DC scheme sponsors and trustees can now proceed in earnest to review their schemes and ensure that they are fit for purpose from April 2015.
A number of organisations will have been waiting upon this week’s announcement before moving forward. This revolved around the action that the Treasury would take to mitigate reduced tax receipts as older workers used the new freedoms to potentially draw their salary more tax efficiently from next year. There was a very small risk that the new pension freedoms might have been curtailed given the scale of the Treasury’s potential tax losses, but George Osborne has confirmed that this issue will be addressed by placing new restrictions on the level of future contributions eligible for tax relief once maximum tax free cash has been taken.
DC sponsors and trustees will be pleased to hear that the Guidance Guarantee will be provided by independent organisations (The Pensions Advisory Service and the Money Advice Service are mentioned as ‘lead’ organisations) with the costs being funded by a levy paid by the Regulated adviser community. The Financial Conduct Authority has issued a Consultation around the elements of the Guarantee for which it will be responsible. As such, we await further details before a clear picture of the mechanics of the Guarantee becomes clear. Read more »
Spence & Partners, the UK pensions actuaries and administration specialists, have said that today’s announcement on the continued permission for DB to DC transfers should be a catalyst for trustees and scheme sponsors to work more closely together.
Marian Elliott, Head of Trustee Advisory Services at Spence, commented: “Immediate actions for trustees will be in communicating the outcome of these announcements to members and liaising closely with the administrators on the processes that will be needed to comply with the guidance guarantee. Trustees should also be prepared to collaborate with employers on any de-risking exercises that take place and consideration should be given to whether scheme design is affected by the announcements.
“Trustees should also monitor what impact the announcements may make to the scheme’s risk profile, should a significant number of members opt to transfer out. Trustees should not react by overhauling their strategy, however more consideration should be given to liquidity issues and funding monitoring, so that trustees can react quicker to the need for strategic adjustments. Other considerations for schemes will be around whether assets are sufficient to meet the needs of the potential increase in transfer requests on the back of this announcement, as this may involve an agreed funding top up with the sponsor.”
Alan Collins, Head of Corporate Advisory Services, added: “The announcements today should be welcomed and treated by employers as a trigger for positively managing their scheme liabilities. With the prospect of DB members looking to move to the far more flexible defined contribution market, employers should review their on-going plans for the scheme and target available resources to fund transfer exercises. Defined benefit schemes continue to present a significant risk to employers, but with this announcement building on recent easements in The Pension Regulator’s approach to funding, employers can start to manage that risk more effectively.
“More individuals have been contacting administrators to request transfer quotations since the proposals were first announced in the budget, so it is important that everything is managed correctly by the employer and scheme from the outset. I welcome the requirement for mandatory indpendent advice on DB to DC transfers. The time is right for employers to work with their trustees to make sure that this advice is on tap for all members making decisions in relation to their scheme benefits.”
Spence & Partners latest blog for Pension Funds Online –
“In a revolution, as in a novel, the most difficult part to invent is the end” – Alexis de Tocqueville
We’ve all been there. Stuck in a meeting, 30 minutes into an agenda item about IT spend, and even the most conscientious amongst us find our minds wandering. Let’s have a sneaky look at ft.com then, see what Osborne has done to the price of a pint. Bingo duty halved to 10%! Take that UKIP! Oh, that looks like an interesting link – “Chancellor’s Pension Bombshell”. He’s probably gone and slashed the LTA again. Click. “All tax restrictions on pensioners’ access to their pension pots to be removed, ending the requirement to buy an annuity.” Er OK. He can’t actually have done that. I’ll just move on to the BBC to get the real story. Expletive deleted, he has. Read more »
This week’s surprise announcement from George Osborne is expected to provide a further boost to the DC pensions market whilst similarly re-energising design of long term income products.
First, there have been fears that Auto Enrolment opt-out rates will surge as the big social experiment moves downstream to the SME / micro employer market – with much of this concern based upon Joe Public believing that annuities represent poor value for money. This move could see more people taking the first steps to an improved retirement lifestyle as pensions shed their ‘inflexible’ tag.
The ‘at retirement’ market will see increased activity as firms consider innovative ways for individuals to optimise their retirement nest egg. Of interest will be how this market interacts with the Chancellor’s ‘guidance guarantee’.
And perhaps the loudest cheer of all: Read more »
Spence & Partners latest blog for Pension Funds Online –
In 2000, the result of an experiment designed to examine consumers’ reaction to choice was published in the Journal of Personality and Social Psychology. The experiment was conducted in a Californian grocery store, where researchers set up a sampling table with a display of jams. On the first weekend, they set out 24 different jams for people to taste; and on the next, they set out just six.
The results were staggering. Whilst more shoppers stopped at the display when there were 24 jams, only 3% of those who stopped went on to buy a pot. When there were six jams on display fewer shoppers stopped, but 30% of those who tried a jam made a purchase. Similar results have been found in other experiments since.
It seems that too much choice can be demotivating and the same effect can be seen in the investment industry. Read more »
The Department for Work and Pensions (DWP) have recently published a report with their ideas of how to reinvigorate pensions in the workplace.
Steve Webb, the Pensions Minister, has been very vocal in his support of the concept of defined ambition. Put another way it is a watered down version of defined benefit pensions or maybe just mix and match i.e. when the good times roll then have a £20 box of chocolates, otherwise you might have to make do with the £1 version. Read more »
Finance Directors of charities not disclosing their multi-employer pension liabilities on their balance sheet may be sleeping just a little uncomfortably at the moment following a consultation document issued by the Financial Reporting Council.
If the proposals are accepted charities will need to recognise any agreement to fund a deficit in a multi-employer scheme on their balance sheet. Read more »
One idea coming from the Pensions Minister’s think tank is that a “PPF” style fund is set up to protect DC schemes with the levy falling on the contributions.
It is far too early to read too much into the idea but it is part of the overall concept that without guarantees of some sort the minister is obviously still concerned that the ordinary man or woman on the street will opt out of auto enrolment due to a general mistrust of anything associated with the word pensions. Read more »
Steve Webb, the Pensions Minister, feels that there should be a guarantee of some kind for people who pay into pensions. A very admirable sentiment to be sure, he is championing the cause of the employee in suggesting that they should get back at least as much as they put in to any company pension. He also goes on to say that he is “convinced people have a huge appetite for certainty about pension savings”. Read more »
The hallmark of good pension scheme governance is a pension fund whose affairs are managed robustly, seamlessly and effectively, with appropriate controls, free of abuse and with due regard for the law.
Just as medical check-ups make sense for the human body, occupational pension schemes, both Defined Benefit (DB) and Defined Contribution (DC) also need regular Read more »