Archive for November 2009

Laura Cumming

Trustees and ETVs

I read with interest that trustees should not get involved in Enhanced Transfer Value exercises (ETVs). I would agree that it should not be the position of the trustee to question the reason for such an exercise (is there a reason other than de-risking?) however, I am in full support of trustees reviewing communications to members to ensure that the guidance from the Pensions Regulator has been followed and that the offer is fully explained to members with the necessary notes of caution included.

Without trustee review the ETV runs the risk of being overturned at a later date with consequent additional cost to review and ‘fix’ any problems.

Of course if a trustee does not have an opportunity to review the ETV offer a trustee could elect to send its own communication to members but quite frankly this could do nothing other than confuse an already complicated matter.

See UPDATE on ETVs reflecting the July 2010 Guidance.

David Davison

More bad news for the banks

Recent research has suggested that RBS and Lloyds are under-estimating pension obligations in their accounts by in excess of £24Bn combined. The survey by AlphaValue suggests that both organisations are using too high a discount rate in their accounting disclosures which reduces the value of the pension liabilities and therefore the scheme deficits. We’ve written extensively in this blog about issues surrounding pension scheme disclosures (“Pension Accounting Standards – Stop snickering at the back“, “Pension Accounting Standards – An Evertonian speaks“) but this research does at least highlight a few important issues.

Firstly, at long last how pension liabilities are valued in accounts is being recognised by analysts as being very significant and capable of distorting a company’s financial position and should be looked at closely, and frequently with some scepticism.

Secondly, this is an issue not just for the very largest companies but for any company disclosing pension liabilities in their accounts.

Thirdly, the position for companies going forward is going to be very problematic. AA Corporate Bond yields were up around the 6.6%-6.7% level at the end of 2008 meaning that companies could justify discount rates at around that level. They are now down around 5.6% which means that discount rates reflecting this could see liabilities rise by in the region of 15%-25%. The likelihood therefore is that companies will need to deal with increased deficits being disclosed in their accounts with the numerous associated issues.

Yet again this is an area where you need to look closely at the figures to see what they really mean and who is likely to be affected.

Brian Spence

At Spence & Partners we are proud of the infrastructure that we have established for handling and keeping pension scheme data securely.

Key to this is virtualisation.

Virtualisation of servers to ensure easy back-up and high availability – instead of lots of physical servers doing different things – a few physical servers each of which hosts a number of virtual servers.  One physical server breaks and another can step up to the mark and host everything.

Virtualisation of desktops to ensure personal data stays on servers where it can be managed and does not stray onto notebooks, trains etc.

All of this has been done with the support of Novosco our IT partners. Shown below is a little video they have on their website about our virtualisation project.  This features my colleague Mark Johnson our data guru and here is more detail (this was produced halfway through our virtualisation project – all our servers are now virtualised).

Brian Spence is a founder of actuaries Spence & Partners Limited and a director of independent trustee Dalriada Trustees Limited.  You can follow him at @briandspence or @PensionsEndgame on Twitter or link to him on LinkedIn.  Dalriada provides professional trustee services and Spence & Partners can provide support to employers in appointing an independent trustee.  Brian has written a series of articles on appointing an independent trustee.

Follow @SpencePartners and @DalriadaTrustee on Twitter.

David Davison

A report from the European Commission has cited the UK, Ireland, Greece and Slovenia as the countries most needing to take action over the impact on their public finances of an ageing population. These countries are viewed as being exposed to greater risks as a result of very large projected increases in age-related expenditure such as state and public sector pensions. The report suggests raising the retirement age, reducing the accrual of future pension rights and removing incentives for early retirement as ways to begin to address the issues faced.

David Davison

Downgrade of S2P from 2010

The value of the state second pension (S2P) is to be reduced from April 2010. Individuals earning more than £31,800 per annum will see a reduction of around 5% in the benefit built up despite continuing to pay the same national insurance contributions as prior to the change. The Government have claimed that the move will be offset by their proposed re-introduction of the earnings link to state pensions.

In a separate move widows will only be able to claim half of their husbands S2P rather than the full amount, a move which will undoubtedly impact those spouses who have stayed out of the workforce to raise a family.

All looks like an effort to control the costs associated with the re-introduction of the earnings link to the basic state pensions as life expectancy continues to improve.

David Davison

Personal Accounts delayed

The Government will delay the full implementation of personal accounts until October 2015 from 2012 with the entrance requirements being spread over 3 years, with large employers joining first. It has also reduced the consultation period on auto-enrolment from 12 weeks to 6 weeks which might be a touch taxing given that the proposals extend to 200 pages!!

David Davison

Really interesting article by Andrew Ellson in The Times on the dilemma faced by major trade union Unison given its decision to cut back its staff pension scheme whilst having robustly opposed similar proposals within the public sector. Fascinating that he quotes the Office of National Statistic research that shows average earnings in the public sector at £532 per week against £460 in the private sector, debunking the myth that more generous pension benefits compensates public sector employees for lower earnings – something I’ve tried to debunk previously myself!!

There needs to be a serious debate about public sector pensions and one would hope that having experienced final salary pension issues first hand Unison might begin to recognise that need. Prospect, Unite and Community unions have all recently made threats about industrial action related to pensions and a TUC motion to defend DB pensions was passed at their conference in September.

Politicians of all hues are becoming increasingly aware of the issue and in these recessionary times and with a clear divide between public and private sector pensions politicians are likely to receive support, and even encouragement, from the private sector electorate to seriously grasp this issue and the population is likely to be very unsympathetic to industrial action in the public sector.

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