Posts by Greig

Greig McGuinness

Damn & Blast

Since its inception the PPF have based the risk based levy on the D&B rating of Scheme sponsors.  This system is not without its shortfalls and critics but, we have learned to live with it.  Consultants have come to terms with the vagaries of how D&B work and sponsors have spent a lot of time and money putting processes in place to mange their D&B rating.

Alas the PPF have announced that they will part company with D&B and from the 2015/16 levy they will instead partner with Experion.  In the meantime D&B scores will continue to be used as they have been in the past while the PPF and Experian work together to develop a bespoke scoring system. Access to the new insolvency risk scores expected early next year.

I expect that the PPFs aim will be to limit the peculiarities that score holding companies with minimum assets and trading histories highly while strong, long standing trading companies are scored lowly due to late payment of the occasional invoice. Only time will tell how much value the strategies currently in place to manage D&B ratings will have under the new system.

Greig McGuinness

After much deliberation Unions and Government appear to have reached agreement on the future benefit basis for the Local Government Pension Scheme in England and Wales. As a result, the average government worker will now receive a higher pension with no requirement for additional contributions, although they will not get their hands on it until a few years later than originally anticipated. Read more »

Greig McGuinness

GMP, Guaranteed Minimum Pension, the great invention to irritate pension administrators and make our lives more complicated than they have to be. Now you could be forgiven for expecting that following a couple of rounds of “simplification” and the cessation of GMP accrual from 1997 that GMP would be a problem of the past, with the number of non-retired members with a GMP element to their benefits gradually dwindling year by year.

Alas, just as we thought everyone had forgotten about Angela Eagle’s announcement last January, out come the DWP with proposed legislation and methodology for the equalisation of GMP. We could debate as to whether there is a legal requirement under European Law to equalise GMP at all, with some arguments against including GMP merely being a benefit underpin or that it is a quasi state benefit and therefore exempt.

My own opinion would be that there should be no Read more »

Greig McGuinness

In the past couple of weeks “The NEST phrasebook” has been released to assist with the clear communication of pension issues and encourage public engagement in retirement savings by improving levels of understanding of the products on offer.

Far be it for me to question how public funds are spent or the need to make pension literature more user friendly. In fact, one of our aims, especially in our blogs, is to demystify the world of pensions. However, there are a few clear rules:

Firstly: the interpreter must understand the subject in the first place.

Secondly: the layman should be given some credit and not patronise him.

Thirdly: the cure should not be worse than the ailment.

Does changing the term “trivial commutation” to “Taking your retirement pot as cash” suggest an understanding of the finer details or the audience? The additional explanation is unlikely to be remembered and suggests that the only way to fully commute a benefit is on the grounds of triviality.

Does the layman need to be told that a “Fund” is usually made up of shares and other financial products? If so does this explanation tell him anything more? And would you expect the same layman to know what a gilt is? That’s a term that NEST thinks needs no further explanation.

Now whilst I support the effort and can see what is being attempted in the previous examples I see no reason why an employee should be redefined as a worker, auto-enrol should become automatically enrol, pension commencement lump sum should be re-named “cash lump sum taken when you purchase a retirement income” and probably most shocking the term pension should no longer be simple enough. A pension now needs to be described as “the regular income you receive when you open your retirement pot”.

Also, we must not forget to remove any potential age discrimination by referring to “on/approaching retirement” rather than “in later life”. Apart from the fact that people tend to retire in later life the very definition of retirement is much more fluid and therefore the term itself is quite complicated. Does retirement mean stopping work, reaching a particular age or, as should be the case, the time at which you “open your retirement pot” regardless of age or employment status? NEST either does not know the answer or thinks that everyone else does.

It’s not all bad; the phrasebook does include some positive suggestions. It is probably a good first step but needs to go further and should have benefitted from some further input from those within the pensions industry who specialise in explaining how retirement benefits work.

Unfortunately, pensions (not least because of the regulatory framework) are complicated and whilst any attempt by government to simplify things should be welcomed, a glossary of common terms, no matter how simple, is not the answer. Until we have a truly simplified regulatory system, which will probably be preceded by porcine avionics, appropriate professional advice is a must for both employers and employees (sorry, workers), NEST and auto-enrolment are on their way and responsible employers should seek advice on how they will be affected before it is too late.

Greig McGuinness

How many times have I dug out my drive-way this week? Each time I broke my back to dig down to the paving more snow appeared and the colourful language commenced.

Feel free to draw any analogies with funding a DB pension schemes still open to future accrual.

It couldn’t be worse, or could it? Well only if you’d:

  • no option on shovel size
  • no option to use grit or salt
  • your neighbour kept pilling all his snow on your drive

Ah, that will be a multi-employer scheme.

Greig McGuinness

I was recently reviewing a set of accounts from a partly PPF bound scheme with both final salary and money purchase sections. Just to complicate matters the money purchase section was contracted out on a GMP basis prior to 6th April 1997 (i.e. it has a Defined Benefit underpin); oh and a couple of the money purchase members had their annuities purchased in the Trustees’ name when they retired. This all leads to some fun and games when you try to segregate the membership and assets.

It’s relatively straightforward if you stick with the terminology final salary and money purchase. A final salary member is always a final salary member and a money purchase member is always a money purchase member and therefore money purchase section assets, are always money purchase section assets but, is a defined contribution member always a defined contribution member?

So many people, myself included, at times use the terms final salary & defined benefit and money purchase & defined contribution as though they are interchangeable which is not always the case and can lead to confusion. Final salary pension schemes are the very definition of defined benefits however, although money purchase schemes tend to be defined contribution, this is not always the case. Up until the beginning of this century KPMG and the Pensions Trust had money purchase schemes where a specific contribution level would purchase a specific deferred pension, and there are a multitude of pure money purchase schemes that look like defined contribution but have a capital guarantee where your individual fund value is guaranteed to be no less that your contributions which makes it a defined benefit.

Does this really matter? Am I just being a pedant? The answers are yes and maybe a little.  A pension scheme that looks to be money purchase but has a defined element has all the governance requirements and risks of a final salary scheme; they need actuarial involvement (including triennial valuations), pay PPF risk based levies and have the same company accounts reporting requirements as final salary schemes.

In the particular scheme I was looking at we have the position where members have accrued benefits in the money purchase section on a defined contribution basis but when they retired the annuity was purchased in the Trustees’ name. So although the liability is completely matched by the investment, they are scheme pensioners with a defined benefit i.e. they are a pensioner of the money purchase section but also a defined benefit pensioner.

As for the GMP underpin members, this is where quantum theory comes in; the PPF will only recognise them as defined benefit members (at least for compensation purposes) if their fund values are insufficient to purchase annuities that will cover their GMP. Therefore as with the fabled cat you don’t know what they are until you do the test, until then (depending on your quantum school) they are either both DC and DB, or neither.

Greig McGuinness

From 1 December 2009 additional regulations (The Registered Pension Schemes (Authorised Payments) Regulations 2009) came into force regarding the commutation of trivial benefits from occupational pension schemes. The main aim was to provide members and trustees with a means of settling extremely trivial benefits in a number of circumstances where it would be either cost prohibitive or extremely difficult (if not impossible) to provide pension benefits. Read more »

Page 1 of 11