Posts by Alan

Alan Collins

Alan Collins

Head of Trustee Advisory Services at Spence he provides actuarial, funding and investment advice to trustees and sponsors of ongoing defined benefit schemes.
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.

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

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.


Alan Collins

We are very proud to have been a member of the specialist services panels introduced by the Pensions Protection Fund (PPF) in 2011. The average time for a scheme going through assessment then was closer to three years as opposed to the target time of two years.

Roll forward to 2014 and the average time is now 20 months, according to Sue Rivas, Deputy Director of Scheme and Member Services at the PPF.  Without a doubt the work of the panels has been a huge contributory factor in this improvement.

Several panels have subsequently been introduced which has further streamlined the process and allowed continual improvements in service to be made.

Being a member of the panel has allowed us to use the expertise that we have built up since the introduction of the PPF in 2005. Attending panel forums and pooling ideas and strategies has been a big leap forward, and key to this has been the fact that the PPF team has listened to what has been said and introduced many of the suggestions and ideas which have come out of these forums.

Communication has always been key to improving service and having designated individuals both from the panels and the PPF has allowed any issues to be dealt with immediately. Gone are the days when any issues are dealt with at the end of the process, with the inevitable delays that might arise.

There will always be room for improvement, and we will continue to look at ways to do things better because ultimately, it is the member that will benefit from the protection for their hard earned pension that the PPF can provide.

Alan Collins

Financially strong sponsors of defined benefit schemes should not follow the “easy path” of scheme funding following the Regulator’s new code.  The new code may tempt some employers to seek lower contributions, a more risky investment strategy and to take their foot off the gas when it comes to de-risking and buyouts/buyins.  This would be a dangerous move and may harm the sponsor in the long term.

The vast majority of defined benefit schemes will end up in one of two places – with an insurance company or with the PPF – they will not run on until the last pensioner dies.  Therefore, given that the second option is usually caused by the insolvency of the sponsor, the aim is surely to reach a buyin/buyout with an insurer at some point.

With recent improvements in funding levels and with companies beginning to strengthen post-recession, 2014 is a year when many employers have finally been able to look again at de-risking measures.  Whether that be liability management, selective buyins or full buyouts, my message is to continue to de-risk and ultimately to get out as soon as you can. Read more »

Alan Collins

The intention of the government to introduce collective defined contribution (CDC) schemes through the ‘Private Pensions’ bill was announced as part of the Queen’s speech today.

I am essentially pro-choice on pensions, so I welcome the CDC option for employers and members alike.  It won’t be right for everyone, but it is clearly going to be welcomed by some.  So, if this helps the overall pension savings culture by attracting new engagement from employers and individuals, then all the better.

Many commentators are suggesting the pace of change is too fast. The pensions industry has lost the right to dictate the pace of change by failing to react to clear warning signs from government and the obvious lack of confidence from consumers in the existing market place.  Instead, the industry must cooperate and embrace change and show that it can add value to consumers and employers. The temptation to over-complicate matters must also be avoided. Read more »

Alan Collins

Rounding off a busy week for Spence & Partners, following a sensational performance from our rock band Run GMP at Mallowstreet Rocks at the O2 in Islington, (a full blog account to appear shortly!), Spence & Partners hosted the drinks reception at Workplace Pensions Live, in Edgbaston Cricket Club.

Run by the team behind Engaged Investor, Pensions Insight and Reward, the event attracted hundreds of trustees, pensions managers and HR professionals, giving them the chance to share ideas and hear how leading companies are making employee benefits work in today’s ever-changing environment.  The event had grown in size from last year’s inaugural event, and we are sure that it will continue to have further success in 2015 and beyond. Read more »

Alan Collins

Yesterday, L&G announced that individual annuity sales have fallen by 40% following the recent budget.  This follows on from Standard Life reporting a drop of 50%.  To me, the only surprise from this is that sales have not fallen further.

The brave new world of choice for pensioners is here.  And even better news for George and Steve is that it seems to be a happier world.  People like choice and people like people who give them choice.  Happy days… Read more »

Alan Collins

I am a scheme actuary to a defined benefit scheme in the UK and later today I will complete the formal results of a triennial valuation.

Not that unusual, you say? Well, what if I said the valuation date was 31 March 2014?

That’s right – not months, not weeks…one day. Our valuation system produces real results, based on real data, every day. Yes, we know you won’t need figures every day but they are there if and when you need them. The system allows trustees, sponsoring employers and investment managers to take immediate action based on up to date market conditions. Read more »