Archive for October 2014

Alan Collins

If this year’s Purple Book is anything to go by, you could be forgiven for thinking nothing much has happened in the world of pensions.

On the same day that the Office for National Statistics confirmed an upturn in the number of people saving in workplace pension schemes for the first time in many years, the Pensions Regulator/Pension Protection Fund “bible” of DB schemes confirmed, well, nothing much really.

The inexorable trend of DB scheme closures continued, with 32% of schemes now closed to accrual (up from 30% last year).  I suspect bigger jumps are ahead, especially with the cessation of contracting out in April 2016.

The report correctly highlighted recent deteriorations in DB scheme funding levels, estimating that scheme funding levels will have dropped around 8% since March.  This offsets improvements over the previous 12 months.

The average asset allocation of schemes was virtually unmoved with around 35% in equity, 45% fixed interest bonds, 5% in property, 5% in cash and 15% in other assets (including hedge funds).

2013 was a busy year for buy-ins and buy-outs, with a 30% increase in the number of deals completed.  However, the early part of 2014 seemed to indicate a return to normal levels, with 40 deals completed in Q1.

One point of solace for those of us in the DB consulting world is that the decline in the number of DB schemes has slowed, with 2.5% less schemes now in the “universe”.  At some points recently, the rate of decline has been around 5% a year.

Michael Lallali

This was our fourth Future Influencers event and not only did many of the attendees at this event also attend our first, people have helped the events grow and invited their colleagues along. As with earlier events we also continued to welcome new faces from other sources too. It is really pleasing to hear positive comments about these events, with many people commenting that there is nothing else targeted at this level of audience, where we can all come together and broaden our knowledge. This was also the first event following the Future Influencers becoming CPD accredited, recognising the quality of the subjects that have been presented. Read more »

Angela Burns

The Pensions Regulator (“the Regulator”) has recently implemented a revised version of Code of Practice 3 (“the Code”) for funding defined benefit pension schemes.

The Code has been updated to take account of the Regulators new statutory objective to minimise impact on the sustainable growth of the employer.  The code recognises that a strong, ongoing employer alongside an appropriate funding plan is the best support for a well-governed scheme.

The revised Code is less prescriptive and more principles based and as such leaves scope for interpretation.  There is no longer a ‘one size fits all’ approach where schemes will avoid the scrutiny of the Regulator provided they do not hit certain ‘triggers’.  Each funding plan will be and should be unique to that scheme, and the circumstances of the sponsoring employer. Read more »

Alan Collins

Welcome news from the PPF

Spence & Partners latest blog for Pensions Funds Online –

Last month I talked about how the Pension Protection Fund (PPF) has improved processing times and introduced expert panels from across the pensions industry to implement continuous and appropriate improvement for schemes throughout the assessment process.

Well, the PPF have been in the news again this week following the results of this year’s consultation. So what were the highlights and how will it affect the industry?

Scheme trustees and sponsoring employers will have received some comfort from the PPF’s announcement regarding the 2015/16 levy. For example, the PPF intends to collect £635m in 2015/16, around 10% less than the estimated intake for 2014/15 (invoices for which will have been issued for most schemes in the last few weeks) which will be a relief to many.

This lowered estimate filters through to the levy calculation, where the Scheme Based levy for each scheme will be more than 60% lower (all else being equal) and the Risk Based Levy (usually the significantly higher of the two) will be around 11% lower (again all else being equal).

Another welcome result comes through an easing in the PPF’s interpretation of Asset-Backed Contributions (ABCs). The latest update confirms that all forms of ABCs will count towards reducing the levy, “provided the ABC is valued in a way that reflects the value to the PPF in the event of insolvency”. Although an annual valuation of the asset is required, potentially increasing the cost of holding it, ABCs will still be a very effective PPF levy management tool for those schemes and employers which enter in to such agreements.

Further comfort should also be sought by the PPF’s confirmation that they will consult on the issues raised around mortgage ages, and how recently the secured debts were taken on by the employer. Previously this resulted in some very negative outcomes for employers who had re-mortgaged loans, but the PPF has committed to finding a solution that means this (and associated charges unlikely to affect solvency) will not unfairly increase the levy.

With these improvements there still comes a warning for schemes to keep their houses in order. Mitigating your levy is still a vital action to be taken, especially as the 31 October deadline approaches for setting next year’s levy. For small and medium-sized employers there is a risk that the recent move from D&B’s scoring system to Experian will adversely affect their score around insolvency risk measurement – so I would suggest all trustees and employers check their current score now and do whatever they can to reduce this before the deadline.

No matter your thoughts on the levy, it is here to stay. The good news is that the PPF are taking steps to accommodate the changing ways that pension schemes are run, and how and where they invest their assets. There is however still a great responsibility on trustees and employers to maintain their focus. Monitoring your levy and taking all necessary steps to reduce it where possible, many of which are simply around meeting deadlines and providing appropriate documentation, is still the best way to reduce the cost to your scheme.

Pension Funds Online

Rebecca Lavender

PRESS release: 09 OCTOBER 2014

Spence & Partners, leading actuarial advisers to the charitable and social housing sector, has launched an online calculator and Guide to help organisations assess the likely impact of the introduction of FRS102.

David Davison, Head of Public Sector, Charities and Not-for-Profit Practice at Spence & Partners commented: “The introduction of the new pension reporting rules will require organisations to fully disclose their multi-employer pension scheme liabilities in their annual accounts, many for the first time.  We have launched this online calculator to help organisations as they try to get a handle on this new pension scheme accounting standard and identify what the likely position will be for them. This will be a challenge, particularly for charities in multi-employer schemes, who up until now only needed to record the value of their DC contributions.

“The calculator will allow schemes to enter their deficit recovery contributions and recovery period and obtain an estimate of the net present value figure* they’ll likely have to include on their balance sheet. Based upon this, the calculator will also provide a proxy figure for a full disclosure equivalent to that currently derived under FRS17**. This will help charities and other organisations participating in multi-employer schemes see the potential financial impact of disclosure early on and help them plan any steps needed to protect the balance sheet position. The steps could be relatively straightforward, but for others, particularly those where this change could have a material impact on their balance sheet, more bespoke action could be required. Charities, for example, might like to consider designating funds in the next financial statements to cover any agreed deficit reduction payments to minimise the effect on free reserves when FRS102 comes into effect.”

Davison added: “Although FRS102 only comes into force for accounting periods on or after 1 January 2015, the information and planning required means the issue should really be being considered now. The calculator will allow multiple calculations to be carried out and it can also be saved and printed. We believe it, and our technical guide, will provide access to a valuable resource for charities to better understand their obligations.”

The calculator can be found here The technical guide which explains the technical details of the new accounting disclosures and the key choices charity financial directors are likely to face is also available at

* The value of outgoing cashflows, discounted back to the present date, using a discount rate

** An accounting standard used to assess the balance sheet impact and pension costs associated with the operation of occupation pension schemes

Alan Collins

This week, George Osborne kept up his pension reform theme and proposed the abolition of the so called “death-tax” on pension pots.

In doing so, he has further tipped the pension balance away from collectivism and defined income towards flexibility and individualism.

Summary of proposed changes

The changes only affect money purchase/defined contribution arrangements.  There are no changes proposed for final salary/defined benefit schemes.

Also, pension pots above the Lifetime Allowance will be subject to the same tax system as before.  That is, the excess above the Lifetime Allowance is taxed at 55% if taken as a lump sum (or 25% if taken as income, in which case income tax is levied in addition).

Currently, an “untouched” pension pot can be passed to a dependant free of tax if the deceased individual is under age 75.  If the deceased individual is 75 or over, the pot is subject to a 55% tax charge.

For pension pots that have already been accessed (i.e. the deceased has taken payment from the pot), the remaining pot is currently subject to a 55% tax charge irrespective of the age of the deceased (unless the beneficiary is a spouse/child less than 23, in which case there is no immediate tax charge, but (marginal rate) income tax is payable on any income received).

Come April 2015, the above will change radically:
•    Untouched pension pots will be passed on free of tax at all ages;
•    Pension pots that have been accessed will be passed on completely free of tax if the deceased is under 75; and
•    If the deceased is 75 or over, pension pots that have been accessed will be passed on with no immediate tax charge, but (marginal rate) income tax is payable on any income received.

What are the likely consequences?
Well, it is certainly trying to kill off collectivism by stacking all the cards in favour of an individual approach.  What are the chances of someone saying “Happy to join this group scheme and pass on my assets when I die to a bunch of random individuals instead of my wife and kids”?  Not likely, not likely at all.

We have had long debates in the office about the merits or otherwise of Collective Defined Contribution (CDC) schemes.  However, I suspect this may now be academic.  This is already a popular move and if it gets people more into the habit of pensions saving, then that in itself must be a good thing.  Like it or not, people will generally want to put themselves and their family first before they look to share their wealth for widely.  As such, employers are likely to keep away from CDC and focus on arrangements that will be more appreciated and valued by employees.

The further attractiveness of money purchase arrangements should also provide encouragement to employers seeking to manage their legacy defined benefit pension liabilities.  Employers should also review existing arrangements to make sure they are best aligned with the new pension freedoms.


Page 1 of 11