New Government – key appointments and some early thoughts

Following last week’s General Election most of the key ministerial appointments of the new Government that will deal with pension policies have now been announced.

At the Treasury, Philip Hammond remains Chancellor of the Exchequer.  Liz Truss succeeds David Gauke as Chief Secretary, Mel Stride succeeds Jane Ellison as Financial Secretary and Stephen Barclay succeeds Simon Kirby as Economic Secretary.

Over at the DWP, David Gauke succeeds Damian Green as Secretary of State.  Guy Opperman becomes a Parliamentary Under Secretary of State, but it is not yet clear whether he will take over the pensions portfolio (Richard Harrington has moved across to the Department for Business, Energy and Industrial Strategy).

Comment

Theresa May is having to reach an agreement with the Democratic Unionist Party to be sure of getting a Queen’s Speech through.  This may mean that some elements of the Conservatives’ pension policy may be untenable.  In particular the DUP is committed to maintaining the triple lock on State Pensions and “supports the end to the unfair treatment of women pensioners” which may increase pressure on the DWP to compensate women adversely affected by the increase in State Pension Ages.

More generally, regardless of the wider policy implications of a minority Government, it may be harder for the Government to tinker with the pension system.  This may not be an entirely bad thing.

Pensions Regulator publishes its predictions for Tranche 12 valuations

Every year the Pensions Regulator conducts an analysis of the expected results of the latest tranche of DB schemes’ three-yearly actuarial valuations falling due.  The analysis of “Tranche 12” (valuation dates between 22 September 2016 and 21 September 2017) has now been published (see Pensions Bulletin 2016/23 for our report on the Regulator’s analysis of the actual results of this tranche of schemes at their previous triennial valuation).

The headline conclusion is the majority of schemes remain affordable but that many should do more to tackle increased deficits and reduce risk to pensioners.

The data suggests the majority of schemes are supported by employers that can manage deficits, but also highlights the impact of current conditions on the ability of sponsors to maintain and increase deficit repair contributions.

It also shows that the ratio of deficit repair contributions to dividend payments by sponsoring employers has declined.

Other key findings include:

• Many Tranche 12 schemes experienced relatively favourable market conditions when conducting their last valuations and as such will have been more significantly impacted by the current market conditions than schemes in earlier tranches
• Although asset returns have been better than expected, generally this has not been enough to offset the increase in liabilities due to the change in market conditions, meaning overall deficits have increased and funding levels have fallen
• About 50% of Tranche 12 schemes have the resilience to maintain the same pace of funding and many will be able to increase their contributions if the circumstances of the scheme require it
• A further 37% of schemes have an employer covenant which the Regulator considers adequate to support the scheme but their current contribution and/or risk strategies pose unnecessary longer term risks. This may be mitigated by an increased pace of funding combined, for some schemes, with a reduction in the level of risk
• For the group of FTSE350 companies who paid both deficit repair contributions and dividends in each of the previous six years, the ratio of deficit repair contributions to dividends declined from around 10% to around 7%. This is mainly driven by the significant increase in dividends over the period, without a similar increase in contributions

Comment

This analysis provides useful context to the Regulator’s annual funding statement published last month (see Pensions Bulletin 2017/21 and our News Alert).

We are not surprised to see that deficits are predicted to have widened.  However, the analysis is based on many simplifying assumptions, not least of which is that all schemes are assumed to be valued as at 31 March 2017.  In this time of great uncertainty, who can predict what the actual results will be for those schemes yet to complete their valuation?

Cross-industry transfers group expands to reflect occupational sector

The Transfers and Re-registration Industry Group, which published a consultation paper last December on improving the way in which pension and investment assets are either transferred or re-registered, has expanded its remit.

Originally targeted at the FCA-regulated sector (see Pensions Bulletin 2016/50), it is now intending to draw in occupational pension schemes as it develops a voluntary governance framework for the introduction of standard transfer times across a spectrum of financial transfers.  The PLSA, PASA and SPP will be assisting in this respect.

The Group says that it is in ongoing discussions with Government and Regulatory stakeholders regarding the next steps.

Comment

It will be interesting to see where this initiative gets to, as there has been silence from Government and Regulators on plans announced in February 2016 for trust-based schemes to be required to report on an ongoing basis on how they are performing in processing transfers, including against possible benchmarks and new transfer targets.

PASA provides guidance to support GMP reconciliation of active members

The Pensions Administration Standards Association has released a further guidance note on GMP reconciliation for schemes.  Guidance Note 7 covers the approach to reconciliation for those who were active scheme members when contracting out ceased on 5 April 2016.  It makes the point that, as HMRC does not know when such members will leave service, reconciliation needs to be carried out assuming a notional leaving date of 6 April 2016.

HMRC has completed its closure scan of all those who were in contracted-out service at 5 April 2016 and according to PASA is now accepting requests from those who wish to reconcile such members, with a 4-8 week turnaround following a data request.

Comment

This appears to be the last in the series of guidance notes that the PASA GMP Working Group intends to publish, although they promise to continue to monitor issues in relation to GMP reconciliation and rectification, publishing further guidance on new developments or specific issues when relevant.

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.