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 »
Five years is a long time in anyone’s book and, as a rule of thumb, it either calls for celebration or a period of reflection. In the case of the Pension Regulator’s Detailed Guidance on Record Keeping, published in June 2010, I would suggest the latter.
The parameters were clear: trustees were to ensure that by December 2012, 100% of members had a full set of common data for entries post June 2010, with the standard set at 95% of members for pre June 2010 entries. Behind that, the conditional data – data conditional on a number of factors, such as scheme design, a member’s status in the scheme and their respective individual events – was given a more ambiguous target. The emphasis was on trustees to be aware of their conditional data but not necessarily to have taken steps in rectifying any issues. Read more »
If this year’s Purple Book is anything to go by, you could be forgiven for thinking nothing much has happened in the world of pensions.
On the same day that the Office for National Statistics confirmed an upturn in the number of people saving in workplace pension schemes for the first time in many years, the Pensions Regulator/Pension Protection Fund “bible” of DB schemes confirmed, well, nothing much really.
The inexorable trend of DB scheme closures continued, with 32% of schemes now closed to accrual (up from 30% last year). I suspect bigger jumps are ahead, especially with the cessation of contracting out in April 2016.
The report correctly highlighted recent deteriorations in DB scheme funding levels, estimating that scheme funding levels will have dropped around 8% since March. This offsets improvements over the previous 12 months.
The average asset allocation of schemes was virtually unmoved with around 35% in equity, 45% fixed interest bonds, 5% in property, 5% in cash and 15% in other assets (including hedge funds).
2013 was a busy year for buy-ins and buy-outs, with a 30% increase in the number of deals completed. However, the early part of 2014 seemed to indicate a return to normal levels, with 40 deals completed in Q1.
One point of solace for those of us in the DB consulting world is that the decline in the number of DB schemes has slowed, with 2.5% less schemes now in the “universe”. At some points recently, the rate of decline has been around 5% a year.
The Pensions Regulator (“the Regulator”) has recently implemented a revised version of Code of Practice 3 (“the Code”) for funding defined benefit pension schemes.
The Code has been updated to take account of the Regulators new statutory objective to minimise impact on the sustainable growth of the employer. The code recognises that a strong, ongoing employer alongside an appropriate funding plan is the best support for a well-governed scheme.
The revised Code is less prescriptive and more principles based and as such leaves scope for interpretation. There is no longer a ‘one size fits all’ approach where schemes will avoid the scrutiny of the Regulator provided they do not hit certain ‘triggers’. Each funding plan will be and should be unique to that scheme, and the circumstances of the sponsoring employer. Read more »
The Pensions Regulator (“the regulator”) has laid before Parliament a revised Code of Practice 3 (“the Code”) for defined benefit (DB) scheme funding.
This new code takes into account their new statutory objective and reflects their developing approach and changing circumstances since they published the current Code in 2006. The Code emphasises the need for Trustees and employers to work collaboratively in order to achieve an integrated risk management approach which doesn’t compromise the needs of the Scheme or the employer’s plans for sustainable growth.
We have reviewed the revised Code and prepared the following summary for you. Read more »
Spence & Partners, the UK pensions actuaries and administration specialists, today said that The Pensions Regulator’s (TPR) new Code of Practice will mean advisers will have to go further in their efforts to advise trustees, by collaborating to present big picture advice and refining their processes and use of technology to deliver cost effective monitoring solutions.
Marian Elliott, Head of Trustee Advisory Services at Spence, commented: “By putting the covenant at the centre of the scheme’s decision making, the Code is essentially crystalising current best practice and encouraging trustees to adopt an integrated approach to risk management. This decision making and planning structure makes complete sense, as the covenant is the main driver of risk in the pension scheme. Investments can underperform, life expectancy can increase, the funding position can worsen – but the only circumstance in which members don’t get their full benefits is if the company can’t weather this negative experience.
“There will certainly be challenges in some sectors however. For trustees of smaller schemes, where budget and time to spend on governance is constrained, the requirement to obtain detailed covenant advice or to carry out asset liability modeling or stress test their strategies may mean they are spending more in this area. This is a good thing though, as the spend on advice to implement and monitor a sensible, coordinated approach to risk taking is far more valuable than spending too much on number-crunching ‘compliance’ work.
“For trustees of schemes with weaker sponsors, there will be a need to justify any investment risk taken or put in place contingency measures, which may result in more prudent investment strategies and higher deficit figures – leading to increased reliance on sponsor contributions for already weak employers. This will be a really difficult, but important, balance for trustees to strike.”
Elliott continued: “Whilst the Code is relatively lengthy, we would urge trustees to engage with this. It is absolutely the right way to think about risk management and should result in better outcomes for members and a better understanding from trustees and sponsors of the issues they need to overcome in order to get their scheme to a fully funded position. There is also no reason why the Code should present any difficulty for trustees, as with the right advice this integrated approach shouldn’t result in significant additional cost – and will almost certainly help make their decision making and monitoring processes a lot clearer.”
Spence & Partners latest blog for Pension Funds Online –
There are many terms used in the industry to describe the process whereby trustees and scheme sponsors agree a funding target and plot the path between where they are now and the attainment of that funding level – some call it flight paths, others journey plans or route maps.
Unless you spent the Christmas break in a remote location with no access to the pensions press, you will have also heard that the Regulator has issued a consultation document regarding its revised code of practice for funding defined benefit (DB) schemes.
The approach the Regulator sets out in this document is one which, arguably, trustees should already be taking – i.e. obtaining a real understanding of the sponsor’s covenant, the risks it is exposed to and its growth plans, and then using that information to determine a reasonable pace of funding towards an appropriate target. Any such plan should respond and adapt as economic conditions change, or as the circumstances of the sponsoring employer are altered. Read more »
Simon Kew has kindly agreed to contribute the following blog for Spence & Partners’ website. Simon is the Director of Pensions at Jackal Advisory and is recognised as one of the country’s leading experts on the regulator and the scheme funding process.
Most economic commentators are now upgrading their growth forecasts on the back of a steady flow of positive news over the last few months with increased activity in the manufacturing, construction and service sectors. Mark Carney, the Governor of the Bank of England has just announced upgrades in growth predictions from 1.4% to 1.6% for 2013 and from 2.5% to 2.8% for 2014. He considers that the recovery has finally taken hold and that the improvement has now to be sustained. Read more »
Dissecting The Pensions Regulator’s latest funding statement, and encouraging trustees to use the tools at their disposal in my latest blog for Pensions Funds Online –
Now that the nonsense of ‘smoothed’ discount rates has rightly been consigned to Actuarial Room 101, trustees and advisers are turning to face the challenges of funding valuations in the current difficult economic environment. Deficits are up (yes, I know markets are up, but liabilities have generally gone up faster) and employers’ cash reserves are probably down.
So what do we do now? Read more »
This is our latest blog for Pension Funds Online –
If you have ever been to India or watched The Best Exotic Marigold Hotel film sequence where their bus drives straight at the oncoming traffic, you will know that ‘driving rules’ are few and far between.
The basic rule is not to hit anyone and certainly not to hit any of the many cows, which are sacred, that wander the roads and who always have right of way.
I recently returned from holiday in Rajasthan and had an interesting conversation with one of our guides. Motorbikes are only allowed two people on them – well most have three and many have the whole family; you can only overtake on the right-hand side of a vehicle – they overtake any which way they can irrespective of bends in the road, oncoming traffic etc.; you cannot use a mobile phone whilst driving – virtually every driver uses the phone including those on motorbikes.
This made me think about the data issues that face pension schemes. Read more »