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 »
Wow – what a year 2016 has been. Brexit, President Trump, Hibs winning the Scottish Cup – who saw that coming? Seriously, Hibs won the Scottish Cup.
What have we learned? The dictionary definition of “pollster” might have to change to “people who predict things and always get it wrong”, said the actuary throwing stones from his glass-house. My lesson to the pollsters is to quote a much bigger margin of error and include lots of caveats.
At least when it comes to 2017, it is now a reasonable stance to say that I’ve got no idea what’s going to happen. Read more »
Well, the wait is finally over. Horton v Henry has been decided. After hearing arguments in April and deliberating over this important decision for 6 months, the Court of Appeal released their much anticipated judgment on 7th October 2016. Unfortunately for me, this came a week after my summary of the case history was published in PMI News with a “wait and see” conclusion on the Horton decision. The Lord Justices clearly forgot to give me a heads-up… so rude!
Anyway, as mentioned in my article and earlier blog this decision has been a long time coming. A controversial and potentially devastating judgment for bankrupts (Raithatha in 2012) has been put to bed, meaning bankrupts can now breathe a sigh of relief that their entire pension pots post Pension Freedoms are not at risk of an Income Payment Order. Read more »
The Pensions Regulator’s 21st Century Trustee initiative inspired a previous blog by one of my Dalriada colleagues recently “Trustees in the 21st Century” and is now the subject of a discussion paper. What should a modern trustee look like and is regulation required?
Let’s face it, being a pension scheme trustee was never an easy job but it just seems that it is becoming more and more demanding. The demands being met by trustees require them to have a complex knowledge in the minefield that is now pensions and they are coming under increased scrutiny. This means that effective trustees need a high degree of knowledge and understanding. Trustees need to be knowledgeable of the whole pensions landscape, understanding such things as scheme funding, investment decisions, employer covenant and above all else the best interests of their membership in relation to that pension scheme. The wisdom of Solomon and patience of Job would seem apt for a trustee job description. Read more »
(The ‘H’ on my keyboard is in for a tough afternoon!)
Good news for bankrupts. Bad news for creditors. Important news for trustees in bankruptcy and pension scheme trustees alike. The High Court, in the case of Hinton v Wotherspoon, has delivered a judgement that provides real clarity on how the pension income of a bankrupt can be subjected to an Income Payments Order (“IPO”).
Now, it has to be said at the outset, that a case on the same issue (Horton v Henry) – that Hinton proclaimed as “plainly correct” – was heard by the Court of Appeal in April. That decision will be crucial, as it will represent a binding decision from a higher court, unlike Hinton and Horton that are both first instance decisions in the High Court. Read more »
Spence & Partners, the UK actuaries and consultants, today urged trustees to take more
proactive steps in order to avoid the kind of market volatility that caused BHS and TATA to struggle*.
Simon Cohen, Head of Investment Consulting at Spence, commented: “Volatile markets present both opportunities and threats for pension schemes. In order for them to present an opportunity, schemes must monitor their funding level more actively in order to be able to take prompt action to lock-in investment gains and reduce future volatility. Schemes should assess their risks and take control of a strategy to achieve the ultimate goal of paying all benefits to members in full without bankrupting the employer in the process.” Read more »
Following the recent investigation by Friends of the Earth Scotland which found that the Scottish Parliament pension fund invests £3.2 million of its funds into tobacco, weapons and fossil fuels, I began to think about socially responsible investment and how it can impact pension funds.
I’ve always been quite sceptical about ethical investment for a number of reasons, mainly the question “What is ethical investment?” It’s a very subjective question, and many people will draw a different line about what they consider to be ethical or unethical. Tobacco was one of the sectors mentioned by Friends of the Earth Scotland in their investigation; it’s easy to see how different people can be on either side of the argument. There’s also the issue that restricting investment in these sectors prevents a fund from investing in a number of well established and stable companies – it seems that this would be detrimental to the performance of the fund. However… Read more »
‘Well you can tell your Pensions Regulator….’ comes the voice over the conference call phone. A not unfamiliar scene during a pension trustees’ meeting when discussing a new funding proposal with an overseas parent company.
There are several barriers to effective interaction between UK pension scheme trustees and overseas sponsors (or the overseas parents of UK sponsors). I explore these below, and consider what lessons can be learned from those schemes that enjoy good working relationships with their overseas parents. Read more »
Spence & Partners latest blog for Pension Funds Online –
In a world where gilt yields continue to hurt pension scheme funding levels, even at a time when the markets are performing well, support from scheme sponsors is crucial. All the more reason why Trustees should have a strong framework in place to understand and monitor their employer covenant.
This is one of those statements which is easy to make and less easy to implement. Properly assessing the strength of a company and then monitoring the way that changes is no easy task.
Many trustees complain of bland covenant reports which simply re-present financial statements from their company, difficulty in obtaining timely information and then a struggle to identify the main drivers behind the company covenant. Read more »
Last month I had the pleasure of attending a session with Charles Stanley Pan Asset, for a seminar entitled “Can pension schemes cut risk and cost without sacrificing investment performance”. The slots were covered by two speakers, John Redwood of Charles Stanley Pan Asset and our very own Alan Collins, Director & Head of Trustee Advisory Services.
What struck me at the sessions was the challenges ahead for Trustees of Defined Benefit (DB) Schemes in relation to funding, investment risk and cost. However, thankfully, I did see a potential light at the end of the tunnel.
What we’re dealing with now
Interest rates have fallen significantly over the past year. For schemes with un-hedged investments, funding levels will have plummeted. Similarly, inflation is low and schemes with fixed increases and un-hedged investments will be hit hardest.
The number of DB schemes in deficit on a S179 basis averaged 1,500 in January 2007 rising to over 4,000 at the peak of the credit crunch in 2009. The current estimate for 2015 is well over 5,000! Surely this trend can’t continue…..can we let it? Read more »