Making Sense of Pensions

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

We love to get feedback and constructive criticism.  If you like what we do please tell us, it’s nice to get great feedback.  If you would like things included, excluded or done differently please drop us a line.  The report is to help you so help us tailor it to your needs.

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 »

Rachel Graham

The Pensions Regulator (TPR) has now issued their 2016 annual funding statement (“the Statement”) primarily aimed at Defined Benefit (“DB”) pension schemes undertaking valuations with effective dates in the period 22 September 2015 to 21 September 2016. The statement emphasises some key principles from their Code of Practice 3 for funding DB pension schemes, namely the expectation that trustees take an integrated approach to risk management and the importance of collaborative working between trustees, employers and advisers.

The Statement sets out TPR’s expected position of DB pension schemes with valuation dates in the period 22 September 2015 to 21 September 2016. TPR expects these schemes will have experienced most major asset classes having performed well over the period since their last triennial actuarial valuation. However, returns for some asset classes have been relatively flat or negative in the last 12 months.

TPR’s modelling suggests scheme liabilities are likely to have grown at a faster rate than their assets since their last valuation; this is as a result of the volatility in market yields and expectations for interest rates and inflation. This is expected to lead to funding strategies based on lower expected investment returns from most asset classes than in their last valuation. Trustees are advised to consider with their advisers their longer term view of risk and returns and how this is inter-related to their funding plans.

As a result, TPR expects most schemes will have a larger than expected deficit at their valuation date. Depending on the scheme valuation date and their hedging strategy – scheme deficits are estimated to be in the region of 20-35% higher than they previously were. TPR expects that this will lead to changes to existing recovery plans for which trustees and employers will need to assess the associated risks and ensure it is consistent with their risk tolerance and their other risk management plans. TPR’s analysis of sponsoring employers suggests that if a scheme chooses to maintain their existing recovery period end date following their valuation then the median increase in deficit repair contributions (DRCs) is  expected to be in the region of 75-100%. This may or may not be affordable to sponsors and will depend on a number of factors such as the sponsor’s future plans for sustainable growth and strength of the sponsor covenant. TPR expects trustees to seek higher contributions where there is sufficient employer affordability .

Worryingly, around 45-50% of schemes are expected to need to increase DRCs by more than 100% in order to keep the same recovery plan end date. Where the current recovery plan period can not be maintained other adjustments will be required in order to put an appropriate recovery plan in place; for example by extending the recovery plan length. The trustees and employers would need to consider the potential impact of taking on this additional risk.

TPR also outlines recent developments affecting valuation assumptions. This includes;

  • reduced longevity under the 2015 version of the Continuous Mortality Investigation model (CMI2015). Being based on the most up to date analysis, this may be proposed by the scheme actuary. Perhaps surprisingly, TPR is advising some caution and suggesting trustees liaise with their advisers to understand the effects if this reduction to life expectancies is reversed in future.
  • emphasis on valuation assumptions being evidence based. TPR believes that there is very little evidence which would support trustees adjusting their assumptions regarding transfer take ups in light of ‘pension freedoms’ but it may be appropriate in some cases to take some account of this.
  • appropriately setting contribution rates for future accrual in light of reduced expectations for future returns.

TPR’s proportionate approach to risk management is evident throughout the Statement. Trustees are encouraged to understand their scheme’s exposure to risk across covenant, funding and investment and put in place an integrated strategy to manage these risks. Additional practical guidance from TPR on setting an investment strategy is promised later this year and will be welcomed by trustees.

Chris Roberts

From previous blogs, I have made it clear that Auto-Enrolment was in urgent need of a firm hand.  With the abject failure to strongly police Stakeholder, I have watched the regulatory position with interest.

The recent high profile case of Swindon Town FC (the Robins) has brought this sharply into focus.  Whilst not every case merits (or gets) this level of attention, there have been 6,746 separate cases of regulator intervention in auto-enrolment cases to 31st December 2015.  These range from over 1,000 fixed penalty notices being served (at £400 each), to 21 inspections of premises taking place (the tanks very much on the lawn).  With 100,000 employers enrolling each month, these numbers are going to increase significantly as we work through the micro-employer enrolment process. Read more »

Angela Burns

For many Trustees and employers, reaching the point where you can secure your pension liabilities with an insurer seems like an impossible task.

The Pensions Regulator publishes ‘Scheme Funding Statistics’ each year based on various ‘tranches’ of pension schemes. As at May 2015, the average buy-out funding level was 58% for schemes with a valuation date between September 2012 and September 2013.

For the majority of schemes , the path to buyout is not an easy one but it is important to understand that there are measures you can take to move towards this goal.

I have set out below our ‘five steps to buy-out’ Read more »