Archive for February 2016

Gillian Lister

The Pensions Regulator (tPR) shows concern over smaller employees leaving auto-enrolment too late.

It is now over 3 years since the auto-enrolment requirements were first introduced and the first employers staged. These large employers are approaching their first automatic re- enrolment date in 2016. Certainly, most signs so far have been positive. The National Audit Office’s October 2015 report examining the implementation of the auto-enrolment reforms highlighted among other points that the degree of employer compliance has been higher than expected, with 99% of employers submitting a declaration of compliance to the tPR. Read more »

Brian Spence

Spence & Partners today announced the appointment of Simon Cohen as Head of Investment, based in our London office.

Brian Spence, Founder, commented: “We are extremely proud of our investment consultancy capability, which we believe is unique in the market. Pension scheme trustees and charities are coming under increasing scrutiny and indeed increasing pressure to maximise returns while managing risk. In the pensions arena, our cutting edge pensions technology, Mantle, monitors the value of assets and liabilities every day empowering trustees to make real time decisions or use automated switching and take advantage of investment opportunities as they arise.

“Simon has experience of a wide range of investment work including strategy setting, manager selection and liability hedging, which will add further weight to our proposition. He will work closely with corporate, charity sector and pension clients on all aspects of investment strategy. We are very pleased to welcome him on board.”

Simon added: “I’ve watched Spence grow in size and stature over the years and I look forward to helping drive the development of the practice in the future, harnessing the existing skills and expertise within our business to add even more value to existing clients and attract new ones.”

Simon entered the pensions industry in 1994 and became a Fellow of the Institute and Faculty of Actuaries in 2000. He has worked for three major consultancies holding senior roles in both investment consulting and management positions.

Richard Smith

Spence & Partners today said that no matter whether the UK votes to stay in or leave the EU in the upcoming EU Referendum, there will be many implications for pensions.

Richard Smith, Head of Employer Services said: “The EU Referendum represents a once in a generation chance for the UK to shape its relationship with the EU and also the direction of future legislation with wide ranging impacts on all of our lives. Pensions are not immune from this – the upcoming EU referendum could significantly affect investment markets and pension schemes both in the UK and in Europe.

“The impact will be felt regardless of the outcome – pre-vote uncertainty in itself over the result will inevitably cause a lot of volatility in the markets. In the event of an exit vote, the aftermath would likely continue in the short to medium term as the markets adjust and the country gets to grip with the impact of having to renegotiate freedoms of movement and trade. While we may not see any immediate changes to pensions, it would certainly give more freedom for the UK to make changes in the future.”

Spence predicts that the four key aspects of pensions that will be impacted are:

  • Scheme Funding – With an impending referendum, economists expect gilt yields to become more volatile due to concerns over the stability of the EU economy. In the event of an exit vote, returns on UK equities would lag behind their EU & Global peers. In addition, the value of sterling could fall leading to increased short term inflation. This would be good or bad news for a scheme depending on where it was invested. Uncertainty may also provide opportunities that pension schemes can take advantage of through careful monitoring of their investments and effective governance.
  • Money Purchase Schemes – Members of money purchase schemes may find that the value of their pot is volatile as the EU Referendum approaches. Those approaching retirement will also be exposed to the risk of volatile gilt prices if they wish to purchase an annuity on retirement. However, if gilt yields increase as they are expected to in the event of a Brexit, then such members may subsequently be able to purchase more income with their pension pots. This is an area where it will be key for DC members to take advice. Instability in annuity rates caused by volatile gilt yields may provide a further boost to drawdown products until markets settle down.
  • Sponsor Covenant – Trustees of Schemes whose sponsors are heavily exposed to the EU either through exports, or through subsidies will need to take a lot of care around the time of the referendum and also following an exit vote. Even the threat of ‘Brexit’ may cause EU businesses to look to find suppliers within the EU to reduce their risk of a UK exit. The effect of this is likely to be offset slightly by the predicted fall in the value of Sterling should the UK leave the EU. If this were to happen, it would make UK exports cheaper for EU countries and with the right agreements in place may help to improve trade. Conversely, net importers from the EU may see a relatively more expensive Euro eat into their profits.
  • Cross Border Schemes – One of the more obvious areas where an exit from the EU would have an impact is on cross border schemes between the UK and the EU. Currently under EU legislation there are very stringent requirements that cross border schemes must be fully funded at all times. A vote to leave the EU could make the UK an attractive place for any multinational with sites in the EU and the UK to base their pension scheme.

Richard Smith added: “In recent years, we have seen constant change in the pensions landscape, and with the upcoming EU referendum the only thing we can be sure of is that these changes are set to continue regardless of whether we vote to leave or remain in the EU.”

Helen Toner

The Pension Protection Fund (“PPF”) published the final rules for the 2016/17 PPF Levy on 17 December 2015. As expected, the rules for 2016/17 are substantially the same as 2015/16 reflecting the PPF’s desire to maintain stability of methodology.

Following feedback, the PPF have made some slight technical changes relating to the 2016/17 levy: Read more »

David Brogan

In 1977, Monty Python’s Life of Brian asked ‘What have the Romans ever done for us?’ to which it appeared, well, quite a lot actually. However, with the imminent changes within the pensions industry, the question you may have to consider is rather ‘What has the Government ever done for us?’

For starters, there is the introduction of the new basic State Pension which from 6th April 2016 will deliver a clearer State Pension for future pensioners. The current basic State Pension and State second pension (S2P) will be abolished and replaced by a single-tier, flat-rate State Pension of £155- a-week paid to everyone who has paid 35 years of National Insurance contributions (NICs).

A change of this magnitude will be rightly debated and queried, and as administrators there are questions that we can expect to be asked, namely why the government has introduced such a significant change. In turn, we can also expect many pensioners to now have a greater focus on their personal pension benefits as members look to clarify how the changes may affect their total monthly income. Read more »

Clare Caswell

An updated version of the Code of Good Practice for Incentive Exercises for Pensions was recently released following a review of the Code by the Incentive Exercises Monitoring Board.

Incentive Exercises (IE) are projects typically instigated by a pension scheme employer in which members are offered the opportunity to amend their benefits or to transfer their benefits out of the scheme. These exercises often include the provision of Independent Financial Advice for the members, paid for by the Employer, and can also include an enhancement to the members’ benefits.

Employers with the support of the Trustees will often run these exercises with the aim of reducing their scheme liabilities, and also to give members the opportunity to reshape their benefits to suit their lifestyle rather than being constrained by the structure of the scheme’s rules. Read more »

Angela Burns

FRS 102 has come into effect for accounting periods beginning on or after 1 January 2015. This is the latest in a series of articles on the implications and you can access previous articles here.

Under FRS 17, if employer’s participating in non-segregated multi-employer schemes are unable to separate out their own assets and liabilities, they can account for their scheme on a defined contribution basis by recording the contributions paid in the P&L and taking no recognition of any deficit that may exist.  Under FRS 102 this option is no longer available and employers will now have to disclose a deficit in their balance sheet equal to the net present value (‘NPV’) of their future deficit contributions. Read more »

David Davison

Many charities participate in pension schemes that are contracted-out. Participants in local government pension schemes, multi-employer schemes such as those run by the Pensions Trust, USS and many others will be impacted, as well as those charities running their own defined benefit schemes.

So what’s happening? Contracting-out of the second state pension will be abolished from 6 April 2016, to coincide with the introduction of the new state pension. This will increase the national insurance contributions (NIC) required from employers currently offering a contracted-out scheme, as well increasing the contributions required from employees. Employers will see an increase in contributions of 3.4% of band earnings (earnings between £5,824 and £43,004 for the 2016/17 tax year) on their pensionable payroll and employees an increase of 1.4% of band earnings. Read more »

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