Posts Tagged ‘Scotland’

David Davison

On Friday 25th May 2018 new LGPS (Scotland) Regulations 2018 were published and came into effect from 1 June 2018. The Regulations are a result of a long and in depth consultation process focused on trying to assist with the difficulties faced by community admitted bodies (‘CAB’s), mostly charities, participating in these schemes. Charities are often trapped in LGPS unable to afford the contributions to stay in or the cessation debt which would be imposed to exit. The current approach offers CAB’s with only a threatening cliff edge and is inflexible, inconsistent and does not reflect the approach adopted across stand-alone or segmented schemes.

The new Regulations do indeed add some flexibility in a couple of key areas:-

  • The addition of the option for the administering authority (‘AA’) and the employer to agree a ‘suspension notice’ which would defer an employers requirement to pay a cessation debt. The employer would still be required to pay on-going contributions to the Fund as set by the AA. There is not really any specific guidance provided how such an agreement can be reached, which is a bit of a double edged sword. It does not therefore restrict the authority in terms of the approach it can take but as a result leaves the way open for a lot of interpretation. It is to be hoped that AA’s apply this flexibility pragmatically to arrive at reasonable outcomes for both parties.
  • The recognition that if an employer is over-funded then on exit they should have the right to the repayment of that surplus in full. The Regulations have therefore added a definition for an ‘exit credit’ which for the small minority of employers in this position will be welcome news and prevent Funds from just pocketing their surplus on exit.

Unfortunately however even with these changes the revised Regulations are a bit of an opportunity lost. In January 2018 the Pension Committee at ICAS provided a response to the Scottish Public Pension Agency (‘SPPA’) suggesting some additional items which would make these changes more workable and balanced. These recommendations included:-

  • a recognition that CAB’s should be able to make deficit contributions to Funds on a ‘closed on-going’ basis until the last member’s beneficiaries have ceased to receive payments.
  • A consistent basis for the calculation of these payments.
  • That CAB’s funding position be fully and consistently adjusted to recognise and reflect inherited liabilities from prior public sector employments. It is wholly unreasonable that CAB’s are expected to pay for benefits built up for staff who previously worked for public bodies.
  • It should be compulsory for all LGPS funds to provide CAB’s with a note of their estimated cessation value annually to allow both to better manage their funding position.

Scottish Government is to be commended for at least leading the way in trying to find a resolution to the difficult issues faced. A review of 3rd Tier employers in England & Wales is currently underway and it is to be hoped that the findings of this exercise will lead to similar changes to those implemented in Scotland but hopefully even taking a step further. It will be hugely interesting to see how these new Regulations are enacted in practice.

John Griffin

Anyone who is still paying attention to the Scottish independence “debate” may have noticed that it hit a new nadir a few weeks ago, when the UK government suggested that Scottish independence would result in higher mobile phone bills north of the border.

Maybe they had visions of a still-United Kingdom a few decades into the future, when a politically-conscious young Nigel from Auchtermuchty asks his father why his grandad Angus and granny Morag had voted against independence, and is told “Well son, it was a chance that only comes up every few centuries and may never come up again, for the people to change the destiny of this historic land, this land of legends, almost mythical in its haunting beauty, this land of Wallace, of Burns, of The Krankies, but the prospect of paying a few extra pence for mobile phone roaming charges in England was just too much to bear, so we stuck with the Union.  Now, eat up your jellied eels”.

More seriously (but not much more), there are reports of impending doom for UK pensions, should Scotland choose independence, following an ICAS report in April, which was measured and balanced but which appears to have provoked mild hysteria in some quarters. Read more »

Alan Collins

comparethemarsbar.com

If life expectancy was measured on the mars bar scale, Kensington and Chelsea would be “fun size” and certain areas of Scotland would be “deep fried”.

I assume pension buyout specialists Pension Corporation use a more sophisticated method of measurement. I read with interest their press release yesterday which stated that pension schemes with Scottish members may be over-estimating life expectancy and therefore actual pension liabilities may be lower than currently estimated. Read more »

Alan Collins

Estimating life expectancy is an important part of an actuary’s job. Last month’s Office of National Statistics (ONS) report on the issue of life expectancy certainly brought a real focus to this important aspect of our role and, as a man who lives in one of the lowest ranked areas for longevity in the UK, it also cast a bit of an unwelcome shadow over my day.

Confronted by headlines such as ‘Scotland the Grave’ and ‘Increase in North-South Life Expectancy Divide’, the Scottish media highlighted how the recently published ONS survey showed how the average UK man will live until he is 77.9, compared with only 75.4 years in Scotland. The comparable figures for women are 82.0 and 80.1 respectively.

Somewhat worryingly for me, the average male in Glasgow will die aged 71.1 years. Unsurprisingly, given the health issues that continue to plague many parts of this city, this is the lowest for any area in UK. This is in sharp contrast to Kensington and Chelsea where the average man can expect to live for 84.4 years, exposing a staggering gap of over 13 years in life expectancy between two regions of the same country.

There are important lessons in the ONS study for actuaries, as well as for sponsoring employers and trustees of defined benefit schemes. For defined benefit arrangements, it is the scheme (and ultimately the sponsoring employer) who is exposed to the risk of how long each member lives. The longer each member lives, the longer a pension will need to be provided for and hence the cost of providing the pension increases.

The study reinforces the need to consider and manage the risks associated with life expectancy on a scheme-by-scheme basis. For each additional year of life expectancy, the reserves required – and the ultimate cost of the scheme – increase by around three per cent. So taking the extremes above, the reserving requirements could vary by up to 40 per cent!

However, we need to be careful on drawing conclusions from this study on two fronts. Firstly, members of pension schemes tend to live a lot longer than those with no pension provision – which gives me some personal comfort in relation to the above statistics. This is borne out of many studies on life expectancy by insurance companies and by analysing data from self-administered pension schemes. Currently, most pension schemes assume that current pensioners will live into their mid-late eighties and that future pensioners will live into their nineties.

Secondly, in my view – and this is where views in the actuarial profession differ – it is not geography but socio-demographic factors that matter where life expectancy is concerned. If geography alone was a significant factor, why would the gap in life expectancy between neighbouring areas such as Glasgow and East Dunbartonshire be over seven years, whereas the gap between Glasgow and Manchester is less than three years and only around four years between Glasgow and areas in London? This point was summed up by Duncan McNeil, Labour MSP for Greenock and Inverclyde, who said: “someone in my community can expect to live around 10 years less than someone else who lives just minutes along the road in a better-off area.”

This is why analysis at a postcode level is so important, where life expectancy is considered on a street by street basis. This is the most effective and accurate current method for assessing life expectancy for most pension schemes. I would urge trustees of schemes and sponsoring employers to ensure this area is given appropriate attention and that a postcode analysis is carried out at least every three years to coincide with the formal valuation of a scheme’s funding level. The only reason for departing from this is if your scheme is large enough to conduct its own mortality study. However, this would only apply to schemes with thousands or even tens of thousands of pensioner members.

Before I get completely morose about the ONS report and the implied implications on a Glaswegian male like myself, I can take some comfort that there are other factors at play in determining what ultimately accounts for the number of innings we are likely to be on this earth. It is important that these are also accounted for on a wider scale for those of us who manage pension schemes to ensure we have the appropriate funding levels in place.

David Davison

The Pensions Trust has at last drawn a line under the Scottish Voluntary Services Pension Scheme with plans to close it to all future benefit accrual from April 2010. The knock-on effect of this decision is to highlight how wholly unsuitable it was for the many small charities and not-for-profit organisations who were encouraged to take part.

It also leaves many questions unanswered. Why was there such enthusiastic encouragement to participate in a pension scheme of this type? Why were these small organisations not given very clear guidance about the potential risks that they were exposed to as a result? Had they been, would so many have blindly taken part?

And the biggest question remains: what is going to happen to other similar schemes with participants all equally ill-equipped to deal with final salary liabilities?

David Davison is a Director at Spence & Partners, independent actuaries and consultants in Scotland and Northern Ireland.

David Davison

News reaches me that the Pensions Trust, who provide a multi-employer pension scheme covering 100’s of small charities and not for profit organisations has decided to close the scheme for all future benefit accrual from April 2010.

Now I’ve been banging on for a number of years about the headaches this scheme has been causing small charitable bodies (frequently without them even knowing about them!!). Read more »

Brian Spence

JLT Employee Benefits are apparently consulting with their staff with a view to closing their operation in Glasgow.  We understand about 70 staff are affected many of whom were engaged in providing actuarial and pensions administration services to final salary pension schemes originally set up by insurance companies like Scottish Mutual and Scottish Provident, mutual businesses that provided secure skilled employment for many decades but now sacrificed at the altar of shareholder value.  The pension schemes will apparently be serviced from JLT’s offices in England.

Sad to see a highly skilled team that has taken years to put together and which has accumulated knowledge of the pension schemes they administer just disappear like this.

UPDATE ON 5 JUNE 2009 – Story confirmed in The Herald.

Brian Spence

With the Scottish National Party government committed to bring forward a bill next year for a referendum on independence for Scotland the Faculty of Actuaries in Scotland is embroiled in what looks like an increasingly acrimonious dispute over merger with the Institute of Actuaries in England.

Latest is that a Special General Meeting has been called by a dissenting group Fidelis to debate three resolutions that are being strongly opposed by the Faculty’s Council.

A lively anti-merger account is being provided by Patrick Lee who is associated with Fidelis at 21st century actuary’s blog.

The point that perplexes me is why after 150 years of existence the Profession is so determined to bring about a merger on what could be the eve of independence for Scotland.

I havent seen any suggestion that the Society of Actuaries in Ireland or the actuarial profession in any other EU state should join in the merger.

Perhaps merger in the longer term will be the right course of action but it certainly seems a premature and divisive step at this stage.

David Davison

So close to the 250th anniversary of his birth it seems appropriate to recall that it was Rabbie Burns who wrote  “Fair fa’ your honest, sonsie face, Great chieftain o the puddin’ race!  Aboon them a’ ye tak your place, Painch, tripe, or thairm: Weel are ye wordy of a grace. As lang’s my arm.“

Not being immersed in the culture of my adoptive home to the extent that I should be, I’m afraid I haven’t a clue what it means but it does alert us to the fact that things are different in Scotland. This lack of cultural awareness on my part wouldn’t stop me downing a wee dram of whisky and sticking my dirk into a haggis with the best of them, though I’d probably double check the meaning of dirk with one of my Scottish colleagues first. Read more »

Brian Spence

I am not sure who Gordon “we’re listening” Brown, our beleaguered prime minister and former chancellor, turns to for guidance in matters economic, but he could do worse than have regard, not to Keynes or Galbraith, but to Charles Dickens. Whether you are responsible for a household, corporate or national budget, we can all understand and relate to the conclusions of Mr Micawber on the happiness engendered by a budget surplus, the misery caused by a budget deficit and the fine line between the two. Read more »

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