »