Archive for March 2010

David Davison

The Charity Finance Directors Group (CFDG) have announced plans to research the true scale of the charity sector’s final salary pension problem.

David Davison for Civil Society, explains why the focus should not be on the size of the number, but on how to address the issues, engage all stakeholders and formulate a ‘blueprint for change’.

Neil Copeland

Spotted an interesting article on FT.com headed “The paradox of professional trustees”.

At simplest a paradox is a statement that contradicts itself for example ”I always lie” is a paradox because, if it is true, it must be false.

My personal favourite is the Kleene–Rosser paradox which was developed by Stephen Kleene and JB Rosser, to show that the lambda calculus was inconsistent. I am not entirely sure what this means but suspect that;

1) I’ve been spending too much time in the company of actuaries and

2) that money directed to pure mathematical research is probably not particularly well spent.

The headline of the article appears to suggest, oxymoronically, or possibly just moronically, that trustees can’t be professional or that a professional can’t be a trustee. The article makes the point that there is nothing to prevent any idiot holding himself out as willing to act as a pension scheme trustee and seeking to charge for performing such a role. It highlights a trend for the great and the good of the pensions world to view acting as a trustee as a nice little earner to supplement their pensions. A sleepy wind down on route to the old folks home with a few long lunches and a decent claret or two along the way.

Anyone approaching trusteeship from this perspective will find themselves as irrelevant to the reality of the role they will need to fulfil as the Kleene-Rosser paradox is to the daily lives of you and me, and possibly just about everyone else on the planet, apart from Messrs Kleene and Rosser.

The article needs to be aware that not all professional trustees fit this stereotype – age and grey hair alone are no longer all that’s required .

Anyone acting as a trustee, professionally or otherwise, is faced with a challenging and dynamic pensions environment which is no place for those wishing to rest on their laurels. Try reviewing the guidance provided for trustees on the Pensions Regulator’s website for an idea of the breadth of knowledge required to adequately fulfil the role. Increasingly the trustee role is seen as something that poses risks for even the most diligent and enthusiastic amateur.  Equally trustee boards are increasingly faced with contentious issues particularly around funding which throw up myriad conflicts of interest for those involved. The professional trustee is clearly a concept whose time has come.

The real problem, which in fairness the article does identify, is the lack of control over those who set themselves up to be a professional trustee.

  • Just because someone is an excellent pensions lawyer does not mean that they are equipped to be a pension trustee.
  • Just because someone is an excellent pensions actuary does not mean that they are equipped to be a pension trustee.
  • Just because someone is an excellent pensions consultant does not mean that they are equipped to be a pension trustee.

A broad skills base is essential and we need to start to see acting as a trustee as a profession in its own right, not a place where old professionals from other disciplines go to die.

One positive recent development is the Pension Regulator’s consultation on its trustee register which has recently closed. The Regulator will obviously be keen to ensure that it suffers no further embarrassment such as that generated by the GP Noble debacle and companies thinking of appointing an independent trustee should be able to take some comfort in the revised register once it is available, as imposing some level of quality control in an area that has been sadly lacking in such to date.

So provided you do your research, and avoid the bull elephants thrashing impotently as the graveyard beckons, then there is nothing paradoxical about “professional trustees” nor, indeed, “intelligent journalism”.

David Davison

David Davison provides insight to Third Sector magazine on the implications of final salary benefits to participants in the Scottish Voluntary Sector Pension Scheme (SVSPS), and the implications of the ‘last man standing’ basis of the scheme and the impact it might have on those charities participating.

David Davison

The end of March 2010 will see the closure of the Scottish Voluntary Sector Pensions Scheme (“SVSPS”), run by the Pensions Trust.

David Davison, guest blogger on governance and finance for Civil Society, explains the stark reality of significant pension deficits, and the need for participants reviewing their benefit provision to arrive at a solution that meets their needs.

David 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.

David Davison

Only fools & horses

It’s sad to see a national institution like Readers Digest forced in to receivership by its final salary pension scheme liabilities, although encouraging to note that the receiver has had “significant interest” from potential purchasers so there may be some light at the end of the tunnel – although it may just be a rapidly approaching train!! This is however a salutary lesson in how significant pension liabilities can become and that no business, no matter how well known, is immune to having to deal with their promises.

It reminds me a bit of the old Only Fools and Horses episode where they were asked to take down a chandelier. The lesson was that no matter how much planning was involved and how much you try to focus on the details like sales, budgeting, cashflow etc, missing, or paying less attention to, a significant factor like the creeping levels of pension deficit can be catastrophic.

David Davison

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.

David Davison

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 explains “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 instalments.

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.

David Davison

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.

Neil Copeland

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 »

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