Wow – what a year 2016 has been. Brexit, President Trump, Hibs winning the Scottish Cup – who saw that coming? Seriously, Hibs won the Scottish Cup. What have we learned? The dictionary definition of “pollster” might have to change to “people who predict things and always get it wrong”, said the actuary throwing stones from his glass-house. My lesson to the pollsters is to quote a much bigger margin of error and include lots of caveats. At least when it comes to 2017, it is now a reasonable stance to say that I’ve got no idea what’s going to happen.
Writing about pensions seems a tad trivial given the tumultuous twelve-month timeline just past but hopefully the following summary will give you a helpful reminder of 2016’s pensions highlights (and a few Spence-specific ones too). A hectic start for actuaries and accountants….. The first compulsory sets of accounts under the UK’s new accounting standard were effective for years ending 31 December 2015 and beyond. For pensions, this meant a switch from FRS 17 to FRS 102. For those who had already disclosed under FRS 17, pension costs increased as FRS 102 no longer permitted entities to take advance recognition of future asset returns. Many employers who were part of multi-employer schemes had not previously been required to disclose pension liabilities under FRS 17. So (not before time) this meant that they faced having to disclose significant balance sheet deficits in their accounts for the first time. In February, the spectre of the end of contracting-out was looming…. A raft of schemes changed their benefit structure or closed to future accrual in anticipation of the end of contracting-out on 6 April 2016, after which the rebate on National Insurance contributions received by employer and pension scheme members was abolished. Local Government Pension Schemes carried on regardless with no changes to benefits despite the increased costs faced by participating employers. The end of contracting-out also served as another reminder to schemes to get on with completing their reconciliation of Guaranteed Minimum Pension records with the government. March brought another budget and another acronym…. The pension apocalypse was coming, but all George left us with was another acronym. Rumours of the death of pensions turned out to be greatly exaggerated, as then Chancellor George Osborne backed away from abolishing up-front tax relief on pension contributions. Instead, he delivered LISA (Lifetime Individual Savings Accounts) – an alternative savings account for those under 40 by next April to sit alongside the existing pensions and savings regime. Will LISA’s be enough to persuade younger savers away from pensions? Time will tell, but the initial momentum being LISA’s seems to have been lost in the changes at the top of government and perhaps they will even end up on the scrapheap alongside the secondary annuity market. April – a quality month for Spence…. We were very pleased to announce our achievement of the Quality Assurance Scheme (QAS) accreditation from the Institute and Faculty of Actuaries (IFoA). Scott Cameron, Actuarial Function Head at Spence & Partners, commented: “At Spence we have a culture of continual improvement and saw this assessment as an opportunity to step back and challenge our processes and procedures against a clear set of outcomes. Quality assurance is a central part of our ethos and the principles of QAS fit very well with our overall strategy. We wanted to be at the forefront of this new initiative and it is an honour to be amongst the first tranche of organisations to receive this independent recognition that demonstrates the procedures we have in place deliver quality outcomes for our clients. It is a great recognition for all the firms who have achieved accreditation.” We welcomed the Pension Regulator’s annual funding statement in May (well most of it anyway)…. There were many positive aspects to the Regulator’s annual funding statement including recognition that schemes are facing even more challenging deficits than expected but the reaction to the CMI’s projected reduction in life expectancy was somewhat strange. Read my colleague Hugh Nolan’s reaction in more detail here. The Kipling response to the Referendum.…. June was dominated by the Referendum run-up and the shock vote for “Leave” triggering a market shock as Sterling and world share values immediately fell the morning after. Our reaction was to urge trustees and employers to remain calm and avoid knee-jerk reactions. Markets soon stabilised and benchmark indices such as the FTSE 100 soon return to pre-referendum levels. So, not for the first time, the Kipling approach of being able to “keep your head when all about you are losing theirs” paid dividends. My search for optimism in pensions… July saw pension scheme funding levels drop as long-term interest rates fell following the UK government’s response to the Referendum vote. So, I decided to look for some positives in my blog entitled ‘Is your pension glass empty?’, noting that funding downturns can be quickly reversed. To illustrate this, the barometer of UK pension scheme funding, the PPF 7800 index showed a peak aggregate deficit of £459 billion at 31 August 2016, but only two months later had substantially reduced to £329 billion only two months later. A 21st century approach to trusteeship…. Following the publication of a discussion paper on 21st Century Trusteeship and Governance, my colleague Gillian Lister considered what was required of the modern day trustee. Spence retains Workplace Savings and Benefits Award…. We were delighted to retain our title as Pension Consultant of the Year at the 2016 Workplace Savings and Benefits Awards in September. David Davison, Director at Spence & Partners, commented: “Having won the same award category at the Workplace Saving and Benefits awards last year, we are so proud and excited to have won again in 2016! Further advancements this year to our offering provides schemes with even greater integrated risk management and more confidence when making investment decisions. Ultimately schemes, no matter their size, can access a level of analysis and advice that is usually reserved for only the largest of schemes. This gives trustees and sponsors the confidence to manage their schemes to a long term strategy whilst providing accurate benefits and information to member, which is of course their primary objective. We have further developments planned for this year which we believe will take the approach even further”. Donald Trumps Hilary in US Election but it was a quiet Autumn statement for pensions….. The year of political shocks was topped off by Donald Trump reprising his role from Series 11, Episode 17 of The Simpsons by becoming US President. Back in the world of pensions, Philip Hammond’s first major statement as Chancellor passed without much of note. There was a welcome clampdown on cold-calling and proposals to give firms more powers to block suspicious pension transfers. The triple-lock on the State Pension is also to remain, for now. However, with inflation set to rise, the minimum payment level of 2.5% a year may become less relevant in any case. So, there we have it. 2016 is almost over. This sort of review would normally conclude with a sagely look into 2017. Expect the unexpected will be my guiding principle. Best wishes from all at Spence for a Merry Christmas and Happy New Year