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 »
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 »
The result of the EU referendum on 23 June 2016 was a surprise for many of us. It was difficult to predict the detrimental impact on gilt yields which occurred in the weeks following the result! With many UK pension schemes invested in gilts, the historically low gilt yields which resulted has led to pension schemes being faced with significantly higher liabilities. Transfer values for deferred members of DB schemes have also increased. A transfer value is a best estimate of the cost of providing the benefits to the member in the scheme and these too are calculated with reference to gilt yields.
Trustees may be concerned if their scheme experiences an increase in transfer value requests post Brexit. Trustees are ultimately responsible for the security of benefits of ALL members- those who wish to transfer and those who remain in the scheme. Read more »
The past few weeks have seen many interesting changes in investment markets as they attempt to find a new level following Brexit. Pension Schemes should take this into account when reviewing their funding and investment strategies. In some cases it may be worthwhile to expedite your investment review, although as pointed out by my colleagues, this will only be in exceptional circumstances as pension scheme investments will be based over a very long horizon.
We will look at some of the major changes that have happened to markets since the EU referendum, consider how these will impact Defined Benefit (“DB”) schemes and provide ideas to help manage risks caused by the resulting market volatility over the coming months. Read more »
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 »
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 »
Our latest report details market movements over the 3 month period to 30 June 2016, and how this impacts the key financial assumptions required for determining pension liabilities under FRS102 or IAS19.
Major asset classes have had a relatively strong performance over the 3 month period to 30 June 2016. This strong performance follows on from the similar growth experienced in the Q1 of 2016. However, these asset classes have had their value distorted somewhat by ‘Brexit’ in the final week of the quarter. Furthermore, it is likely that any investment gains will be more than offset by increases in schemes’ liabilities (as a result of lower bond yields due to investors’ “flight to quality”), resulting in lower funding levels. To help draw attention to the practical implications, the effect of these market conditions have been illustrated on a typical pension scheme.
Finally, we also review the recent Brexit vote and how this will likely impact upcoming FRS 102 or IAS19 valuations.
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 »
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