I noticed the positive announcement this morning that Signature and Care Support is to merge with Choice Support to create more jobs.

This is clearly good news but from a pensions perspective the change does highlight a major issue for any bodies changing status (e.g. incorporating or merging) where they participate in multi-employer pension schemes such a those run by local government, the Pensions Trust or similar. Such a change in status can trigger the unwelcome pension consequence of terminating the participation of one (or both) bodies in the scheme with the requirement to pay a very significant debt contribution to the scheme. The level of debt can be many times the size of that disclosed in the organisations accounts and can frequently impact on the organisations future success. It could also be levied even where there is no change to the numbers of staff continuing to participate in any scheme post the change.

This is an area where great care is required and early engagement with the pension scheme is essential as problems can frequently be overcome but only if arrangements are made in advance of any change. I’m not suggesting that this is the case here as I’m unaware of the pension background but it is a general note of warning to be prepared where any change in corporate status is contemplated.

This article also appeared on Civil Society where David Davison is a regular contributor on the subjects of finance and governance.

Posted in: Blog
Tags: Charities, governance, Not For Profit, Pension deficits

Our regular blog author and industry commentator David Davison has now won a place as a fully commissioned blogger for Civil Society website. With extensive experience of pension and finance issue affecting the charitable and not-for-profit sector David will impart his wisdom (and hopefully some wit) on the subjects of governance and finance.

David explaines “Clearly I’m delighted to have been selected by Civil Society to provide topical comment of their site. The Civil Society site brings together wide ranging issues that affect the charitable sector and I hope to provide some valuable insight, informative content and encourage debate on subjects I think the sector should be talking about.”

Read the blog that secured David’s success – “Between a rock and a very hard place – the looming pension crisis“, and keep an eye out for his further installments.

David Davison is a director of Spence & Partners Actuaries and specialises in providing pensions advice to charities and not-for-profit organisations, especially those who run their own final salary schemes or who participate in the LGPS and multi-employer schemes.

Posted in: Blog
Tags: Charities, Not For Profit

The reality of the Irish Budget at the end of 2009 was much better than the expectation as many of the ‘rumoured’ changes to pension provision failed to materialise as the Irish Government sought to plug close to a 12% deficit in their GDP. What was announced was:-

• Final salary provision would be ended for all new public sector staff from 2011 when a new CARE Scheme would be introduced.
• Retirement ages would be increased from 65 to 66 with future increases linked to state pension age.
• An announcement that pension increases being linked to CPI rather than earnings was actively under consideration.

The public sector therefore bore the brunt of the changes with the private sector remaining relatively unscathed. The move to CARE will over time produce cost savings although with a recruitment freeze in the public sector these are unlikely to be seen in the short term. The decision to move from final salary to CARE may also encourage a similar move in the private sector. I also await the impact of the proposals on industrial relations with interest.

It’s unlikely these changes will be the end of it however. Whilst not changed in this budget the taxation of ‘tax free’ lump sums and pension contributions was firmly on the future agenda with the current status quo considered unsustainable, especially as a taxation commission had proposed taxing lump sums in excess of 200,000 Euro.

The size of the Irish market also means it is difficult for it to benefit from economies of scale, something which could be addressed by more flexible financial practices throughout the EU and an increase in the number of industry wide schemes – although as commented previously in this blog the ownership / responsibility issues these types of arrangement present are difficult to overcome other than on a DC basis.
Whilst suffering from similar high level financial economic and public sector pension issues as the UK the market is much smaller which limits options however the trends are inescapable.

Posted in: Blog
Tags: Ireland, Public Sector Pensions

Persuasion. The psychological technique, not the Jane Austen novel. How do we persuade people to exhibit a particular behaviour?

According to Wikipedia persuasion is the process of guiding people and oneself toward the adoption of an idea, attitude, or action by rational and symbolic (though not always logical) means. The Wikipedia article cites lots of techniques and barriers to persuasion, but misses the big one as far as I can see.

In my experience the best way to persuade someone to pursue a particular course of action requires one fairly straightforward question to be answered;

“What’s in it for me?”

Read more »

Posted in: Blog
Tags: anti-forestalling, PCLS, Tax

As a firm including Northern Ireland actuaries we surely be justified for feeling left out in the cold again by the new Joint Proposal to merge the Faculty of Actuaries in Scotland and the Institute of Actuaries.

If the proposals are accepted a Scottish constituency will be created primarily for actuaries in Scotland (which we have a very defintite interest in too!), as will a Scottish Board to promote the Actuarial Profession in Scotland.  The Scottish Board will be able to draw on a £500,000 endowment.

Despite Northern Ireland having a government to which power is devolved to a much greater extent than in Scotland it receives relatively little attention from the Actuarial Profession.  I am not aware that there is any contact to speak of between the Actuarial Profession and the main political parties and there have been instances of problems with Northern Ireland legislation not being subject to some of the scrutiny that it might have been.

It is disappointing but not altogether surprising to see nothing in the revised merger proposals to address this.

Posted in: Blog
Tags: Actuarial, Actuarial Profession, Actuaries in Northern Ireland

Actuaries and pensions lawyers up and down the UK are earning good fees providing opinions on the vexed subject of equalisation after Angela Eagle’s welcome announcement.  GMP Equalisation continues to be consigned to the “too difficult” tray with prevarication along the lines

…this is an impossible task

…the government’s view is not binding

…trustees should wait for government guidance on how to equalise

For example, and not wishing to single them out, the otherwise esteemed actuaries Lane Clark & Peacock say “The industry has been asking for this for 20 years and not yet received a response.” Well actually no that is not true – we have not been asking, we know what equal means and have done since primary school.

On the other hand as Richard Bryant points out in his excellent Blog Prudential are not completing documentation for annuities on wind-up where there are post 1990 GMPs.  Prudential seem to get it – gender equality has been a requirement since 1990 and however much the industry may complain it will have to be addressed.

As my colleague David Davison has written recently on GMP Equalisation – this is not a complicated issue and in my earlier article I set out the practical steps for trustees needed to bring about the equalisation of GMPs.

Equal means equal and any modern pensions payroll system should be able to accommodate this.  If trustees have accurate historic data and good administration software it is a relatively simple spreadsheet calculation.  If not then there may be approximations required to ensure inequalities are eliminated and these approximations may add to the liabilities which is part of the price to be paid for poor data.

Posted in: Blog
Tags: Actuarial, Administration, Data, GMP Equalisation, Trusteeship

A major new accounting standard says your pension liabilities need not be valued by an independent actuary. So does this pave the way for companies to carry out their own valuations? Our guest contributor, David McBain of Johnston Carmichael, Chartered Accountants and Business Advisers, investigates. Fortunately he is concluding there is still a role for actuaries!

Defined benefit pension schemes are something of an irritant to finance directors. Annual valuations of the assets and liabilities are required and the resultant deficits (and occasional surpluses) introduce a high degree of volatility to the annual accounts. Pages of disclosures also result, many of which are largely unintelligible to the average reader.

So it’s little wonder that the same FDs will be hoping to find some simplification in the new International Financial Reporting Standard for Smaller Entities (IFRSSME). But will they find it?
Read more »

Posted in: Blog
Tags: Accounting, Corporate, FRS17, IFRSSME, Pension deficits

In July 2009 the Pension Trust made the announcement that the Scottish Voluntary Sector Pension Scheme (SVSPS) would close to all future accruals from the end of March 2010. This caused great consternation among the membership and most have been grappling with the difficult issues associated ever since.   Read more »

Posted in: Blog
Tags: Not For Profit, Pension Funding, Pensions Trust, Scheme Closure, Scottish Federation of Housing Associations (SFHA) Pension Scheme, Scottish Pension Schemes, the Scottish Voluntary Sector Pension Scheme (SVSPS)

S&P – to be clear, Standard & Poors, not Spence & Partners - has downgraded BT’s credit rating as a result of concerns over how it is proposing to manage its pension deficit.

S&P credit analyst Michael O’Brien comments:

“We consider that such payments could constrain the financial flexibility of the group over the medium to long term in terms of shareholder returns and capital expenditures, or from a strategic perspective as the intensely competitive telecoms industry environment evolves.”

“We also believe that such payments, while reducing the pension deficit year on year, will not be sufficient to reduce BT’s pension- and lease-adjusted leverage in the short term closer to a level of 3x, which we would deem more appropriate for the rating.”

The Pensions Regulator has also expressed concerns about BT’s funding proposals. 

BT may have congratulated itself on negotiating a lower short term deficit contribution than might otherwise have been the case, and would probably not wish to see the negotiation categorised as a “victory” for one side or the other. However, having seen a 4.4% fall in his share price, Sir Michael Rake will clearly empathise with Pyrrhus, king of Epirus, who nearly said “”If we are victorious in one more battle with the trustees, we shall be utterly ruined.”

Posted in: Blog
Tags: Actuarial, Corporate, Pension deficits, Pension Funding, Pensions Regulator