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Pension Funds

The Troubles with DB Transfers

Read all about it

Paul Pettitt, Managing Director


Origo is a not-for-profit, FinTech company dedicated to improving outcomes for consumers by transforming the financial services industry's operating efficiencies. By bringing together different organisations and groups in a non-competitive environment, Origo identifies and addresses cost and efficiency issues through the creation and maintenance of a range of industry solutions.

As a development partner of the HM Treasury's Pensions Dashboard project, Origo's Pension Finder service powers Pensions Dashboards, enabling consumers to safely find and return their pension information to their Dashboard screens.

Thanks to Origo's Options Transfers service, pensions transfer times have dramatically reduced to an average 11 calendar days, providing smooth, fast and safer transfers for consumers.

Find out more: www.origo.com

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Pension Funds

Good governance?

Good governance is fundamental to the effective operation of pension schemes and to achieving good outcomes for members.

TPR is concerned that some schemes are not achieving the standards of governance that it expects, and has launched a new, targeted campaign to drive engagement with good governance practices.

The campaign will assist schemes by issuing publications that revisit the key elements of good governance in a clear and accessible format.

The approach taken in the first publication ("Good Governance" issued on 18 September 2017) is very practical, drawing out specific points to consider and using case studies.

All schemes should review the guidance, even where current standards are high, to confirm they measure up.

Governance is relevant to all aspects of a pension scheme.

It is a vast topic and not always easy to work out how to make a start on reviewing aspects of scheme governance.

It is therefore very welcome that TPR has approached 21st Century Trustee from a perspective of addressing key themes which are the basics of good governance.

Schemes will benefit from the structure of this ongoing campaign.

TPR's approach will give schemes the opportunity to consider each component as it is launched, enabling them to review, assess and decide whether changes would be beneficial over time.

Helen Baker, Partner at Sackers.

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Pension Funds

Royal Mail staff vote to strike over pension scheme

Royal Mail announced earlier this year it would close its current defined benefit (DC) scheme in March 2018

Although the pension fund is currently in surplus, Royal Mail, which was privatised in 2013, said its current annual contribution of £400m a year would increase to £1.26bn.

The Communications Workers Union (CWU), which has 110,000 members, said the vote was "sparked by the company's attack on the pension rights of hard-working postmen and women and the refusal of the employer to engage seriously over pay, working hours, future job security and the need to improve and grow the service to the public."

Royal Mail said the current scheme must be closed because it is unsustainable.

Douglas Hamilton, head of pensions strategy at Royal Mail, said its proposals are fair: "We have never hidden the fact from our DB scheme members that the benefits they build up from April 2018 will be smaller than they are now.

"The company cannot afford the plan in its current form, but with our current DB cash balance proposal we have moved a long way compared to the defined contribution (DC) proposal we originally put forward.

"This is not about cost-cutting - Royal Mail will continue to pay broadly the same in pension contributions after its proposed changes as it does now."

More than 60% of Royal Mail employees in the UK are in a DB pension scheme, while the figure for the UK private sector is under 5%.

In place of an existing defined benefit pension scheme, which provides a guaranteed income in retirement, Royal Mail is offering a different kind of DB scheme that instead gives employees a cash lump sum linked to the value of their contributions.

First published 05.10.2017


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Pension Funds

PASA to mediate on administration service transfers

The service is designed to resolve the issues experienced by schemes during the transfer of administration services from one provider to another.

Margaret Snowdon, chair of PASA, said the service is a natural extension of its work in this area.

She said: "Changing administrators might be a relatively rare occurrence, but when it does happen the process must be smooth, safe and hassle free for all concerned - this is only possible when the ceding and receiving administrators work in co-operation."

"We have been very clear on its position in this area, publishing our Code of Conduct on Administration Provider Transfers in 2013 and requesting that all members adhere to it."

"The introduction of our mediation service was therefore a natural extension of our work here."

Snowdon added that PASA aims for trustees to be able to rely on the organisation as a means of indicating the quality of service provision.

She said: "As well as empowering administrators to be the best they can possibly be, we want trustees to be able to reply on us for quality of service, which starts with the appointment and exit processes."

From 1 January 2018, PASA members will be required to comply with the Code of Conduct and PASA will interceded if a need is identified around unreasonable delays, fees, or expectations."

PASA's mediation service will be voluntary and non-binding, seeking to bring all three parties; the scheme, ceding and receiving administration providers together for practical and fair solutions in line with good industry practice.

The mediators will be independent of administration firms to avoid conflict of interest and PASA intends to publish details of the scheme for formal launch in January 2018.

First published 05.10.2017


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Pension Funds

Annual ONS Pension Schemes Survey records highest ever membership levels

It is an increase of 17.1% on the 33.5milllion members recorded by the survey in 2015.

The survey, which looks at data on the membership of schemes and the contributions made, also found that active membership of occupational pension schemes was 13.5 million in 2016, split between the private (7.7million) and public sector (5.7million).

The OPSS covers both private and public sector occupational pension schemes registered in the UK.

It collects information about scheme membership, benefits and contributions from a sample of occupational (trust based) pension schemes consisting of two or more members – including those that are winding up.

The rise in Defined Contribution (DC) membership in recent years is likely to be due to the workplace pension reforms which meant DC arrangements (including group personal pensions), were the most likely route for employers to meet their new obligations under automatic enrolment.

Vince Smith Hughes, retirement expert at Prudential said: "The increase in the number of people joining company pensions schemes shows the success of auto enrolment and how people increasingly recognise the need to provide for their own retirement."

The number of people retiring without a pension has fallen significantly over the last 10 years and people retiring now tell us that they expect to live on about £18,000 a year.

"Our research shows auto enrolment is encouraging people to make better plans for retirement with nearly three out of ten saying they could save an additional £100 a month," added Smith Hughes.

"That's good news because over the past 10 years, responsibility for providing a retirement income has shifted from away from government to individuals and the best approach is to save as much as you can as early as you can."

First published 05.10.2017


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Pension Funds

GDPR juggernaut

I seem to remember that one of Steven King's early films was about a chap driving across America in the dead of night when, for whatever reason, a truck starts harassing him. Presumably it starts at a low level before stepping up to intimidation and then, finally, arriving at terror – it being a Steven King film, after all. Can anyone remember what that was called?

Mentally I have the image of impenetrable dark stretching in all directions shattered only by a steaming hulk of blindingly lit metal, bearing down in a cloud of snorting exhaust fumes and deafening noise. That's sort of how I feel about GDPR at the moment.

The General Data Protection Regulations, to give them their full name, come into force late in May next year. According to many they are a simple extension of the data protection rules we have lived, and possibly breathed, for many a year, updated to reflect the fact it is the 21st century now and we all communicate, store and exchange data electronically. There is, many will tell you, nothing to fear.

That might be a fair analysis (although it wouldn't make a very good horror film) but I am still in terror, for three reasons.

Firstly, a breach of the current data protection rules could, in the worst cases, result in a fine of up to £500,000. The worst kind of breach of GDPR could result in a fine equivalent to €20 million (or 4% of annual worldwide turnover, whichever is greater). That is a staggering, eye watering step up that scares me witless, even though I think I'm doing okay. The sword of Damocles just grew in length from, say, 1 meter to 40!

So, I think I'm okay, but this is what makes me sweat: I don't know that I'm okay. We use good service providers – large reputable firms that are already all over this, but it is not that core operation that scares me. It's all the little peripheral things where this could go wrong.

Does one of my co-trustees have a box of old pension scheme papers sitting almost forgotten in his study, his attic, or maybe even his garage? We archive old papers for schemes long wound up – someone has to keep this stuff in case there's a question later.

What happens if in box 12, somewhere toward the back of file 48, there is a bit of sensitive personal data that we don't need to keep anymore and that we haven't catalogued? How good are we and our service providers, really, at deleting data that is no longer needed?

Then there's all the unanswered semi-legal (or actually legal, I suppose) questions. Should we be in touch with ex-service-providers to find out what they are doing? Should our minutes record member names, or indeed any other identifier, any more and if not, how do we link our decisions to scheme governance? The list gets longer every time I talk with people about this.

Data protection is important – it should be cultural, not just procedural – but we have always held, and will continue to hold, a lot of personal data. GDPR rightly ups the ante, if for no other reason than we have the World Wide Web and email now. But the known unknowns and unknown unknowns scare me witless and, right now, I think I'd rather stare down a truck in the dead of night.

Written by Richard Butcher, Managing Director, PTL.

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Pension Funds

Women leading the way in pension saving increase

Prudential's 'Class of?' research, has tracked retirement finances, plans, and aspirations of people retiring each year since 2008.

Data from the research showed one in four (23%) of those retiring in 2008 had no pension savings at all, but this has dropped to one in seven (14%) of those planning to retire in 2017.

Prudential said the data reflects the success of government and employer initiatives, such as auto-enrolment, to encourage savings.

Women have led the way in reversing the pension saving trend – in 2008 32% of women stopped work with no private pension savings, compared with 19% in 2017.

Just over one in six men retired without a pension in 2008 (17%) while just nine per cent will do so this year.

Prudential said the growth in pension saving rates has taken place against a backdrop of 'massive upheaval' in UK pension saving rules and worldwide financial volatility and political upheaval.

In the face of these challenges retirement incomes for new retirees have struggled to recover from the sharp fall they took immediately after the financial crisis of 2007 to 2008.

The Class of 2008 expected to live on £18,700 a year – a figure that fell to £17,800 in 2009 and continued to fall until it bottomed out in 2013 at £15,300.

Since then a slow recovery has taken place, but even now, retirees in 2017 expect to live on £18,100 a year – still £600 a year short of those who gave up work 10 years ago.

Vince Smith-Hughes, retirement income expert at Prudential, said: "The past 10 years have been a decade of constant change with pension freedoms, the new State Pension, the roll out of automatic enrolment and the abolition of the default retirement age, to name just a few."

"The financial crisis, the subsequent recession and ongoing political change have all added to the uncertainty, however, despite all of this, the message about the importance of retirement saving seems to be getting through, demonstrated by a significant increase in the numbers reaching retirement having saved for their future."

First published 28.09.2017


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Pension Funds

Inquiry into pensions freedoms 'critical'

The inquiry will assess whether the reforms are achieving their objectives and whether policy changes are required, following up on the first inquiry in 2015 shortly after the reforms were introduced.

The government said the inquiry has a 'wide scope' and will look at what people are doing with their retirement savings and how they make those decisions, the information and guidance available, and the way the pension market is working.

One of the major concerns about the new freedoms is the potential for scams – fraudster target people thinking about moving their pension pots.

Police data shows that more than £43million of people's retirement savings has been lost to fraud since the policy was announced, with some scammers even fraudulently using the Pension Regulator's anti-scammer kitemark.

The Committee has asked for written evidence and recommendations on a number of topics, by Monday 23 October, including: what are people doing with their pension pots?; Is there adequate monitoring of decisions?; Are people taking advice?; Will the pensions dashboard help consumers make informed decisions?; Is Pensionwise working?; Is there sufficient product competition in the market?; Are the government and Financial Conduct Authority taking adequate steps to prevent scamming?; and are the reforms part of a coherent retirement strategy?

The Pensions and Lifetime Savings Association (PLSA) said the inquiry was essential as the choice for consumers has increased.

"The freedom for people to spend their pension pots is a good thing, but the choices are now harder," said Graham Vidler, PLSA director of external affairs.

"Alongside the FCA's retirement outcomes review, we see this announcement of a Work and Pensions Committee inquiry as critical to making the market work in the interests of consumers."

Jon Hatchett, partner at Hymans Robertson, warned that pension freedoms have encouraged consumers to access savings early and expressed concern that it would lead to more 'pensioners in poverty' in the future.

He said: "Unless action is taken now, there's worse to come over the next decade or two – it is vital savers get the right advice if they are to avoid poor financial outcomes when they retire."

First published 28.09.2017


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Pension Funds

PLSA launches final DB Taskforce report

The report looks at a range of options for pensions schemes facing the challenges of underfunding, weak employer covenants, and lack of scale.

It makes three main recommendations: a new chair's statement for DB scheme trustees; making it easier to standardise and simplify benefits; and exchanging covenants for funding.

The chair's statement would be produced annually to demonstrate they are operating in line with best practice in areas including governance, investment performance, and cost transparency.

This would also provide the cultural impetus for trustees to consider consolidating services, investment or governance where it offers the prospect of improved outcomes for their members.

Standardising and simplifying benefits would enable schemes to retain member benefits while simplifying the structure of schemes.

The UK's 6,000 DB schemes manager tens of thousands of different benefit structures, PLSA said.

The report also proposes new measures to help schemes backed by weaker covenants, which would mean that schemes could benefit from turning the uncertain promise of future support into tangible funding.

To implement the changes, the industry and the Department for Work and Pensions would need to collaborate.

As part of the Taskforce work, PLSA also undertook employer research to ascertain the level of interest in consolidation.

Among surveyed employers, almost two-thirds (65%) said they would support the principle of consolidation with support for shared administration (72%), shared external advisers (66%), shared governance (64%) and pooling assets under one asset manager (54%).

Ashok Gupta, chair of the PLSA DB Taskforce, said: "More than 11 million people rely on DB pension schemes for some or all of their retirement income, but there is a real possibility that without change we will see more high profile company failures such as BHS or Tata Steel.

"It is vital that action is taken to address covenant risk, underfunding and the current lack of scale in the majority of schemes and our proposals have the potential to transform the industry – helping to ensure more members get their full benefits, reducing sector inefficiency, addressing the issue of stressed schemes and enabling sponsors to concentrate on growing their businesses.

Gupta added that the industry and government need to 'grasp this opportunity' and tackle serious flaws that threaten the security of people's retirement.

First published 28.09.2017


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Pension Funds

The good, the bad and the ugly

By common consent the legislation we are bound by is unduly complex, convoluted and too damn much. Some of it is undoubtedly necessary. A lot could be improved by better drafting: a focus on the wood as well as the trees.

We can all think of laws we could well do without, though. Regulations that address an imagined offence, of which the government produces little or no evidence that it actually happens or is likely to happen, are one example. 'Just-in-case' is no good reason for swelling the statute book.

Good legislation should not only be evidence-based; it should be enforceable – and enforced. In 2006 a government obsessed with the idea that everyone would recycle their tax-free cash back into a pension scheme decided to ban recycling.

That legislation was a joke: it had no effect, because it was unenforceable. To be caught, you had to shop yourself.

Other legislation while in principle enforceable, is brought into disrepute by not being enforced. Think back to the introduction of stakeholder pensions: employers had merely to designate a scheme. How many were prosecuted for failing to take that simple step?

One, and only then because, again, he self-reported.

This issue has been raised again by the government's new plan to ban cold calling about pensions, in response to their consultation about pension scams. It bears the hallmarks of a knee-jerk reaction to undesirable behaviour: simply banning it won't work.

There's no value in legislation which is unenforceable, or not enforced.

Scammers won't be deterred by legislation making their activity illegal, unless and until the likelihood of being caught and convicted is significant AND the penalty is severe enough to render their activity uneconomic. They often treat fines for transgressions as part of the cost of doing business.

That's all that will happen, by the way: the government does not intend to impose criminal sanctions and custodial sentences on those in breach of the proposed ban on cold calling.

The Information Commissioner's Office, which will be lumbered with enforcing the ban, will need to prove a clear pattern of offences: a concerted effort to reach thousands of potential victims, and that the calls were not exempted by any of the inevitable categories, such as having had some dealing with the firm in the past.

I suspect the government will find it too difficult to draft legislation that defines an offence in such a way that scammers cannot find ways around it.

Only pensions are to be prohibited, so as long as that keyword isn't mentioned, and the message is about any other kind of investment opportunity, the call will be exempt.

Or the scammer could simply skip abroad and carry on, blissfully outside the reach of the ICO.

There are better ways of preventing undesirable behaviour than simply banning it. For example, think of the rules governing investments by member-directed pension schemes (SIPPs and SSASs). Rather than trying to prohibit certain investments, the pensions tax legislation prescribes punitive tax charges instead. That works: people don't put their buy-to-let into their pension scheme.

The way to counter the scammers is to make it much harder for them to succeed.

Thankfully, the government is not, it seems, going to rely on a simple ban.

Moves are afoot to add to the hurdles around pension liberation, starting with a plan to empower HMRC to refuse to register a pension scheme without solid evidence of an active sponsoring employer behind it.

This extension of HMRC discretion amounts to unstated recognition that human behaviour cannot be constrained by legislation alone.

If the limitations are accepted, we may see more of the good and less of the bad and the plain ugly which litter the statute book today.

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Pension Funds

AXA IM launches China fund

The fund is the latest in the AXA IM short duration range, which is made up from 10 strategies with assets under management worth €25 billion globally.

China's fast-growing economy provides significant investment opportunities, and AXA IM said it wants to provide its clients with access to its bond market.

Jim Veneau, head of fixed income Asia at AXA IM, said China has risen to become a major power in the global financial market and they believe its accelerating financial integration presents significant investment opportunities.

He said: "From a risk-reward perspective we believe the Chinese bond market is attractive, despite the inherent risks, as recent global monetary accommodation has left most global rates at historically low levels."

Since 1978, China's GDP growth has averaged nearly 10% a year, which is the fastest sustained expansion by a major economy in history.

"We want to give our clients exposure to this rapidly accelerating bond market, currently the third largest in the world, and the significant opportunities it has to offer," said Veneau.

"At the same time, we appreciate the need to mitigate risk in today's environment and our approach seeks to provide attractive returns, while keeping duration short and managing volatility through the market cycle."

The lead fund manager, Honyu Fung, aims to limit the duration of holdings to less than three years to deliver a compelling risk-return profiles; AXA said a shorter portfolio duration mitigates volatility from changes in the market level of interest rates.

Shorter duration also mitigates credit risk with greater visibility into an issuer's cash flow sources and needs - this allows the manager to build higher conviction and higher yielding positions while mitigating the impact of inflation and interest rate risk through diversification.

"The team running this fund is based in both Hong Kong and Shanghai with our joint venture partner, AXA SPDB Investment Managers," Veneau said.

"We believe the complementary capabilities of both will allow the fund to effectively capitalise on market developments in both offshore and onshore Chinese bonds and actively capture cross-border arbitrage opportunities in the onshore (CNY) reminbi, the offshore (CNH) renminbi and the hard currency Chinese credit markets."

First published 21.09.2017


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Pension Funds

MMC UK announces largest longevity risk transfer for UK pension fund for three years

The transaction, which reinsures the longevity risk of £3.4billion ($4.3 billion) in pension liabilities, will provide long-term protection and income to the fund if the covered participants live longer than expected.

It also lowers the risk that MMC will face unexpected pension contributions due to an increase in pensioner life expectancy.

The fund's trustee chose Prudential Financial and Canada Life Reinsurance for the longevity reinsurance that helps secure the pensions of about 7,500 plan participants.

The reinsurance is divided equally between the two reinsurers and Mercer Ltd led the advice.

To efficiently transfer the longevity risk from the pension plan without the payment of an upfront premium, the trustee established a wholly owned insurance company on the 'Mercer Marsh' captive platform with its own independent board of directors.

This is Prudential's second reinsurance agreement using a captive structure: the first was the record £16 billion longevity risk transfer transaction with the British Telecom Pension Scheme in 2014.

"The MMC UK Pension Fund transaction reflects the fact that de-risking is the new normal," said Amy Kessler, head of longevity risk transfer at Prudential.

"In every industry peer group, companies are choosing to reduce the longevity risk embedded in their pensions through buy-ins, buy-outs and longevity hedging and a full range of solutions exist to help secure pension promises and reduce risk to funding levels."

Kessler added that "a great deal of uncertainty about future longevity improvements" remains in the industry.

"Pension plans that decide to keep their longevity risk rather than hedge it are maintaining a risky strategy - the timing may be particularly good for non-UK sponsors to accelerate their de-risking plans to take advantage of comparatively low sterling exchange rates," she said.

First published 21.09.2017


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Pension Funds

PLSA launches assessment tool with KPMG

The service, launched in collaboration with KPMG, also helps boards to make sure their governance measures up to The Pension Regulator's (TPR) best practice.

As part of the service, the tool anonymously captures and reports the views of each trustee board member, as well as other relevant stakeholders.

The report is then reviewed by KPMG, which adds commentary, insight, and suggestions before working with the PLSA to facilitate a workshop.

The workshop is where findings are discussed and next steps agreed.

Available to non-members as well as PLSA members, the service aims to provide trustees with practical guidance, and the reassurance of knowing their schemes' governance has been reviewed by experts.

KPMG said the service will provide a valuable resource.

"While Trustee boards put a significant amount of time and effort into ensuring that their pension schemes meet the high standards demanded of them by the regulator, it can be a daunting task," said David Fairs, partner at KPMG.

"We are delighted to be working with the PLSA to offer this service, which is designed to provide trustee boards with a tool to assess how they are doing and set practical steps to improve governance.

"It will also give them reassurance that these decisions have been reviewed by independent specialist third parties."

The Pensions Regulator said it welcomes tools that enable trustees to assess current governance levels and set targets for improvement.

Lesley Titcomb, TPR chief executive, said: "As part of our work on 21st Century Trusteeship we would like to encourage trustees to regularly assess their board effectiveness and we welcome initiatives developed by industry to support TPR's drive to improve governance."

First published 21.09.2017


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