Archive for December 2009

Brian Spence

EMERGENCY COVER

Spence & Partners’ offices will be closed from 1500 on Thursday 24 December until 0830 on Monday 4 January (Belfast and London) or 5 January (Glasgow).

If you have an urgent enquiry over this period please use the Contact Form on this website and your enquiry will be acknowledged and if possible dealt with.

In the event that you need urgent assistance you can speak to one of our directors Brian Spence on 07802 403013 or Neil Copeland on 07803 937138.

Brian Spence

Many employers have been facing a very tough time recently. Spence & Partners normally reviews its hourly charging rates from 1 January each year. In recognition of the tough trading conditions many of our clients are experiencing we have decided to hold our 2009 rates for 2010.

We understand that some of the larger actuarial consultancies and pensions administrators are attempting to implement fee increases in 2010.

There has probably never been a better time for pension scheme trustees and employers to review actuarial advisers and when appointing new advisers they should consider smaller independent consulting firms such as Spence & Partners which offer just as good a service as the large consultancy firms, in fact a much more engaged service, but at a significantly more competitive price.

David Davison

At this time of year it can be difficult to think of the ideal gift for the pensions professional in your life. Here at Spence & Partners we’ve developed a computer game (with the occasional manual work around) specially aimed at the lucrative and exciting Christmas pensions market. Welcome to Supermario Pensions, a game that any trustee, actuary or pensions administrator can play.

Read more »

Ian Campbell

The calendar year end pension accounting season approaches as do the Chrismas and New Year festivities, but there is unlikely to be much cheer amongst finance directors with the former.

Improving world stock market returns over the year will have helped the asset side of the pension  balance sheet, particularly for those pension schemes with a meaningful equity exposure albeit it has been a bit of a volatile ride. This may have given some finance direction a false sense of optimism. For example over the year to date the FTSE 100 has increased about 17%.

However this good news is likely to be more than offset by a very significant reduction in bond yields since the 2008 year end. Pension disclosures require liabilities to be discounted using AA corporate bond yields of appropriate duration of the liabilities. One common measure of this is the Markit 15 year iBoxx Corporates AA 15 year + index  and over the course of 2009 this has fallen from around  6.7% p.a. to about  5.5% p.a. The impact that this will have on individual pension schemes depends mainly on the age profile of the membership. It will also depend on the extent of any margin that was deducted from the rate used at the previous year end to allow for the effect of the “credit crunch”. For a young scheme with a typical benefit structure and average weighted age of say 45 this will increase the liability value, other things being equal, by about 30%. For a more mature scheme, say with average age 55 the increase is of the order of 20%. Of course there are other factors at play e.g. changes in the inflation and longevity assumptions. This assumes a discount rate of around 6.5% p.a. was adopted at 31 December 2008.

AA corporate bond yields at 31 December 2008 factored in a much higher risk of default than applies today and this resulted in what may be viewed as an artificial reduction in the liability valuations. However, at the time it was a welcome offset to sick asset valuations.

To help to offset the impact of an increase in the year end deficit, finance directors should review if the other asssumptions are derived on a best estimates basis. It is often the case that many of the other assumptions match those used by the pension scheme trustees for funding purposes and these are likely to include margins for prudence i.e. it could be argued that they are not best estimates. This may include for example the allowance made for salary increases or future longevity improvements. This may be an area worth investigating as a possible way of mitigating some of the increase in the year end deficit.

Spence & Partners have extensive experience in advising corporates on pension accounting computations and disclosures and we are gearing up for a very busy end December/early January!

For information regarding pension accounting computations and disclosures contact Ian Campbell on 0141 331 1004 or email ian.campbell@spenceandpartners.co.uk

Brian Spence

Jagger & Associates excellent Investment Bulletin on longevity swaps continues with part 2.

Previously posted part 1 can be found here.

If you would like to consider this option or review any of your investment options contact Jagger & Associates, Actuaries & Investment Consultants on 0161 873 9350 or email enquiries@jaggerandassociates.co.uk.

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

It’s good to hear that by the time of their launch Personal Accounts won’t be called Personal Accounts. That’ll be the pension problem solved then!! As if pensions aren’t confusing enough we’re going to launch another type of pension and then halfway through the process change its name!! Is it just me or has the world gone mad?

David Davison

I really must endorse Mike Woodall’s call to get on with reforming public sector pensions. The last review kicked off in 2003 and resulted in the changes which were implemented in 2009. These were a massive missed opportunity, a squandered chance to create a public sector pension scheme which was fair for members and tax payers and fit for the future. But in the end we just ended up with another ‘fudge’ with a minimal tweaking of contribution rates resulting in an overall member increase of 0.3% and some minor amendment of benefits.

With around 300,000 more members participating in public sector schemes between 2006 to 2008 the problem is just getting bigger. I’ve already commented in this blog on the financial implications this issue is likely to have on our exit from recession, (“A Rock and a very hard place!!”) but now this is firmly in the political domain it just seems to be too much of a hot potato, especially with an election looming.

I agree with Anthony Mayer from the London Pensions Fund Authority that an independent commission needs to be established to properly consider the alternatives. This needs to be soon, especially given previous implementation timescales, needs to be truly independent and the Government needs to commit to implementing an agreed solution which will have a material impact and not another ‘confectionary solution.’

Brian Spence

We noted with disappointment (because however much we compete with other firms nobody likes to see people we have worked with losing their jobs) in our earlier post Pensions Administration Jobs To Be Lost In Glasgow that JLT Employee Benefits were intending to pull out of Scotland and indeed this went on to happen when they closed their Glasgow office in September.

JLT’s loss has been our gain with one person who had been made redundant joining our staff and unsurprisingly it would seem that some pension schemes are on the move too.

JLT’s exit from Scotland has been short lived now that they have acquired HSBC Actuaries and Consultants (HACL) who have offices in Glasgow and Edinburgh. We understand they will be trading under the name JLT Actuaries and Consultants eventually.

Ann McGinn rather pointedly observes in a comment on the Professional Pensions website “Kind Regards – I am sure that all the staff who have recently been made redundant both within the Glasgow office of JLT and beyond wish the company all the best with the acquisition!!! Congratulations!”

For the sake of the longstanding HACL team in Edinburgh with whom we have worked in the past we hope JLT will stay this time!

Spence & Partners is committed to continuing to provide actuarial advice locally to clients in all the major legal jurisdictions in the British Isles including Scotland and for that matter, Northern Ireland and Ireland (where neither JLT Employee Benefits nor HACL seem to have an actuarial presence).

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

More on Trustees and ETVs

Interesting to read Fraser Sparks from Hammonds views expressed at the recent Professional Pensions Show that trustees should not be getting involved when employers chose to run an Enhanced Transfer value (ETV) exercise for their scheme members. His view is that getting involved exposes trustees to additional dangers and is outside their legal obligations. Read more »

David Davison

Private Eye has a regular feature where readers compete to send in the latest unimaginative and probably inappropriate inclusion of the word “solutions” in a company name or marketing slogan. You know the kind of thing – “for all your total reward solutions” “for all your waste management solutions” “for all your rubberwear solutions”, or whatever.

It’s undoubtedly a difficult time for pension scheme trustees and scheme sponsors – always looking for solutions. Ever more onerous legislation to keep abreast of, more onerous training and competency requirements, a more complex funding regime, confusion and concern among members, more complex administration, and the constant concerns regarding conflicts of interest. Read more »

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