Pensions archive

Tackling the cost of the single state pension

  • The end of contracting out will have significant cost implications for some companies.

Data analytics: helping companies manage costs and improve return on benefit spend

  • There has been an increase in the number of organisations using analytics to improve employee benefit design and decisions.

Sustainability in the pension’s world

  • What does sustainability mean in the context of Defined Benefit pension schemes?

Kicking the deficit can down the road

  • More than half of company pension funds have lengthened deficit recovery plans by three years or more.

What to expect from Cameron

  • The General Election result may have multiple implications for companies sponsoring pension arrangements.

The death knell for RPI?

  • Increasing evidence that RPI as an inflation measure for pensions is no longer fit for purpose.

De-risking pension schemes

  • Competitive tension in the insurance market means this is a good time for companies to consider reducing or securing their pension scheme liabilities.

Cash calculations

  • As bond yields continue to fall, should companies challenge the approach used by actuarial advisers to determine the level of their cash contributions?

Feeling the pension pinch

  • Falling bond yields have increased the cost of defined benefit pension schemes, but companies can take steps to manage the impact.

UK GAAP changes may force accounting changes for Defined Benefit pensions

  • Pension scheme accounting to change from 1 January 2015
  • There are three main changes that have an impact on UK companies with defined benefit pension schemes who report under UK GAAP

Global pension survey shows that defined benefit is a thing of the past

  • Survey reports that the death of defined benefits pensions is a global phenomenon
  • Only 6% of companies view DB as their preferred pension provision for the future, while 90% plan to focus on defined contribution
  • 83% of employers believe they need to give more flexibility to their employees in the way they save for retirement and take their benefits

EU Pensions Directive – concern about solvency measure by the back door

  • Concerns that EIOPA continues to refine solvency measures even after the pillar 1 proposals on solvency were stopped by the commissioner
  • EC expected to issue proposals on governance and reporting this year
  • New data requirements may also be a challenge

Revised funding Code of Practise – potential game changer

  • Comments on revised Code of Practise for defined benefit pension schemes funding due by 7 February 2014
  • Consultation on regulatory strategy also due
  • Integrated risk management is a central theme and focus on investment strategy is a potential game changer
  • A new approach – Covenant Driven Investment – is being positively received

New ‘fair deal’ for pensions on work outsourced by central government

  • New guidance expected to reduce contractors’ costs and risks and enable competitive contract pricing
  • Look out for detail of contractor contributions to government pension schemes from each responsible department

Defined ambition – the future of pensions?

  • 'Defined ambition' proposals detail government vision for future occupational pensions
  • Several different models are outlined
  • Concerns that legislation could apply differentially to the past and future and damage emergence of DA schemes

Pensions regulator approach to Defined Contribution schemes

  • The strategy for regulating DC schemes sets out 6 principles and 31 quality features
  • Draft compliance and enforcement policy shows more involvement in DC scheme governance – involvement in ‘thematic reviews’ needed to manage reputation risk
  • Expectations of DC scheme trustees are outlined in Code of Practise 13

Office of Fair Trading (OFT) progress on study of pensions charges

  • OFT study has focused on charges in DC schemes – six areas of concern identified e.g. some opaque charges and unfair discounts

Risk-focused pension disclosures

  • Amended accounting standard will affect all IFRS reporters
  • New disclosure objectives for 2013 year end – need to explain: DB plans and risks; amounts in fs; effect on future cash flows

Pension Protection Fund news

  • Levy will increase to £630m for 2013/14
  • Cap on compensation will increase for long-serving employees
  • PPF will switch to Experian for employer insolvency risk ratings

Pension deficits impact investment and acquisition decisions

  • Over half the schemes surveyed by Bank of England had increased contributions and/or cut back benefits
  • Over a quarter reported a major impact on investment decisions, dividend payments and acquisitions

State pension reform – speeding up

  • Abolition of contracting out brought forward to April 2016
  • Important to understand how State Pension Age interacts with policy on retirement age

Commission withdraws solvency aspects of EU Pensions Directive

  • EC backed down on solvency reserving, but will push ahead with Pillars 2 and 3 – target Autumn for initial legislation
  • Reporting requirements expected to be more frequent

Defined benefit pensions – more support for employers

  • New statutory objective means more backing from regulator
  • No change to statutory legislation on funding
  • Make the most of existing flexibility on funding

Auto-enrolment – time to take stock

  • Opt-out rates lower than expected –so could have cost impact
  • Pensions regulator to publish monthly registration reports

State pension reform to increase NI bills

  • NI bills will rise for employers still providing contracted out DB pensions from 2017
  • Assessment needed on whether this kind of pension is sustainable

Funding defined benefit pensions

  • Government ‘call for evidence’ to inform decisions on changes
  • Smoothing will stabilise funding, lowering cash demands from pension trustees. But questions remain.
  • Government aim on affordability is to balance investment /growth and protections for pension members.
  • Comments on any tangible benefits for UK plc will be useful

No change to RPI: No liabilities reduction

  • Action needed to mitigate inflation risk on defined benefit pensions as expected change to RPI calculation was not made
  • Action could include: inflation hedges and changing rules to CPI

Funding defined benefit pension schemes: consultation on smoothing

  • Smoothing would give more stable funding results but could mask underlying problems and risks

Workplace pensions – government’s plans

  • Government has set out vision in: Reinvigorating pensions
  • It introduces the ‘defined ambition’ model; suggests change to investment manager charges; supports streamlined regulation

VAT paid by pension funds – reclaims

  • A number of legal cases could see a revision of VAT treatment on management fees – schemes may be eligible for VAT claims

Tax relief for pensions – further reductions

  • Pensions’ tax relief reduced to £40,000 from 6 April 2014
  • Lifetime allowance down from £1.5m to £1.25m

Directive expected to require stronger capital requirements for pension schemes

  • Draft legislation from EIOPA expected this summer
  • UK regulator responded to the impact study – voiced concern that proposals will cause misstatements of sponsoring companies’ value
  • Direction established but uncertainty on timing and process