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Pensions Bulletin 2017/20

Our viewpoint

ACA sets out its thoughts on the Government’s Green Paper

With the deadline nearing to respond to the Government’s Green Paper on the regulation of DB schemes (see Pensions Bulletin 2017/08), the Association of Consulting Actuaries has published its response.  Whilst having sympathy with much of the tone of the Green Paper, the ACA suggests that:

  • Schemes that can no longer provide promised benefits should be able to compromise them to a degree (and certainly no less than PPF compensation), subject to key safeguards and where so doing is in the members’ best interests
  • An employer option should be introduced, exercised with trustee consent, to allow schemes to move from the Retail Prices Index to the Consumer Prices Index when determining pension increases and also (where necessary) revaluation; and
  • DB schemes should be able to simplify legacy benefit structures through a new certification process

The ACA also suggests that substantial new powers are not needed for the Pensions Regulator.

Comment

By this time next week we will start to know how others have responded to this landmark consultation, but it will be quite some time before we get to know what aspects are to be taken forward.

ACA publishes its retirement income and savings manifesto

The Association of Consulting Actuaries has published a nine-point manifesto for initiatives it feels should be addressed in the political parties’ manifestos, due out shortly.  The ACA is calling for “joined up” policies that boost savings and incomes in later life, whilst acknowledging these must keep within realistic spending targets for employers, employees and the State.

In addition to the three key suggestions in the ACA response to the Green Paper (see article above), the manifesto calls for:

  • Increased minimum contributions into auto-enrolment pensions after October 2019 (when they will reach 8% of qualifying earnings)
  • An extension of the pension freedoms by allowing early access after ten years of savings to a proportion of individuals’ pension funds currently available only from age 55 to help fund house deposits and/or to meet a short and specific list of other eventualities; and
  • The State pension triple lock to be retained until 2020 (as promised by the current Government), but thereafter State pensions to increase either in line with earnings or as part of the welfare state components of the Budget

The ACA also strongly urges that any pensions tax reforms be “one-off” for the next Parliament and prioritise the need to simplify the pensions tax regime, which, the ACA says, is now not fit for purpose.

Comment

We agree with the general sentiment of the ACA’s manifesto and hope the political parties are receptive to these ideas.  However, we fear the short lead-in to this election could mean the trickier pensions points are glossed over.

PLSA sets out its priorities for pensions

The Pensions and Lifetime Savings Association has also set out some areas of pension policy in which it wishes to see the next Government take action.  These include the following:

  • State pension – replace the triple lock on pension increases with one linked to earnings growth
  • Auto-enrolment – raise minimum overall contributions to at least 12% of salary by 2030, whilst including 18-21 year olds, the self-employed and those in multiple low-paid jobs within auto-enrolment
  • DB schemes – bring forward legislation to reduce burdens and enable schemes to share services or to merge, delivering better returns, saving money and improving governance; and
  • Pension scams – establish an authorisation regime for pension schemes, with individuals only having the right to transfer to such schemes

The PLSA also asks for a thorough, independent review of tax and incentives to save.

Comment

The PLSA manifesto is largely “on message” with the ACA’s, with a greater focus on merging DB schemes and pension scams.

The industry appears to agree people need to save more in simpler pension schemes, with an expansion in auto-enrolment and a State Pension that increases at a less generous rate.  We won’t have to wait long to find out what the politicians will actually offer us.

DB transfer activity reaches an all-time high in the first quarter of 2017

LCP has issued its latest quarterly update on the transfer quotations and payment activity for the DB schemes we administer.

Transfer quotation and take-up rates have increased to unprecedented levels over the last two quarters.  As well as increasing significantly the workloads for and pressures on pensions administration teams, this has meant that normal transfer activity now represents a material level of ongoing de-risking for many of our clients.

In this issue we find:

  • The number of quotes provided in Q1 2017 is at an all-time high. Up 22% compared to the previous quarter, and nearly 300% since 2014
  • The total transfer values quoted have increased from around £20m per quarter to £200m per quarter since we began our analysis in 2014
  • The total transfer values paid out have increased from around £3m per quarter to £48m per quarter since we began our analysis in 2014
  • The average age of those members taking transfer values was 57 in Q3 2016, the oldest age we have seen since we started our analysis. Over half of members taking transfer values are now over age 55, indicating that much current transfer activity represents members choosing pension flexibility as part of their at-retirement planning

More details, including charts, are available here.

EMIR – EU regulation of pension scheme derivative trades put back again

The European Commission has published a proposal to extend the current transitional period for pension schemes under the 2012 European Markets Infrastructure Regulation (EMIR) at the end of which they will need to submit their over the counter derivatives trades to central clearing.  This transitional period had been due to end on 16 August 2018 (see Pensions Bulletin 2016/51), but will now be extended by a further three years.

This is the third time that the European Commission has delayed bringing pension schemes into EMIR’s scope.  The reason given for this latest delay is that “no viable technical solution facilitating the participation of [pension schemes] in central clearing has emerged to date”.  The hope is that over this period the various counterparties involved, including pension schemes, central counterparties and the clearing members that provide clearing services, will be able to develop a solution.

The Commission estimates that this further extension will help pension schemes avoid costs of up to €1.6 billion.

Comment

The Commission states that central clearing for pensions remains its goal.  But with the pensions exemption now looking like it will be extended into the post-Brexit 2020s it seems that UK pension schemes will not be subject to EMIR directly, although their counterparties may well be.  This is probably a good thing.

This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law.  For further help, please contact David Everett at our London office or the partner who normally advises you.

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