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Pension Funds
Insider

Government should postpone MPAA changes, says Fidelity

From April 2017, the Money Purchase Annual Allowance (MPAA) is due to be reduced from £10,000 to £4,000.

The MPAA is designed to limit individuals who have already accessed pension savings to 'recycle' this cash back into pensions, benefitting from tax relief for a second time.

Richard Parkin, head of pensions policy at Fidelity International, said the Government needs to consider four key questions before implementing the reduction.

Parkin said the Government must first consider whether there is any abuse of the system already, saying there is little evidence to say there is.

"The change will most impact those who are in good company schemes but choose to cash in another pension pot without realising the consequences," he said.

He also called for more information about who has already accessed their pension, saying the current self-reporting system is unreliable.

"Reducing the MPAA limit further will not fix this and could make things worse."

Parkin said the Government should consider how they will differentiate abuse from normal saving, and whether a reduction in the MPAA was the only option available.

"An alternative might be to only apply the MPAA to personal contributions and not the employer contribution, or people could stop accruing rights to tax free cash after the MPAA has been triggered," he said.

Careful consideration to any changes that could hinder pension freedoms or impact consumer trust in pensions – driven by changes to the rules, must be taken, he added.

"It's right to examine the issue carefully, but these issues are complex and it is important not to push rule changes through quickly, without considering all the options first."

Fidelity is urging the Government to postpone the reduction for 12 months, to establish a better way of limiting recycling without restricting flexibility."

First published 16.02.2017

Lindsay.sharman@wilmingtonplc.com

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Fertile terrain for pension scheme de-risking

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Government consultation on pension scams has closed

The consultation set out three main areas, including a ban on cold calling, clarification on laws around blocking pension transfers, and changing the law to prevent fraudulent companies registering a scheme with HMRC.

The Pensions and Lifetime Savings Association (PLSA) has responded to the consultation by proposing an authorisation regime for pension schemes.

Regulation for setting up smaller pensions schemes is not fully effective in preventing them being used as vehicles for scams, the PLSA said.

Its proposals focus initially on all new schemes with fewer than 100 members, and existing schemes with fewer than 100 members, that wish to receive pension transfers.

This would cover Small Self-administered Schemes (SSASs) which, together with overseas schemes, present the greatest risk of being used as vehicles for scams.

Graham Vidler, director of external affairs for PLSA, said: "Pension schemes see scams as a major and increasing threat to their members' retirement savings, so we welcome the Government's commitment to tackle the issue - but a much more ambitious approach is needed."

"A new authorisation regime for pension schemes will offer savers robust protection from scammers who have been able to set up pension scam vehicles too easily in the past.

"The nature of the regime will depend on the risks presented, but we should start by introducing authorisation for the schemes with the greatest risks, such as smaller schemes and SSASs."

The PLSA also welcomed the Government's proposed ban on cold calling, but suggested the ban should cover text messages and other forms of digital messaging.

The Government has been criticised by Pensions campaign group, Pension Life, for its lack of action on pension scams over the last decade.

Pension Life, which was set up to identify and prevent pensions scams, as well as supporting scam victims, said the Government has been aware of the issue for the last 15 years, but has done little to combat it effectively.

Pension Life chair, Angela Brooks, said the ongoing inaction at Government level has made the problem worse.

"The Government and regulators should talk to the victims – it is clear there are still holes in the understanding of how scams work and how they have evolved over the past few years."

First published 16.02.2017

Lindsay.sharman@wilmingtonplc.com

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Pension Funds
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The day I used the Chair's casting vote

I've been involved with trustees and trustee boards for 27 years, but the other day, I experienced a first.

Most trustee decisions are routine and nothing much to get excited about.

Whilst different people may have different views, generally they coalesce around a consensus position. Occasionally, and not unreasonably, there may be a benign disagreement where subjective judgement differs, but these instances pass by in reasonable compromise or with the quorum.

Very occasionally (perhaps half a dozen times in my 27 years) I've seen less benign disagreements, where a properly constructed decision was carried by a majority but one or two trustees were distinctly unhappy.

In these cases, frankly, they either have to put up with it or resign – it comes with the turf (and, incidentally, it is completely pointless minuting "I disagree with that decision" as trustee boards are collectively responsible).

The other day however, I not only had a split decision, but, for the first time, I had to use the Chair's casting vote.

Most scheme rules permit decisions to be made by a majority (perhaps qualified in some way) of the board of trustees, a few require unanimity. In a scheme that makes decisions by majority, it is common for the Chair of the board to have a second or casting vote to be used in a tie-break situation – the key to unlocking an evenly split decision.

It was this power that I had to deploy.

It was a tough call. Ultimately, the two sides of the board had different subjective and irreconcilable views of the argument – but the key was that it was a subjective difference. Whichever way we went, the decision had been properly constructed.

A properly constructed decision contains a number of components:

1. Your scheme rules should tell you in what forum you can make a decision. They will allow decisions at meetings or often, between meetings by written resolution or conference call. They will also set out what quorum and majority is needed. You must follow the formula provided by the rules.

2. The rules may say that some decisions can only be taken if you meet certain conditions, for example, that you take advice first. You must comply with these conditions. Failure to do so may invalidate your decision.

3. Ask yourself if you need to take advice. Some decisions require you to but many don't. Generally, you are not compelled to follow advice.

4. Decisions should be a team effort and can be made after considering the views of other parties, for example the employer.

5. Before making a decision, get your facts straight and have sufficient information to make your decision.

6. The law provides a framework for your decisions:

a. You must direct yourself correctly in accordance with the law and your trust deed and rules
b. You must consider all relevant factors
c. You must disregard irrelevant factors
d. You must come to a reasonable decision.

Although not a legal requirement, the prevailing wisdom is that you should also be able to justify your decision.

7. Make sure you document your decisions. This will usually be as a minute or as a written resolution. There are rules on what you need to record.

8. Make sure those affected by the decision are made aware of it in good time, and that any consequential changes required to scheme practice are implemented.

Finally, while decisions can be tough, it is an iron rule that they have to be taken. Inaction or delay can often be as damaging as a poor decision – so make sure you do take decisions and make sure you do so at the appropriate times.

Exercising my casting vote was tough.

I don't like to leave co-trustees behind on a decision, but it was necessary. The saving grace for them, was to be safe in the knowledge that the decision, even though they disagreed with it, was valid.

Richard Butcher, Managing Director, PTL

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PiP acquires six solar farms

The PiP Multi-Strategy Infrastructure Fund (MSIF) will acquire each farm once construction is completed.

Of the six, three operational solar farms make up the initial tranche, with deals on the remaining three farms to be completed once they become operational.

PiP says the locations of the farms means the new portfolio is well-balanced and geographically diversified.

PiP's remit is to facilitate long-term investment in UK infrastructure for pension schemes, and it says the scale of this portfolio will act as a foundation for acquisitions of similar assets in the future.

Mike Weston, PiP chief executive, says: "This is the fourth investment we've made on behalf of UK pension scheme investors in the last six months.

"We have made huge progress towards our goal of providing UK pension schemes with a better way of investing into infrastructure."

PiP has gone from strength to strength since it launched its infrastructure fund (PFi, 11 March, 2016).
Last year, it received FCA authorisation, launched the Fund, as well as expanding its team and adding three new independent directors to its board.

Weston says this has given the organisation "a great foundation" for the year ahead.

The acquisition of the six solar farms means investors will benefit from 20 years of inflation linked cash flows, which will help them meet long-term pension obligations.

MSIF will continue to build on this, and its previous debt and equity investments, to deliver a diversified portfolio of UK infrastructure assets for its pension scheme investors.

Weston added: "We are pleased to have been able to work with Trina Solar to structure and execute a transaction that provides our investors with the long term, inflation linked cash flows they are seeking."

First published 16.02.2017

Lindsay.sharman@wilmingtonplc.com

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Pension Funds
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Brexit Blight

In Samuel Beckett's famous play, "Waiting for Godot", there is a repeated exchange between two characters

"Let's go." "We can't." "Why not?" "We're waiting for Godot."

Godot never appears.

I wonder if pensions policymakers are feeling similarly stranded at the moment, waiting to see what comes out in the wash of Brexit.

Or whether, conversely, some are using the uncertainty created by the decision that the UK shall leave the EU to put off making difficult decisions.

For example, VAT: HMRC has now three times postponed publication of guidance on the correct application of the CJEU decision in the PPG case, concerning the scope for a scheme sponsor to recover VAT on the cost of services to pension schemes.

If and when the UK is no longer part of the EU, the VAT Directive will no longer apply and the UK will be free to make its own rules.

Uncertainty is never a comfortable position, and where there is no assurance of resolution any time soon people become agitated. We are told that the process of exiting the EU will take two years from the date on which Article 50 is triggered.

Nobody believes all will be cut and dried in that time. Far more likely is it that muddle and confusion will permeate the process, even to the extent that we may never arrive at a recognizable exit gate.

So we have to cope with the necessity of making decisions under amid uncertainty – a new lease of life for actuaries beckons. Why "necessity"; can't we simply freeze everything for a while?

The prospect of a year or two (or three) with no government intervention in pensions is appealing but beguiling.

There are things we could do without, such as the current proposal to slash the money purchase annual allowance, only two years after its introduction.

That should follow the insane secondary annuity market initiative into Room 101.

Then there are issues that do warrant attention, such as the cost of pension saving; but here again there are arguably bad ideas which simply act as expensive sledgehammers to crack minor irritants, such as capping early exit charges in occupational schemes.

Taking more time to tease out the true costs, for example via the transparency movement, will be more worthwhile.

It could be viewed as downright irresponsible if 'Brexit' were used as an excuse not to reconsider how defined benefit schemes should be valued.

Billions of deficit recovery contributions paid over the past decade appear to have made little or no difference to the overall funding position.

Extending recovery plans looks a lot likekicking the can down the road.

Some might say now is not the time, given the possible effects of leaving the EU on employer covenants. Some sponsors will be adversely affected if denied access to the EU market on current terms.

Uncertainties around removal of 'passporting' for financial services firms and possible tariff barriers generally do not encourage major economic decision-making.

But we must not become paralysed. It is a truism that pension saving is a long-term proposition. Equally well-understood is the notion that tweaking the pensions tax rules for short-term gain is inimical to good governance.

So the opposite reaction of imitating headless chickens is ruled out (and in any case the Brexit axe has not yet fallen).

We must plan ahead, and given the general consensus that UK pensions law should not be much affected one way or the other if we leave the EU, we should ignore the temptation to act like dazzled rabbits.

Regardless of whether we view the light ahead as the end of the tunnel or an oncoming train, there is a strong argument for forging ahead with strategic planning for our future pensions.

'Waiting for Brexit' – regardless of whether we expect salvation – is not a strategy.

Ian Neale, Director, Aries Insight.

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Nottinghamshire council awards £300million mandate

The mandate will be invested in a portfolio of corporate bonds with the aim of providing cash flow, which will then be used to meet the council's commitments to infrastructure over the next five years.

All local government pension funds are expected to increase their allocation to infrastructure over the coming years, after the chancellor George Osbourne announced in 2015 that the assets of the 89 local government funds in England and Wales were to be pooled into six new British Wealth Funds.

The £4bn Nottinghamshire scheme aims to invest in primarily investment grade bonds with a yield of Libor plus 1.25% after fees.

Keith Palframan, group manager of finance at the Fund, said: "We have made a commitment to infrastructure and plan to make staged investments from March 2018 to the end of 2021."
"Kames Capital has created a customised corporate bond portfolio to meet our objectives for liquidity, security, and performance over this period."

The new mandate builds on Nottinghamshire's existing broad fixed income mandate with Kames.

The fund currently has just £50m, or 1.3%, of assets in infrastructure as of 31 March 2016, and £440m in UK fixed interest, according to its annual report for 2015-2016.

Peter Ball, Kames Capital's director of institutional business, said: "At a time of great change for all local government pension schemes we are delighted to have worked closely with Nottinghamshire County Council to develop a solution which supports the pension fund's long-term programme of infrastructure investment."

Last year Nottingham invested in a closed-ended property fund run, by Kames Capital, joining pension funds for Leicestershire County Council and West Midlands.

All three schemes have also joined the Central Pool alongside six other Midlands-based local government funds, with around £34bn in assets under management.

First published 09.02.2017

Lindsay.sharman@wilmingtonplc.com

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Land Securities Group scheme completes £110m buy-in

The deal, which was agreed in December, covers around three quarters of pensioner liabilities in the scheme – and was completed in just over two weeks.

Just said it is one of the most significant deals it completed since merging with Partnership Assurance in April 2016.

Director of defined benefit solutions at Just, Tim Coulson, said: "Trustees were able to move from a decision to go ahead to signing the contract in one of the shortest period that we have been – an excellent example of how those pensions scheme that are well prepared, can achieve excellent outcomes in the bulk annuity market."

A medical underwriting exercise is due to take place, which Just said would provide potential to deliver improved terms to the trustees.

Peter Frackiewicz, Land Securities chair of trustees said: "We are very pleased to have taken this important step in managing risk within our scheme, gaining protection against demographic risks and a source of income that will help us meet our benefit payments with a reduced need for divesting assets."

Hymans Robertson was the lead adviser to the Trustees, with Sackers providing legal advice.

Frackiewicz said: "Hymans Robertson's advice helped us complete our transaction smoothly and efficiently, securing excellent value for us by closing the deal within a very short timeframe.

"We are also grateful to Just, who worked closely with us and our advisers and showed flexibility to develop solutions to accommodate."

James Mullins, partner and head of risk transfer solutions at Hymans Robertson said: "We are delighted to have helped the Trustees successfully complete their first buy-in.

"Buy-in pricing compared to other low risk assets such as gilts is at the most attractive level in several years offering some great opportunities for pension schemes and we expect these favourable conditions to persist over 2017.

"We expect to see many more pension schemes transferring risk using buy-ins over the coming year."

First published 09.02.2017

Lindsay.sharman@wilmingtonplc.com

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DWP announces auto-enrolment review panel

The advisory group will have three chairs; Ruston Smith, trustee director at Peoples' Pension; Jamie Jenkins, head of pensions strategy at Standard Life; and Chris Curry, director of the pensions policy institute.

They will assess auto-enrolment to date and look at how it can be developed further, taking three themes into consideration; coverage, engagement, and contribution levels.

Minister for Pensions, Richard Harrington, said: 'Automatic enrolment has been a huge success, but there is still significantly more work to do if we are to set the next generation on a path to a financially secure retirement.'

The group will work closely with the government.

The Pensions and Lifetime Savings Association said it welcomes the review and the appointment of a strong advisory group to oversee it.

Graham Vidler, PLSA director of external affairs, said: "The review is an important milestone in the development of automatic enrolment and is an opportunity to think how an emerging policy success can reach its full potential."

PSLS believes auto-enrolment minimum contributions should increase by at least 12% in the medium term.

"The review is a great opportunity to further strengthen the evidence base and chart a course to a higher level of retirement savings," Vidler added.

The announcement was also welcomed by pensions consultancy Hymans Robertson, although head of DC consulting, Lee Hollingworth, also warned about potential risks.

He said: "Auto-enrolment has been a great success and we are pleased to hear that more than 7.1 million people have been automatically enrolled in pensions since its introduction – this is a marked step in the right direction."

"But there is a danger it could be creating a false sense of security, and attention now needs to move from creating a savings environment to making this effective."

First published 09.02.2017

Lindsay.sharman@wilmingtonplc.com

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Pension Funds
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Pensions Dashboard – what's not to like?

Pensions Dashboard is a simple concept. It will provide an easy to read, online picture of a person's pension savings ahead of retirement to help them understand both what it means and what they can do next.

It's not a new idea, but an accessible, digital platform provides the opportunity for people to engage with saving for later life in a less scary way.

Gone will be the reams of paper stuffed with gobbledegook (those can be relegated to background clicking for the curious), replaced by important stuff like 'what pensions do I have and where?', 'how much are they worth now and what will it be in 15 years' and 'what can I do to make up the shortfall?'.

How it looks will be just as important as what it says and we can be sure that Dashboard providers will work very hard to make it appealing, building lots of funky applications to keep us returning.

That's the nice bit.

To get there we have work to do. I keep hearing the doom and gloom merchants talking about how DB can't possibly be expected to take part. 'It's too hard'. 'The legacy data is too poor and will cost too much to put right'.

They're half right.

There are problems with DB legacy data. We've been saying so for years and administrators have been trying to get schemes to do something about it, but until now there has not been a compelling reason to get scheme records up to date and accurate.

Up until now there have been many more interesting things to buy.

Pensions Dashboard needs DB schemes.

Without them members will only have half of their savings picture. What will members think about us if they see a gap where their DB scheme benefits should be? Will they be sympathetic or will they think we are hiding something from them? Since they already do not trust us, I would not like to be running a member help desk when Dashboard launches if my scheme were not part of it.

So what can we do?

1. We need to understand the extent of the data gap. Work is being done on this by the Dashboard team.

2. We need to ensure we are asking schemes to provide the minimum level of information required for dashboard. PASA is working on a Dashboard Ready data standard to help set out what is needed. Our working group was oversubscribed, such was the interest in getting this right. The standard will be something every single DB scheme should achieve fairly quickly with as little cost as possible.

3. Trustees and sponsors need to see this as a priority and plan to have cleansing work completed in good time to avoid the likely capacity crunch as 2019 approaches.

We are calling for compulsion by 2021 (at least for DB schemes), not because we think trustees won't step up to the plate, but because without some sort of stick, we are likely to drag our feet.

We are asking for a carrot too in the shape of a VAT exemption for dashboard related work, but if it happens it could only be for a limited period to encourage early action.

The Dashboard prototype is progressing well and working groups are beginning to explore governance and how best to demonstrate the prototype. Further challenge sessions will be held over the next couple of months, so if you haven't been involved yet, you should attend a workshop to discuss your ideas.

Dashboard will not solve all pension problems, but it is a good way of using technology to restore trust and reduce some of the time we spend telling members about their benefits.

Written by Margaret Snowdon OBE, Chair of PASA.

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Lifetime ISA is risky, says PTL

Pitmans Trustees (PTL) has responded to the Financial Conduct Authority consultation paper: Introduction of the Lifetime ISA (LISA).

The organisation said although it welcomes the LISA, it has concerns that the proposal overlooks risks that could have a negative impact on the outcome for some consumers.

Richard Butcher, PTL managing director, said the LISA has two different functions, and that could cause problems in the long term.

He said: "Any tool designed to encourage long term savings is a positive development in the context of declining pension adequacy."

"But the LISA is attempting to fill two diametrically opposing roles; a tool for short and medium term investment saving for a house deposit, and a tool for long term savings toward retirement.

"These two objective imply significantly different investment strategies however, and if consumers change their objective for LISA, especially if they don't understand investments, the strategy will no longer be relevant and may do damage to the expected outcome of long term savings."

PTL said it recognises the FCA's attempts to mitigate the risk using financial advice, but believes that few people will make informed decisions as a result.

"In our experience in the context of workplace pensions, even with disclosure, education, and relevant reminders, only a small proportion of consumers will be able to make informed investment decisions," Butcher said.

PTL has put forward a solution, a formal independent governance function built into the delivery mechanism, similar to those for workplace pensions.

It said for pensions, this function is responsible for driving value for money for members, challenging and controlling costs, ensuring core financial transactions are processed promptly and accurately, and that investment strategies are likely to be and remain appropriate.

"We hope the FCA will take this into consideration so that consumers will be reaping the intended benefits of LISA," Butcher added.

First published 03.02.2017

Lindsay.sharman@wilmingtonplc.com

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Report shows gap in financial knowledge

The report, Guaranteeing Real Pension Freedom, showed nearly half (45%) of over-40s are concerned that a lack of guaranteed income choices is driving people to take risks with their money.

It also found one in five retirement savers (20%) don't fully understand the choices they face, which would help them receive the level of retirement income guarantee they are looking for.

The report suggests the Government's plan to launch a new financial guidance service in place of Pensions Wise and the Pensions Advisory Service provides the ideal opportunity to refocus on explaining all retirement income choices, together with their risks.

Simon Massey, wealth management director at MetLife UK said: "Our research has uncovered a worrying gap in knowledge which has the potential to massively impact the retirement savings of a huge number of people."

"Despite almost half of savers taking more risk because of a lack of guaranteed income solutions for life, one in five admit they don't understand the choices they face to generate this retirement income – however, if they were confident, they might see there are ways of obtaining the guarantees they want."

Massey went on to say that MetLife believes retirement conversations need to change to include a wider range of options.

"Anything that encourages this, including guarantees and guaranteed drawdown to form part of the new framework, should be supported across the board" he said.

The report also showed that around 75% of retirement savers say having a guaranteed level of income in retirement and flexibility is important.

Around 26% want all their retirement income guaranteed for life, and they are supported by advisers who believe clients should have at least 37% of their income guaranteed.

The report covers four specific sections.

The first section sets the scene by analysing pension freedoms and the second section examines the current status of drawdown options.

The third section highlights the growing need to expand the retirement conversation to include guaranteed options and the final section moves into setting out the case for need for real change to ensure the future success of pension freedoms.

First published 03.02.2017

Lindsay.sharman@wilmingtonplc.com

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L&G makes senior pension appointments

Chris DeMarco joins as managing director of UK Pension Risk Transfer and Costas Yiasoumi as head of core business.

DeMarco's previous role was head of institutional client management at Legal and General Investment Management (LGIM).

L&G says he brings significant pensions and risk management expertise, as well as leadership experience.

"His combination of technical and client skills will be a valuable addition to the team as we continue to guide pension schemes through their de-risking journeys," a spokesperson said.

Prior to L&G, DeMarco worked in the banking and consulting industries, most recently as a partner at Aon Hewitt.

Yiasoumi joins the company from Partnership Assurance, where he led bulk annuities.

His previous roles included senior positions at Swiss Re, JP Morgan and mercer.

L&G says his appointment further demonstrates its commitment to the growing pension risk transfer market and points to his wealth of market knowledge and expertise.

Kerrigan Procter, managing director of L&G, said: "I'm delighted to welcome Chris and Costas to the team at a time when trustees and sponsors of defined benefit schemes are increasingly focused on transferring their risk to insurers.

"After what's been another strong year, I am confident that their expertise will result in many more market leading and innovative transactions being completed over the coming months and years."

Solutions team expands

L&G has also announced senior hires to its Solutions Group, which designs, executes, and manages holistic solutions for clients, including defined benefit and defined contribution pension schemes.

Anna Troup joins as head of UK Bespoke Solutions, and will be responsible for improving how LGIM works with clients from a strategic perspective.

She was previously at BlueBay Asset Management, where she was a partner and a portfolio manager on the emerging markets desk, and prior to that, worked at Goldman Sachs for 10 years.

Mehdi Guissi joins as head of European Bespoke Solutions and he will work alongside LGIM's investment and distribution teams in the UK and Europe, to plan and structure bespoke portfolio management services for large insurance, pension scheme and other financial clients.

Mehdi joins from Lombard Odier Investment Managers, where he was head of Insurance and Pension Solutions for three years.

First published 26.01.2017

Lindsay.sharman@wilmingtonplc.com

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Anticipating Real Estate Capital Markets Downturns

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Lost in translation

Today my Dad would have been 85. Sadly he passed away almost 10 years ago after a brave battle with prostate cancer. He was a great Dad and a wonderful role model. He was curious, enthusiastic, understanding, accepting and non-judgemental. He made a difference in the lives of those who knew him.

When he passed he left a big hole in our lives, particularly that of my Mum. For her, there was also a loss of understanding of all things pension. Dad had made reasonable provision throughout his life to make sure he and Mum could enjoy a comfortable retirement.

My reality was rocked when I sat down with Mum to discuss her pension and how things would change as a consequence of Dad's death.

At the time I was working for a large financial service company in Australia that provided Dad's pension, which had a reversionary benefit for Mum. The product brochure for the pension was produced by my team. It was excellent – technically superb, legally compliant, outstanding print quality ? but totally and utterly useless in providing understanding for my Mum.

The brochure did nothing to easily explain to Mum what it was, how it worked for her or even why she should be in it.This brochure is not unusual in its opaqueness.

Today, in the UK, I receive statements from a large financial services company about my own retirement savings that are full of meaningless investment codes and provide very little connection as to why I'm putting money in the plan, and how it will/or will not provide the outcome I'm expecting in retirement.

Now don't get me wrong I want and need any communication to be compliant. Actually I think I expect that as a hygiene factor, but what I really want, just like my Mum, is understanding.

One of the fundamental rules of communication is know your audience. This is far more than simply their name and their address, it's knowing their hopes and fears, knowing what they need to know and knowing how to provide them with the information in the way they will understand.

The pensions industry is full of wonderful people, passionate about the jobs they are doing but sadly cursed with the knowledge of pensions. As pension experts it's hard to see how others can't understand what we understand – but my Mum just doesn't.

As an industry a test of our effectiveness of providing pension outcomes for our members must be our ability to create understanding. Does meaning translate to my Mum, or to Bob in the boiler suit or to Rose in retail?

Written by Peter Nicholas, Managing Director & CEO, AHC.

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One in five firms missing auto enrolment deadline

Now:Pensions says in the fourth quarter of 2016, 41% of the companies that signed up with them, did so either very close to their staging date, or after the staging date deadline has passed.

It's the highest number the company has recorded this year.

Of those who left it late, 19% contacted Now:Pensions within a month of their staging date, while more than one in five (22%) left it until after the deadline.

At the other end of the spectrum, however, in both the third and fourth quarters, more than a third (38%) were planning a clear six months or more ahead of their staging date.

Now: Pensions says this is a "stark increase" from the first quarter of the year, where just over one in 10 (13%) were sorting their auto enrolment duties in advance.

Now: Pensions CEO Morten Nilsson, said: "Small business owners have a lot to think about and it's easy for auto-enrolment to be put on the back burner, but fines for non-compliance are steep and missing the deadline can cause unnecessary sleepless nights.

"It's encouraging to see that so many small firms are taking their auto-enrolment duties seriously and planning well in advance – the messages from The Pensions Regulator are clearly getting through.

But, he added, there are still a lot of firms burying their heads in the sand and not dealing with auto enrolment in good time.

Nilsson re-emphasised the need for small organisations to meet their obligations: "Auto enrolment is complicated, so the longer firms leave to tackle it, the more confident and comfortable they'll feel."

First published 26.01.2017

Lindsay.sharman@wilmingtonplc.com

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£25bn could be wiped off DB debt

Schemes are currently taking a more cautious approach to longevity that could be distorting their strategy, according to longevity service provider Club Vita.

Douglas Anderson, founder of Club Vita, said: "With rock-bottom interest rates causing pension deficits to swell, trustees and sponsors of defined benefit pension schemes need to avoid unnecessary margins in assumptions.

"Companies with schemes facing record funding deficits, along with scheme trustees, should look at whether they're taking an unnecessarily prudent approach."

Analysis from Club Vita, which pools the longevity data of more than 200 DB schemes and insurers, shows that trustees are still taking unnecessary margins in setting their longevity assumptions.

Anderson said each time the company takes on a new scheme, on average there's an over-valuation of liabilities of around 1%, with several schemes having far larger reductions to their deficits.

"The 1% average reduction is equivalent to continuing to pay everyone's pension for 4 months after they have passed away," he said.

"If the same pattern was seen across all the UK's defined benefit pension schemes, then deficits could fall by £25bn."

The company says bigger schemes are not better at assumption scheme than smaller schemes, with several £1bn schemes overestimating liabilities by substantial amounts.

"The ultimate cost of a pension scheme will be determined by how long its members actually live, but assumptions made today really do matter for such long duration commitments," said Anderson.

"The confidence that trustees gain from more insightful longevity assumptions does change behaviours, affecting members' benefits, their security and businesses' ability to invest."

Longevity management is increasingly moving higher up schemes' agendas, with longevity risk now a bigger risk than ever before.

First published 26.01.2017

Lindsay.sharman@wilmingtonplc.com

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Pension Funds
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Binning Recycling

The reduction to the Money Purchase Annual Allowance (MPAA) in November's Autumn Statement has provoked sufficient comment in some circles to qualify it as controversial.

This alone is evidence that Philip Hammond's amendment was a poorly-understood response to a significant problem.

Let's start with some history. The A-Day reforms of a decade ago replaced a tax regime based on absolute limits on emerging benefits (by implication, a DB regime) with a series of allowances on contributions (by implication, a system designed for DC schemes).

For the first time, it became possible to continue to pay contributions into a registered pensions arrangement after benefits had been withdrawn, as full concurrency allowed members to pay into more than one scheme.

This created an immediate problem.

A tax-free lump sum could, in theory, be withdrawn from one pension scheme and immediately re-invested ('recycled') into another, thus enjoying illegal tax relief.

By 2011, the Annual Allowance (AA) had risen to £255,000.

There was therefore ample scope for significant recycling and, whilst the practice was illegal, the onus was on HMRC to demonstrate that a contribution was a recycled lump sum rather than an alternative source.

In 2011/12, the AA was reduced to £50,000 - however the motive for this was to restrict the amount of relief available to high earners rather than to curb recycling.

The introduction of George Osborne's Freedom and Choice regime exacerbated the recycling problem in that the new Uncrystallised Funds Pension Lump Sum (UFPLS) option allowed members to release a series of lump sum withdrawals.

In order to control the potential for extensive recycling the Government introduced the MPAA, which applied when members went into Flexible Drawdown or made an UFPLS withdrawal.

The full AA of £40,000 was reduced in these circumstances to £10,000. This was a pragmatic step: recycling could not be stopped, but the extent to which tax rules could be abused was restricted.

However, November's reduction of the MPAA to £4,000 suggests that recycling remains a problem.

There are no statistics available to demonstrate the extent to which tax relief has been granted inappropriately through recycling, but drastic changes to a flagship policy so soon after its implementation suggest a great deal of smoke even if there is no visible fire.

The national media response has not all been helpful. Some have complained that the Chancellor has unreasonably imposed tight constraints on retirement planning. More reasonable voices recognise that illegal exploitation of tax rules – principally by wealthier individuals – was a problem that the Government had to address.

Recycling is however part of a wider problem. The extent to which the tax allowances have been reduced in recent years has left us with a tax relief regime which, a mere decade after its introduction, is no longer fit for purpose.

It is time for Government and the industry to work together in designing a replacement, and Government must make a commitment to end its obsession with tinkering.

Pensions policy needs to work over a timeframe of several decades rather than the end of the current Parliamentary term.

Written by Tim Middleton, Technical Consultant, The PMI.

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Poulter is new PIP chairman

Until recently, Poulter was global head of consulting at PwC – prior to that he was head of Project Finance.

Poulter is also senior independent director at the Green Investment Bank and a non-executive board member at the Department for Transport.

He will replace outgoing chair, Joanne Segars, who hailed the appointment as "great news".

"Tony's appointment is great news for PiP and its investors," she said, "Tony's expertise in infrastructure investment will be pivotal in leading PiP in its next stage of development."

Segars said PiP has made huge strides since it was first conceived in 2011, putting to work more than £1bn in UK infrastructure for the benefit of UK pension scheme members, receiving FCA authorisation and employing a specialist investment team.

"PiP has stayed true to its mission to be by pension schemes, for pension schemes," she added.

Commenting on his new role, Poulter said he was excited to be joining the organisation: "I'm excited to bring more pension fund investment into UK infrastructure – there is a huge need and we have a clear focus and the right structure in place," he said.

"I am very much looking forward to working with the board and the team to deliver more benefits through this important sector of the economy."

PiP has the backing of a group of leading UK pension schemes and, it says, it can offer them a degree of alignment and transparency that can't be found in the traditional asset management sector as a result.

Paul Trickett, Railpen Investments chair, said: "We are a large investor in infrastructure and for us PiP is an obvious route to them, tailored to our needs."

"Tony's appointment marks the next step in PiP's development as it grows in scope and scale, using infrastructure investment to benefit not just pension funds, but also wider society."

First Published 20.01.2017

Lindsay.sharman@wilmingtonplc.com

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PLSA outlines pension scheme Brexit needs

It said that from a pension scheme perspective, a successful outcome will include a robust economy, the right regulation, and a strong financial services sector.

PLSA said as good pensions depend on strong employer sponsors and an economic environment where employers and employees can make savings provision for the future, pension funds need a Brexit deal that minuses disruption to the economy.

It welcomed the intention of setting up a transitional regime because, it said, it would help avoid an economic cliff edge.

PLSA director of external affairs Graham Vidler, said: "A successful Brexit matters to the 20 million workers, savers, and pensioners served by our pension schemes."

"If the economy weakens, it will make it harder for sponsoring employers to keep DB schemes open and reduce the funds individuals can afford to put into DC pensions, but these risks can be reduced if the Government addresses the points we raise."

Discussing regulation, the organisation said if an equivalence regime after Brexit results in UK pension funds remaining subject to EU regulation, it is important that UK-only pension schemes, which do not operate on a cross-border basis, are exempt from any future EU regulation regarding a solvency-based regime.

"We welcome Theresa May's commitment to set up transitional arrangements to reduce any economic disruption due to leaving the Single Market" said Vidler.

"While it is not yet clear whether EU regulation, as a result of establishing equivalent rules for financial services, will encompass pension funds, we will be arguing strongly that EU rules on solvency requirements for DB pension funds should not apply to pension funds that only operate within the UK."

PLSA also emphasised the importance of a strong financial services sector, saying to invest efficiently, pension funds benefit from access to the UK's successful financial services sector, it is vital that such companies can continue using their "passports" to do business in the EU Single Market.

First published 20.01.2017

Lindsay.sharman@wilmingtonplc.com

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Barnett Waddingham awarded PASA accreditation

PASA, an independent organisation that is committed to improving standards in pension administration, says its stringent accreditation processes reinforce the value of high quality administrators.

It says it has long since recognised the significant negative impact poor pensions administration has on pension scheme members, and all its companies must undergo a strict audit process and demonstrate that they fully comply with its standards.

Fergus Clarke, PASA executive director, said: "Barnett Waddingham's administration practice area demonstrated themselves to be set apart from the wider market and able to join a gold standard group of in-house teams and third-party providers who set the benchmark for their peers."

"We look forward to presenting them with their accreditation certificate at PASA's first annual event on 27th February in London."

Paul Latimer, Barnett Waddingham's head of pension administration said the accreditation was an accurate reflection of its hard work: "Achieving PASA accreditation is a hard-won process and we are thrilled that our commitment to providing the highest quality services to UK pension schemes and their members, now and into the future, has been recognised in this way.

"Our team of 270 experienced administrators currently look after over 200,000 members across 300 plus pension scheme clients and this accreditation cements our position as one of the leading Third-Party Administrators in the UK."

PASA's Fergus Clarke added that he welcomed the increased recognition of the importance of high administrative standards by the Pensions Regulator.

He said: "Administration has never been so high on the trustee agenda, but much more needs to be done."

"It is really encouraging that an organisation like the Pensions Regulator has now recommended that trustees should aim to use an independently accredited administrator, this goes a long way to striving for better quality service and standards in our industry."

First published 20.01.2017

Lindsay.sharman@wilmingtonplc.com

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