The clock ticking down to the end-of contracting out is getting louder and louder. With just over a year to go, many trustees and administrators are getting their houses in order by completing the reconciliation of their records with those held by HMRC. However, many more are not. A recent estimate indicated that, on average, around 5,000 data queries a day would need to be resolved in order to complete reconciliations in the desired timescale.
For contracted-out schemes that are already closed to build up of future benefits, there are no excuses for brushing reconciliation exercises under the carpet. Schemes which are open to accrual can also progress matters in advance of the end of contracting-out on 6 April 2016, using HMRC’s Scheme Reconciliation Service.
This is an exercise that must be done and trustees and administrators should take immediate action to complete any outstanding tasks. The resource in an already stretched HMRC team will wither on the vine from 2016 until December 2018 when all individuals will be written to confirming their contracted-out pension entitlements. Failure to act now may leave schemes carrying additional liabilities which they cannot prove belong elsewhere. It is therefore also in employers’ interests that trustees complete the required tasks. Read more »
As a business specialising in employee benefits, it should be a given that our internal pension scheme is run to a high standard. Like many new generation companies without Defined Benefit legacies, our company scheme was set up as a Group Personal Pension (GPP). A potential problem with GPPs is that they can quite easily sit at the side and can continue to operate with minimal engagement from the Employer.
When auto enrolment requirements were announced, an internal group was established to guide our scheme through the process. As part of this review, the business looked closely at the needs of employees and their engagement with the GPP. This resulted in the commencement of our own internal DC Governance Committee. The committee would have key responsibilities in improving employee engagement with the scheme and monitoring performance.
I volunteered to join the committee as I was interested in representing the interests of my colleagues and developing my own knowledge of workplace pension arrangements. The Committee is approaching its first birthday which would seem the ideal time to share my 6 key lessons learned: Read more »
In the run up to 6 April 2015, the focus has been on defined contribution (DC) members and the new flexible options available to them. This focus has now begun to swing to the (potentially significant) number of defined benefit (DB) members who will seek to transfer their rights in order to take advantage of these new flexibilities.
To this end, trustees of DB schemes must ensure that their adminstrators have taken the necessary steps to prepare accordingly and to take into consideration any impact on transfer-related Service Level Agreements.
Recent press items suggest that we are about to see an avalanche of transfer activity descend upon DB pension schemes. Read more »
An epic journey was concluded at the High Court at the end of February, when the titanic Merchant Navy Ratings case finally reached its destination. Having set sail in 2001, with a £333m deficit in its wake, carrying approximately 30,000 members, 40 current and 200 historic employers (and not to mention a crew full of lawyers!), the case was decided after 18 days of hearings, producing a judgement over 150 pages, 500 paragraphs and 80,000 words long. You could drown in such numbers.
Nautical puns aside (for now), the Merchant Navy judgement had been eagerly awaited. In truth, it all started in 2001 when the courts confirmed that only the 40 current employers had to pay deficit contributions, despite only holding 30% of the total liabilities. Then in 2009 the largest employer, Stena Line – understandably unsatisfied with cross-subsidising the pension liabilities attributable to the historic (competing) employers – succeeded with a case to confirm that the trustee could require historic employers to once again pay contributions. Read more »
“Déjà vu all over again” is a famous quote attributed to famous baseball manager Yogi Berra which must perfectly describe how England and Wales social housing organisations must be feeling following the publication of the results of the 2014 valuation for the Social Housing Pension Scheme (“SHPS”). The results show that the ‘on-going’ funding deficit has increased from £283m in 2005 to £663m in 2008 to £1,035m in 2011 and now £1,323m at 2014. I’ll not mention the current position which would be even worse!!
In the face of further increased future contribution costs and further future risk exposure, organisations may now be considering what options are open to them. Read more »
The new Pensions SORP which provides guidance for producing pension scheme accounts was launched on 25 November 2014 following the publication of FRS 102. The Pensions SORP needs to be taken into account for accounting periods starting from 1 January 2015.
The key new requirements include:
• Disclosure of investment risks and the associated risk management practices
• Disclosure of approach to valuing investments
• Valuation of annuities (previously excluded from the accounts)
• Cost analysis of transaction types Read more »
There are clear advantages of mastertrusts for DC pensions – economies of scale in terms of costs and purchasing power around investment, administration, advisory services and compliance costs, and improved governance due to an engaged professional trustee, for example.
This is because most employers need the same thing from a DC scheme. It’s essentially just a tax efficient savings vehicle, so every member and employer benefits from these advantages.
To a degree, one size can fit all for employers with regard to DC pensions.
However, a bit like Tolstoy’s families, unhappy DB pension schemes are all unhappy in their own way. Read more »
Annuity freedom announced in Budget, but the devil, as always, will be in the detail.
“People who’ve worked hard and saved hard all their lives should be trusted with their own pension.” George Osborne 18 March 2015.
As widely trailed the Chancellor announced yesterday that the Government will extend its pension freedoms to around 5 million people who have already bought an annuity. This will be achieved via legislation to remove the restrictions on buying and selling existing annuities to allow pensioners to sell the income they receive from their annuity without unwinding the original annuity contract. The change will be effective from 6 April 2016.
They can either take it as a lump sum, or place it into drawdown to use the proceeds more gradually, extending the flexibilities due to come into effect on 6 April this year for those who have yet to draw benefits. Read more »
So, there will be no quiet budget for pensions then. It would seem that Mr Osborne’s rabbit is already out of the red box. The pretence of “leaks” has been set aside with Mr Osborne confirming some details of this week’s announcements already.
It is therefore expected that individuals will be able to cash in annuities for a lump sum from April 2016 onwards (assuming Mr Osborne and his chums are in situ to make the changes – that being said, such populist moves are hard for others to ignore and the extension of pension freedoms seems inevitable). Mr Osborne is quoted as saying:
”It’s all part of trusting people who have worked hard and saved hard all their lives…. By changing the law we are trusting people who have worked hard and saved hard all their lives.” Read more »
We are only days away from 6 April 2015 when the new pensions freedoms take effect. Communication of the upcoming changes is being ramped up in the popular press, and this will undoubtedly lead to increased interest from members in gaining access to their pensions savings.
The game changer is the complete flexibility for over 55s to take their pension benefits from a DC scheme in whatever manner they wish. Many defined benefit (DB) scheme members will be demanding similar flexibilities from their own pension arrangements. Legislation does not yet allow DB schemes to offer this, so we would expect there to be strong demand from DB members to transfer their benefits into a defined contribution (DC) scheme at retirement in order to access these.
The new norm will be for members to request transfer value quotations at least annually from age 55. A large number of retirees will elect for the security of the traditional DB pension, but a significant proportion – perhaps the majority – will transfer out in order to take control of their savings.
What should trustees and employers be doing as a result? If this is managed properly, there is a real opportunity for a win-win-win for members who receive their benefits in a manner that is more valuable to them, for employers who benefit from a smaller more manageable scheme and a reduction in exposure to cost increases as liabilities transfer out, and trustees who are able to deliver tangible value to their members and reduce risk levels in the scheme.
One thing is for certain: doing nothing is not an option. Read more »