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Transcript of Pensions pensions conference slides
1
Southern pensions conference10 November 2010
The future of retirement
2
Southern Pensions Conference The future of retirement
WelcomeHousekeepingHouse rules– participate– challenge– interrupt– enjoy
3
Southern Pensions Conference
4
Batting order
Now Introduction9.45 am Looking ahead at the past – Richard Murphy10.15 am Changing the liabilities – Nicola Wynne10.40 am A smoother investment ride – David Hutchins11.10 am Coffee11.30 am Governance and trustees’ workload – John Hamilton12.00 pm The impact of scrapping default retirement age – Sarah
Peacock12.30 pm Retirement in the future – Adrian Lamb12.50 pm Q&A1.00 pm Lunch
6
How will the past affect the future
Legacy = millstone?Limited time = not enough time for past and future2012 – levelling downAdequacyChange and manage your liabilitiesGet smarter with your investmentsFocus on key governance issues – not box tickingThink and plan ahead – default retirement plus adequacyThe past can help with the future - if we let it
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Learn from the past
Pension schemes used to finance restructuringLittle or no inflation protection - and high inflation!Compulsory membershipAttraction and retentionPart of social fabric?Retirement to working life ratio 1:4 – now?
Lane Clark & Peacock LLP Trustee Consulting Investment ConsultingCorporate Consulting Insurance Consulting Business Analytics www.lcp.uk.com
Blake Lapthorn’s Southern Pensions Conference Wednesday 10 November 2010
Looking ahead to the past: Delivering past service liabilities
The moment of truth for DB pensions
“The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place we are entering a period of consequences.”
Winston Churchill(1936)
Legislation Interest rates
Communication
Inflation
Data accuracy
Asset performance
Pensions knowledge loss
Benefits
Trapped surplus Perceived value
Corporate bondspreads
Salary growth Regulatory bodies
Longevity
Pension risks
Agenda
Setting long-term strategies for delivering benefits
Managing and securing the liabilities
Devising viable recovery plans in difficult times
Actions to take now
“Fix it so it stays fixed” Setting the objectives
Deliver promised benefits
Affordable and practical set up going forward
Off the company balance sheet when possible
Minimise costs and risks in the meantime
Employer’s and members’ interests no longer aligned
Case study: de-risk to wind-up
Closed to new entrants
Closed to future accrual
2001 2002 2003 2004 2005 2006 2007 2008 2009
Company decision in principle to de-risk over 10 years; deficit £100m
Indicative buyout quotations showing opportunity
Competitive buyout auction - locked in to deficit of £40m
2010
Completed scheme wind-up
Late 2006: started to switch assets
The path for closed DB plans
What is a pensioner buy-in?
Trustee purchases an insurance policy as a scheme investmentPolicy pays a monthly income to the Trustee
– equal to the benefit payments that the Trustee is due to make to current pensioners
– value of policy can be used for the benefit of all members
Trustee gains exposure to insurer’s covenant
57%37% EquitiesResidualLiabilities
Bonds
InsurancePolicy
PensionerLiabilities
Before After
EquitiesLiabilities
Bonds
Pension plan pays
Insurer takes on uncertainties….
What is a longevity hedge?
Longevity improvements relative to expectations
What is a DIY buy-in?
Buy-in with insurer
Schem
e
Insurer
Assets
Interest Rate Risk
Inflation Risk
Longevity Risk
DIY buy-in
Schem
e
Provider(s)
Assets
Interest Rate Risk
Inflation Risk
Longevity Risk
Setting your strategic plan
Agree objectives
Set asset strategy– Manage risks– Set triggers to lock in good
performance as it happens
Get certainty on benefits
Manage liabilitiesAgree funding strategy
Monitor and, when opportunities arise, take action
Managing liabilities now – the options
Capping of accrued benefits– Address as part of future changes– Cap the growth of those liabilities– Simplify the benefit structures
Closing out the risk– Buyouts and buy-ins– (Enhanced) transfer values
Pension increase exchange
Member optionBenefit certaintyCost savingsIncreased PPF levyWatch tax changesPensions Regulator
Uplift now
Member option to convert to a level pension
Fixed for lifetime
Enhanced transfer values We believe it is possible to design an exercise to benefit both the sponsor and the members
smaller schemereduced deficitlower volatility
The platform for win-win
Transfer value Liability
EnhancementReduction in liability
Net savings
Assets Liabilities Assets Liabilities
Overall impact from balance sheet perspective
Before After
Meeting the funding challenge Using the whole toolkit
Longer recovery plans
Back-end loaded
Contingency on profitability
Trigger-based payments
Contingent assets
Parent company guarantees
Anything else!
Assets
Deficit
Defining Prudence Benchmarking funding strategies
Average scheme size £300mAllows for:
– Funding assumptions– Asset allocation– Employer covenant
Covenant scores have deteriorated since 2006No obvious link between covenant strength and funding strategyBe satisfied with your position before deciding on your recovery plan
Scheme Risk Index against Covenant Risk Index
What’s coming up?
Just arrived – clarity on tax regime from 2011/12
Autumn – CPI / RPI implications
Autumn/Spring – action to mitigate PPF levy
£50,000 Annual Allowance
16:1 Valuation Factor for DB
Reduced Lifetime Allowance £1.5m
Decision document Issued 14 October
Applies for some savings
immediately
The tax calculation: DB A long serving high earner in a 1/60ths scheme
£160,000 x 24/60 = £64,000 pa
= £65,984 pa
£171,000 x 25/60
= £71,250 pa
£5,266 paX 16 = £84,256£5,266
First £50,000 = No tax
Excess £34,256 taxed at 50% = NEW TAX £17,128
+3.1% (2011/12)
but check carry forward
PIPs - early start to new tax Example with a PIP year ending 30 June
Antiforestalling “penalties” still apply here
This part tested against £50k
14 October
2010
5 April 2011
30 June 2010
30 June 2011
2011/12 tax year: new regime applies
CPI - BT announcement 4 November 2010
BT today announced the impact of the Government’s decision that the Consumer Prices Index (CPI), rather than Retail Prices Index (RPI), will be used as the basis for determining the rate of inflation for the statutory revaluation and indexation of occupational pension rights.
The change to CPI – the highlights
1. Minimum statutory increases for pensions in payment deferment are (probably) changing from the Retail Prices Index (RPI) to the Consumer Prices Index (CPI)
2. Varies by year but CPI has averaged 0.7% pa lower on average than RPI, which could knock up to 15% off the value of benefits
3. Unusually for UK legislation, this is applying to past service benefits4. Announcement on the Government’s plans “shortly” but no legislation is needed to
change the statutory requirement from 1 January 20115. The impact will depend on the wording of your Rules “ the small print lottery” so
TAKE LEGAL ADVICE6. If your pension increase month is January, your administrator needs to know in the
next few weeks whether to apply RPI (4.6%) or CPI (3.1%)7. For deferred pensioners retiring from January 2011 the new increases may apply8. Do not forget tax-free cash commutation and transfer values9. We do not know yet how members will react (but it has been surprisingly quiet!)
By 2012
Compliance with auto-enrolment
Employer debt regulations?
Solvency II?
State pension changes?
2012/13 PPF levy
DC contracting- out abolished
Planning for updated IAS19
GMP equalisation?
tPR record keeping deadline
Conclusion
Set your strategic plan
Manage the liabilities and grab opportunities
Update your 2010/11 to do list
Scope
LCP is part of the Alexander Forbes Group, a leading independent provider of financial and risk services. Lane Clark & Peacock LLP is a limited liability partnership registered in England and Wales with registered number OC301436. LCP is a registered trademark in the UK (Regd. TM No 2315442) and in the EU (Regd. TM No 002935583). All partners are members of Lane Clark & Peacock LLP. A list of members’ names is available for inspection at 30 Old Burlington Street, London, W1S 3NN, the firm’s principal place of business and registered office. The firm is regulated by the Institute and Faculty of Actuaries in respect of a range of investment business activities. Locations in London, Winchester, Jersey, Belgium, Switzerland, the Netherlands and Ireland.
This generic presentation should not be relied upon for detailed advice or taken as an authoritative statement of the law.
If you would like any assistance or further information, please ask.
While this document does not represent our advice, nevertheless it should not be passed to any third party without our formal written agreement.
How to manage liabilities………
Nicola Walker
in a pension scheme
Dealing with the liabilities
The Scheme TrusteesThe sponsoring employerThe members
The options
Managing future service liabilities– Accrual/contribution rates/salary cap– Reshaping: DC /CARE/Cash Balance– Review discretionary benefits– Cessation of accrual
Managing past service liabilities– Enhanced transfer exercises– Pension increase exchange– Buy ins and buy outs
Managing future liabilities – scheme amendments
Amending scheme rules Powers of amendment– Just do what it says on the tin? (but where is it and what does it actually
say?!)
Deed/ resolution/ “pending” powers using announcements etc
Relevant protections and restrictions (“fetters”)
NB: Informing members
Overriding legislative protection
Section 67 Pensions Act 1995Prevents “Detrimental modifications”– i.e. A modification of an occupational
pension scheme which on taking effect would or might adversely affect any subsisting right of any member of the scheme, or any survivor of a member of the scheme.
“Subsisting right” means any right which has accrued to a member– i.e. which he would retain if he left
service at the date of the change
I have the power!But do you really?!
– “No such alteration which would vary or affect any retirement benefits then already provided
– “rights or interests which shall have accrued ”
– rights or interests of any Member in benefits secured by contributions
Enhanced transfer exercises
What are they?
Why use them?
Limited time only for contracted-out benefits!
Enhanced transfer exercises
Trustee considerations– Security for remaining members’
benefits– Funding of the enhancements– Data protection– Scheme Rules– Compliance with Regulator’s guidance– Informed member consent
Clear and accurate communicationNo misrepresentation of the Trustees’ roleIndependent financial adviceReasonable deadline
Regulator’s guidance
Start from the presumption that it will not be in the member’s interestsFive key principles– The offer should be clear, fair and not misleading– The offer should be open and transparent– Conflicts of interest should be identified and managed– Trustees should be involved from the start– Independent financial advice should be made available to
membershttp://www.thepensionsregulator.gov.uk/guidance/guidance- inducement-offers.aspx
Will it be worth it?
Fair and reasonable enhancement offer+ comprehensive communications+ independent financial advice (preferably without fee or restriction)+ regard to Regulator’s guidance+ right level of take-up= reduced risk and reduced cost(hopefully!)
Pensions Increase exchangeWhat is it?
– Members with pension increase entitlements above statutory requirements – Members agree to exchange these increases for;
a cash sum; ora higher base pension
Why do it?– Funding level usually improves – Reduces risk– May suit certain members (but risk of selection against scheme)
Trustee considerations– Rule amendment if higher base pension to be provided– Protecting members’ benefits– Regulator’s guidance on inducements– Data protection
Legal issuesSection 67 (Subsisting rights)
– Unless member consents
Amendment power restrictions?
Section 91 Pensions Act
– How does this interact with s67?– Express exception for surrendering
benefits for the purpose of acquiring entitlement to further benefits under the Scheme
Strong communication– Ensure compliance with Regulator’s
guidance– Provide Independent Financial Advice
Document individual agreement
And here’s one made earlier! ITV Pension Scheme
Proposal made to existing pensioners (of which there were 11,000)
Ongoing programme of liability management
Pension increase option did not require cash injection
The offer:
– No effect on spouse’s pension– Uplift applied in 5 year age bands– Sharing saved 60/40 in member’s favour
Pensioners offer pack
– Personalised leaflet– Generic explanatory leaflet– Form
Letters to DB actives
ITV Communication strategy: the offer
ITV Communication strategy: the offer
ITV Support
JLT helpline
Pensions Department Helpline
Section on ITV pensions website including FAQ’s
ITV communication strategy: reminders and confirmation
Mid decision phase update
– Reminder of offer – FAQ’s
Final reminder
– Postcard
Confirmation
– No, thanks: confirmation letter to those who declined
– Yes, please: confirmation statement sent before first uplifted pension payment
ITV: The challenges and the results
Dealing with press interest and ensuring that the offer was seen in a positive lightAvailability of dataEngaging members remotely10,300 offers were made, of which there were 4,419 acceptances (43% take-up)Liability saving well in excess of original £30 million target
Buy ins and buy outs
Buy in– Insurance Policy– Trustees continue to manage scheme with
added certainty over pensioner costs– Policy is a scheme asset when held in the
name of the trusteesBuy out– The ultimate in de-risking!– Scheme assets and liabilities transferred – Insurer writes policies in the names of
individual members
November, 2010
The Future of Pension InvestingDesigning a Smother Ride for both Defined Benefit and Defined Contribution Schemes
This presentation is issued by AllianceBernstein Limited, 50 Berkeley Street, London W1J 8HA. AllianceBernstein Limited is authorised and regulated in the UK by the Financial Services Authority (the FSA). This presentation booklet has been provided to you for use in a private and confidential meeting to discuss a potential or existing investment advisory relationship. This presentation is not an advertisement and is not intended for public use or distribution beyond our private meeting. This document is directed at Professional Clients, as defined by the FSA, and the products and services described are only available to such clients. This document is provided for informational purposes only and is not intended to be an offer or solicitation, or the basis for any contract to purchase or sell any security or other instrument, or for AllianceBernstein to enter into or arrange any type of transaction as a consequence of any information contained herein.
David Hutchins Head—Investment Research & Design, UK & Ireland
AllianceBernstein.com
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Through September 30, 2009Source: FTSE, Investment Management Association and AllianceBernstein
Markets Have Provided a Bumpy Ride
FTSE All Share Index
AllianceBernstein.com
Sadly Diversification can also Fail
As of September 30, 2009Source: Barclays Capital, Dow Jones, FTSE NAREIT, Global Financial Data, MSCI and AllianceBernstein
(54)%
(35)%
(17)%
9%
(19)% (18)%
(67)%
GlobalEquities
GlobalProperty
High YieldCredit
InvestmentGrade Credit
GovernmentBonds
Commodities HedgeFunds
Cumulative Returns October 2007—February 2009
AllianceBernstein.com
Who Suffers the Ride?
Defined Benefit
1st
EmployerAssets
2nd
PPF
&Members
Defined Contribution
1st
Assets
2nd
EmployerTrustees
&Members
Source: AllianceBernstein
AllianceBernstein.com
Asset Allocation Matters
For the majority of investors over 80% of
returns and 90% of risk is explained by asset
allocation rather than individual stock
selection.
As of September 30, 2009Source: Barclays Capital, MSCI and AllianceBernstein
AllianceBernstein.com
Steps to Building a Smoother Ride for DB and DC
Set Clear Objectives based on:
Need for returns and ability to cope with downside
Allocate Assets efficiently using:
Liability sensitive assets (LDI funds) and diversifying return sources
Manage Assets Dynamically to amend allocation as:
Needs and markets change
Ensure Effective Oversight is built in via:
Efficient implementation and clear accountability
Smoother Ride = Happier Members/Employers = Happier Trustees
AllianceBernstein.com
Objectives Should Consider Need for Returns versus ability to cope with the Potential Downside
Coping with Downside / Risk
Flexibility of Time Horizon
Need for Returns
Flexibilityof Outcome
OutcomeAffordability
LossAffordability
AllianceBernstein.com
A Simple Glidepath will Help Set Benchmark for Asset Allocation Manager
(40) (30) (20) (10) 10
Ris
k C
apac
ity
1
43
2
ExpectedRetirement
Date
Source: AllianceBernstein
TargetFunding
Ratio
DC =Time
DB =FundingRatio
60% 70% 80% 90% 110%
AllianceBernstein.com
Liability Sensitive Funds Reduce Risk for DB Schemes
Assets Liabilities
£20.0 Mil.
Assets Liabilities
£27.0 Mil.
Assets Liabilities
£23.5 Mil.£80 Mil.£100 Mil.
£83 Mil.£110 Mil.
Without LDI
WithPrudent
LDI £86.5 Mil.£110 Mil.
£50 Mil. Equities£30 Mil. Bonds/LDI Funds
10% liabilityincrease
Source: AllianceBernstein
AllianceBernstein.com
Risk of a Static Portfolio Changes Significantly with Markets
Portfolio Volatility60% Global Equities / 40% Global Bonds* 1970–2009
0
5
10
15
20
70 73 76 79 82 85 88 91 94 97 00 03 06 09
The results depicted above are hypothetical and are derived from a back-tested simulation. Please read “Note on Simulation Results” in back of presentation for important additional information.Through September 30, 2009Global Bonds refer to Global Government Bonds Hedged to USD and Global Equities refer to Global Developed Equities Hedged to USD.Static portfolio results are based on a portfolio that is 55% MSCI World Index, 35% Barclays Global Aggregate Index (as adjusted to reflect duration only) and 10% FTSE NAREIT, rebalanced halfway back to target when weights become +/- 5% from their long-term target. Source: Barclays Capital, MSCI and AllianceBernstein; see Disclosures and Important Information
60/40
Average Volatility
9.2%
Per
cent
AllianceBernstein.com
8.0%34.5%S&P 500
Investors Are Not Always Compensated for Elevated Risk
6.5%4.2%
6.8%23.9%Global Equity
1.0%2.4%
2.1%8.7%Global Bonds
2.0%1.5%
7.0%13.1%Foreign
Currencies
4.6%3.7%
6.2%21.8%Commodity
Futures
Excess Returns 12 Months Forward
Through September 30, 2009Excess returns refer to returns over cash. All asset classes are sorted by quintile of volatility, showing highest and lowest quintile, except foreign currencies, which are sorted by tercile. Periods covered, by asset class, are: S&P 500—since 1928; global equities—since 1970; fixed income—since 1970; currencies—since 1974; commodity futures—since 1970. Past volatility is an exponentially weighted average using daily data with a three-week half-life (5% decay per day).Source: Barclays Capital, Global Financial Data, FTSE NAREIT, MSCI, S&P and AllianceBernstein; see Disclosures and Important Information.
Past Volatility
7.6%5.3%
Highest Quintile Lowest Quintile
AllianceBernstein.com
A Good Asset Allocation Manager will Look to Smooth the Ride
Dynamic Asset Allocation
Lower Returns Higher
Conventional Asset Allocation
Fewer LargeGains
FewerLarge
LossesFreq
uenc
y
AllianceBernstein.com
That is Good Asset Allocation Manager will tend to Reduce Volatility whilst Maintaining Long Term Returns
0
5
10
15
20
70 73 76 79 82 85 88 91 94 97 00 03 06 0960/40 Rebalanced Dynamic Allocation
Through September 30, 2009The results depicted above are hypothetical and are derived from a back-tested simulation. Please read “Note on Simulation Results” in back of presentation for important additional information.Global Bonds refer to Global Government Bonds Hedged to USD and Global Equities refer to Global Developed Equities Hedged to USD.Static portfolio results are based on a portfolio that is 55% MSCI World Index, 35% Barclays Global Aggregate Index (as adjusted to reflect duration only) and 10% FTSE NAREIT, rebalanced halfway back to target when weights become +/- 5% from their long-term target. Source: Barclays Capital, Global Financial Data, FTSE NAREIT, MSCI and AllianceBernstein; see Disclosures and Important Information.
NiftyFifty
1987 Crash
Bank Crisis
Russia/ LCTM
TMT Bubble
Credit Crunc
h
60/40Dynamic
9.2%7.8%
Per
cent
Simulated Portfolio Volatility60% Global Equities / 40% Global Bonds
Average Volatility
AllianceBernstein.com
The Past
Equity Holdings
Fixed Income
Holdings
Other Holdings
Trustees Select Balanced Manager(s)
Manager(s) Manage Asset Allocation Against other Managers
AllianceBernstein.com
Derivative overlays:Interest Rate SwapsInflation SwapsCurrency ForwardsEquity Options
Collateral management
Proactive de-risking strategies
Lifestyling strategy
Today
AllianceBernstein
Equity Holdings
Fixed Income
Holdings
Other Holdings
Trustees Manage Asset Allocation Against Scheme Specific Objectives
UK Global
Small Cap Large Cap
UK Global
Fixed Index Linked
Property Annuities
Commoditie s
Private Equity
Infrastructure Venture CapitalDuration CreditActive Passive
Style Active PassiveTacticalAsset
Allocation
Hedge Funds
AllianceBernstein.com
Tomorrow
Equity Holdings
Fixed Income
Holdings
Other Holdings
Trustee set Scheme Specific Objectives and Select “Fiduciary” Manager(s)
Manager(s) Manage Assets against Scheme Specific Objectives
“Target Date Funds” in DC
AllianceBernstein.com
AllianceBernstein Solutions
Defined Benefit Schemes
*Launching in 4th quarter 2010
Defined Contribution Schemes
Retirement StrategiesSM
Small schemes + contract based schemes
Pre-built Target Date Funds
Passive with Volatility Management
From December 2010
Customised Retirement StrategiesSM
Larger schemes
Customised Target Date Funds
AB accepts accountability
Fully open-architecture
ABdb
Small schemes
Scheme specific liability benchmarked investment strategy which includes:
Liability sensitive investments
Market sensitive risk management
Dynamic de-risking glidepath
Full implementation and reporting
AllianceBernstein.com
Disclosures and Important Information
The views and opinions expressed in this presentation are based on AllianceBernstein's internal forecasts and should not be relied upon as an indication of future market performance or any guarantee of return from an investment in any AllianceBernstein services.
Past performance is not a guide to future performance.
The value of investments and the income from them can fall as well as rise and you may not get back the original amount invested.
The value of non-exchange securities may be subject to exchange rate fluctuations.
Pension Scheme Governance
How to ease the burden
John Hamilton Partner
Why governance is an issue for pension schemes
“Good Scheme governance underpins secure pensions and enables the effective management of risk”.
The Pension Regulator
“Governance is a key issue of our times. As the bar has risen on standards of governance within companies, the NAPF believes that pension schemes – on which million of people depend – should also apply high governance standards”
NAPF Discussion Paper (July 2005)
The legal framework for pension scheme governance
Trust law
Pensions Act 1995– Member Nominated Trustees – Reports and audited accounts– Record keeping– Relationships with professional advisers
Pensions Act 2004– TKU – new trustees have only 6 months to get up to speed – Duty to report breaches– Notifiable events. – Internal controls.
Other strands of governance
Myners principles Data Protection Act 1998Disclosure regulations FSA regulation
Internal controls
Article 14(1) of the European Directive 2003/41 ECSection 249A of the Pensions Act 2004
Regulation:
“ The trustees or managers of an occupational pension scheme must establish and operate internal controls which are adequate for the purpose of securing that the scheme is administered and managed:
−
In accordance with the scheme rules; and−
In accordance with the requirements of the law.”
Putting this into practice – what does the Regulator now expect of trustees?Regulators Code of Practice
Key themes:-
Code provides guidelines rather than a prescription.Schemes must have internal controls but trustees have the flexibility to determine how these internal controls are implemented. Risk-based approach Trustees should consider the circumstances of their own scheme. Proportionate and common sense approach.
Putting this into practice – a risk based review
Ask yourselves the question – “What are we trying to achieve?”– Minimising financial and non-financial risk in the
running of your scheme.Identify risks – look at processes to see where the main potential for risk arises. Define success – be realistic when setting targets. Assess risk.Produce action plan – e.g. set out ideas for internal controls against each risk.Implement the plan. Monitor and review.
Putting this into practice – identifying the key risks
Risk that internal controls don’t work. Risk of fraud Corporate riskFunding/investment risk – the risk that scheme investment strategy is no longer appropriate.Compliance/regulatory risk – failure to comply with scheme rules or breach of legislation. Administration risk – overpayments etc. Computer system and database failures. Poor scheme management. Risk of ineffective decision making – trust law (wrong factors), conflict etc.
Putting this into practice – identifying the key risks
Source: based on Watson Wyatt business management cycle
Documenting your risk review process
Common pitfalls for trustees
– Failing to implement an action plan for controlling risk – compliance should not become a box ticking exercise.
– Ineffective management of conflicts.
– Ineffective record keeping. Importance of record keeping.Legislative requirements.
– Ineffective supervision of delegates and advisers Establish a process for assessing your advisers and delegates.Are their internal controls adequate - don’t be afraid to ask!
Common pitfalls for trustees (contd.)
– Forgetting the basicsNot understanding the trust deed and rules.Misunderstanding the difference between duties and discretionary powers. Misunderstanding the balance of powersNot acting as a trustee
– Forgetting the wider responsibilities Data protection – consents, unauthorised processing, inadequate security measures. Focussing on the present and trying to forget the past! – e.g. equalisation.
What more can trustees be doing?Conduct of trustee meetings
– Keep key risk areas on the agenda for every trustee meeting – e.g. conflicts, covenant assessment
– Frequency– Manner by which Trustees conduct business– Use of sub-committees– Include legal/technical update as a regular agenda item
Composition of your trustee board
– Ask yourselves, is the trustee board effectively representing the interest of members?
– Having difficulty finding MNTs – ask yourself why?– Consider the appointment of an independent trustee – not necessarily a
professional trustee.
What more can trustees be doing? – cont’d
Scheme Documentation– Do you understand your deed and rules?– If the answer is no, what action should be taken?
Training?Rule rewritePrepare a working copyMake use of benefit and legal auditsMaintain a balance of powers summary
Communication– Timescales, manner, content – Open meetings with members?– How can you best make use of modern media?
What lies ahead?
Data cleansing and tPR– What are you doing to reach the Regulator’s target
deadline?– Is this built into your action plan for internal controls?
MNT – will we see a move to 50% as a mandatory requirement? Increased exposure for Trustees under DPA?The impact of Government cut-backs in public spending?Increase in litigation?
And finally … let’s not forget DC!
Contract based schemes – “the Governance Vacuum” (NAPF 2005 discussion paper)Pension committee Should there be some risk sharing for the employer?
Scrapping the default retirement age – what does this mean for
employers and employees
Sarah Peacock
Phasing out from April 2011
Consultation ended on 21 October 2010 and the Government intends to publish a response in November 2010. Proposals:Retirements that have been notified before 6 April 2011 to take effect before 1 October 2011 are valid.If notified before 6 April 2011 to take effect after 1 October 2011 will not be valid.
DRA will cease completely on 1 October 2011
No new notices of intended retirement may be issued after 6 April 2011Statutory retirement procedures will be abolished
Compulsory Retirement - Objective justification
Seldon v Clarkson Wright and Jakes and anorCourt of Appeal - September 2010Rosenbladt v Oellerking Gebaudereinigungsges mBhEuropean Court of Justice - October 2010
Advantages
Retain experienceRetain knowledgeRetain skillsDemonstrates equal opportunitiesImproved attitude towards older workersLower labour turnoverDecreased sickness absence
Disadvantages
Fewer opportunities for career development for new/younger employeesReduced capabilityPerformance diminishing with ageDifficulties in succession planningLess natural wastageIncreased sickness absenceIncrease cost of insured benefitsImpact on pension arrangements
Insured benefits
Life assuranceMedical coverIncome protection schemesCritical illness coverPermanent health insuranceEmployee Share Schemes – good and bad leavers
Government assurance
Most employers agree to requests to work beyond retirement ageMost employees only choose to work one or two years past the age of 65Work performance in most jobs is not affected up to the age of 70
Southern Pensions Conference – is the past any guide to the future?
Is the past any guide to the future?
Review what we have covered so farLook at some of the issues that still remain from the “legacy”Some things to be on the look out for
Changing the scheme’s liabilities
RPI/CPI – will it be overriding?Ceasing DC contracting out – another transfer window?Liability reduction exercises stay on the agendaGood process, good communications are critical
Investment
A key risk!Smarter solutions and options now available to allDiversification, speed of decision making, dynamic adjustments, etc.,Trustees to focus on strategy – 80:20 Contributions likely to remain limited so investment performance – risk v. return – more important than ever
Governance
Monitoring plan for employer covenant with annual review (minimum) and actions where necessaryFocus on the key risks Standing item on their meeting agenda Refer to TPR where relevantTKU burden increasing – think about how best to copeTrustees and employer monitoring role for advisers, administrators, managers, etc. – understand what is possibleDon’t forget the data and the TPR deadlines
Default retirement and age discrimination
Benefit provisionInsurance availabilityCost alone is not a justificationDB or DC?Life cover, private medical, etc?
2012 -2016 – auto enrolment and NEST
Auto enrolment a reality3 month window – but how much will this help?Additional costs for employers and employeesWill this force more opt outs?Danger of levelling downApplication depends on employer size
Employer (by PAYE scheme size or other description)
Staging date
120,000 or more 01-Oct-1250,000-119,999 01-Nov-1230,000-49,999 01-Jan-1320,000-29,999 01-Feb-1310,000-19,999 01-Mar-136,000-9,999 01-Apr-134,100-5,999 01-May-134,000-4,099 01-Jun-133,000-3,999 01-Jul-132,000-2,999 01-Aug-131,250-1,999 01-Sep-13
Auto-enrolment staging
Employer (by PAYE scheme size or other description)
Staging date
800-1,249 01-Oct-13500-799 01-Nov-13350-499 01-Jan-14250-349 01-Feb-14Certain employers with less than 50 01-Mar-14240-249 01-Apr-14150-239 01-May-1490-149 01-Jun-1450-89 01-Jul-14Other with less than 50 Aug 2014 to June 2015
Auto-enrolment staging
And Also
TPR spreads net– Nortel - Financial Support Directive– Lehman Brothers– Bonas Group – Contribution Notice
PPF to be self sufficient by 2030?Act now to get your surplus or at least to make sure you retain the right to get at it
And not forgetting ……
Disclosure changesRegulator’s data deadlinesAnnuitisation deferral – the first step to collectivism?Tax changes – annual allowance, reduced lifetime allowance, etc.
Trustees’ circle of interdependencies
Employer covenantFunding
Investment
Questions to ask - Trustees
Are we focusing on the key risks?Can we get more from our current and future assets?How rigorous is our covenant monitoring? How rigorous does it need to be?Have we reviewed all our liabilities and operational issuesHave we considered all options and issues?Have we challenged our advisers on these issues?Have we challenged ourselves and assessed our own performance?
Questions to ask - Employer
Are we fully engaged with the Scheme?What is our strategy? Have we thought about the end game? Have we considered all of our options?Have we started to think about 2012 and the effect of the tax changes?
To Do List
Work together – establish and maintain a good working relationshipReview governance and operations 2012 is even closer now!Be active rather than reactiveKeep your nerve
2020 Vision (or 2040?)
No such thing as a normal pension ageRetirement commonly age 70 (or later)Older workersDC inadequacy – 10 more years of DC, 10 less of DB!Employers and employees understand the need to save enoughCloud Pensions (Collective DC – double Dutch, going Dutch of just learning from the Dutch)Forced annuitisation a thing of the past
Question time