Posts Tagged ‘Scheme Funding’

Hugh Nolan

Once upon a time, there was a Scheme Actuary. He was very proud of his profession and his reputation as a prudent man of business. Trustees all across the land admired and respected him and queued up to follow his advice, for they all understood how clever and learned he was. Besides, the wise old King passed a law requiring them to appoint a Scheme Actuary so they had to have one anyway…

One day the actuary was counting out the gold coins in a pension scheme and a tiny fragment chipped off one and flew straight into his eye. From that day on, he could only see pensions through a gilt lens and his peripheral vision vanished altogether. However, nobody in the Kingdom knew about this incident, and everyone still trusted the Grand Vizier (surely “actuary”?) when he demanded a mountain of gold from every farmer, so he could look after all their cows should they go bankrupt… which many promptly did, since they didn’t all have a spare mountain of gold lying around.

Of course this is just a fairy tale and couldn’t happen in real life. Or could it?  In fact, a similar story happens every day in pensions – albeit not as extreme or (hopefully) amusing. Read more »

Richard Smith

With 31 December being the most common date for corporates to have their year-end, Finance Directors will soon be turning their minds to their annual accounts. After a number of years of falling yields and growing deficits, they might be hoping for a Christmas present of an easing of the pensions problem, particularly if they have read recent headlines around improving pension scheme funding levels

Whilst there is still some time before the year-end, and (as the US election has recently reminded us) anything can happen, we will aim to give sponsoring employers advance warning (unfortunately this wording is chosen deliberately) of what they can expect come the year-end. Read more »

Alan Collins

Spence & Partners, the UK pensions actuaries and administration specialists, today commented on The Pensions Regulator’s (TPR) annual defined benefit funding statement 2015.

Alan Collins, Head of Trustee Advisory Services at Spence & Partners, said: “The regulator’s funding statement is now a firm fixture in the pensions calendar and this year’s instalment has given trustees, sponsoring employers and advisors plenty of food for thought.  It is also clear that 2015 valuations will contain more bad news than good.  The regulator’s own analysis shows that ‘despite all major asset classes having performed well and schemes having paid £44 billion in deficit repair contributions over the last 3 years…many schemes with 2015 valuations will have larger funding deficits’ and that ‘most schemes will set funding strategies based on lower expected returns than at their last valuation’. Read more »

David Davison

Local Government Pension Scheme (‘LGPS’) – Technical consultation on Local Government Pension Scheme Rules – December 2014

Introduction

The evolution of LGPS over the last number of years has created significant inconsistencies and unfairness particularly in the treatment of admitted bodies.  This is highly problematic for participants as well as building up significant difficulties for the LGPS themselves. It has also resulted in LGPS looking unresponsive to the issues that their admitted bodies face.

The consultation specifically requests “suggestions on how to better protect local tax-payers where there is a risk they will have to foot the bill for employers who leave the scheme.” LGPS need to recognise that the current approach is unfair, impractical and ultimately unsustainable. LGPS would appear to prefer to continue to pursue excessively prudent cessation settlements which are rarely if ever paid, as they are unaffordable, while organisations continue to accrue further liabilities which will remain unsettled until a point where an organisation ceases to operate and the burden is left with the tax-payer. Surely to protect the tax-payer it would be much more sustainable to find a way to prevent additional unaffordable liabilities accruing and adopt a more pragmatic methodology in calculating and obtaining any cessation liabilities due.

In this response I will therefore look to identify a number of the key issues faced and offer some proposals how the LGPS could adapt for the good of participants and themselves. Read more »

Will Davison

Spence & Partners, the UK pensions actuaries and administration specialists, have said that yesterday’s forward guidance issued by the Bank of England could have different impacts for UK defined benefit pension schemes across their liabilities and assets.

Marian Elliott, Head of Trustee Advisory Services, commented: “With the Bank’s intention to keep the base rate at 0.5% until an unemployment target has been reached, they will maintain the upward pressure on liability values of many UK DB schemes. Maintaining QE for the short to medium term may well stem the recent rise in gilt yields, which had been good news for schemes as this lowered the current value placed on pension liabilities. Until the unemployment conditions are met and interest rates begin to rise again, we would not expect pension liabilities to reduce significantly on the back of rising gilt yields. Read more »

David Davison

Organisations participating in the Social Housing Pension Scheme (“SHPS”) will no doubt be experiencing that sinking feeling, perhaps mixed in with a little déjà vu, as the results of the 2011 scheme valuation hit their desks this month.

The communication will have brought the unwelcome news that the ‘on-going’ funding deficit has increased from £663m to £1,035m as at 30 September 2011 (having increased from £283m in 2005). Read more »

David Davison

Recent government announcements are likely to have a significant financial impact on pension scheme funding, the actuarial assumptions used, commutation factors and early or late retirement.

In June’s budget the government announced that it intended for future increases in public sector pensions to be linked to changes in the Consumer Prices Index (CPI). Historically such pensions were linked to increases in the Retail Prices Index (RPI).

A subsequent statement by the Pensions Minister on the 8th July confirmed that the government also intends to use CPI for determining statutory minimum increases which apply to private sector pensions. Read more »

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