26 October 2017
DB pension reform will be hugely delayed
This is the clear message coming from a senior civil servant at the Pensions and Lifetime Savings Association’s Manchester conference last week. Not only will the promised White Paper on DB pension reform not emerge until the end of February 2018, but it is unlikely to be the call to action that will then be followed through. Indeed, it appears that the White Paper will be just one further step in the journey that the 2015/17 Government embarked on with the publication of its Green Paper in February 2017, before we actually get to legislative change, the details of which are unlikely to be published in the form of a Pensions Bill until 2020.
If 2020 is the earliest we can expect to see a Pensions Bill, whatever it might contain is unlikely to come into force until 2022. This is clearly very disappointing, but perhaps inevitable given the Government’s focus on Brexit.
PPF consults on contingent assets
The PPF has launched a consultation on contingent assets which will be of particular interest to employers that use these as a PPF levy management tool.
The consultation, which focusses on type A and type B contingent assets, has been necessitated by the PPF becoming aware of an interpretation of the wording in some of the standard form contingent asset agreements that might be regarded as limiting the obligations in agreements subject to a fixed liability cap. The PPF’s concern is that any payments made in respect of the guaranteed obligations of the employer erode the fixed cap on employer insolvency.
The PPF also raises other considerations around the operation of caps – in particular whether payments made under the guarantee but outside of insolvency scenarios should reduce the fixed cap and if so how to ensure that an appropriate levy credit is given. The PPF intends that whilst the contingent asset agreement should cover ongoing demands and insolvency demands, the fixed cap only attaches to insolvency demands. It looks at this preferred option, not only in relation to single employer schemes, but also for partial segregation and last man standing multi-employer schemes.
The consultation is accompanied by new draft forms for both types of contingent asset with amendments to address the issues above (for now only in single employer situations) along with some general tidying up.
Finally, the PPF is looking to see whether it can simplify the amendment/release criteria in contingent asset agreements.
The intention is that the revised documentation will come into use for new type A and type B agreements entered into after the PPF finalises the document in January 2018, but existing agreements will only need to move to the new forms from the end of March 2019, in order for them to be taken into account in the levy from 2019/20 onwards.
The PPF has also issued draft new forms for type C contingent assets which must be used for any new agreements entered into once finalised.
Although this would appear to be a narrowly technical consultation, small changes in the detail of the operation of contingent asset agreements subject to a fixed liability cap could have big consequences should the asset be called upon. Those schemes that utilise such agreements may wish to review them to see whether they are achieving the security that was intended.
National Insurance Fund to go bust sooner than previously thought
The “pay as you go” National Insurance Fund is expected to be exhausted by 2032/33 according to the base case projection contained within the Government Actuary’s latest five-yearly review. This is despite being boosted in the near term thanks to the cessation of contracting-out and increases in State Pension Age.
The previous review (as at April 2010, see Pensions Bulletin 2014/31) predicted a similar but more dramatic rise and deterioration in the Fund’s finances. As before, at some point in the not too distant future the Government will have to either make provision for substantial increases in national insurance contributions or accept large ongoing Treasury Grants funded from general taxation.
It appears that it will take more than the removal of the triple lock on state pensions and future changes to State Pension Age to return the Fund to stability. Although the future is never certain, it does seem that the present funding arrangement is unsustainable in the long term. The rapid about turn in fortunes is neatly summed up in Chart 3.1 which shows the projected fund balance falling off a cliff.
Pension Wise gets positive reviews
In a research report published by the DWP, Pension Wise customer experience has been highly positive. 94% of those interviewed who completed appointments with Pension Wise said that they were satisfied, with 79% very satisfied. 94% were also satisfied that their options were clearly set out to them, and 90% felt they were helped to make an informed choice about their next steps.
Customers who had an appointment with the service were also more likely than non-users to have taken specific steps to help them make an informed decision, such as calculating desired retirement income, talking to pension providers, shopping around for quotes, looking into tax implications and charges, and considering investment options.
This is great news for those who operate Pension Wise, but the sad thing is how little market penetration it has been able to achieve. The vast majority of those considering their retirement options do so without reference to Pension Wise.
ACA reports huge step up in DB transfer requests
The Association of Consulting Actuaries is reporting “a huge bow wave of pension transfer requests” from DB schemes, which it says is placing enormous pressure on scheme administration.
In its second interim report of this year’s Pension Trends Survey the ACA also says that 47% of employers with DB schemes are reporting that transfer requests exceeds 5% of scheme members, 61% are reporting that members are having difficulties in finding advisers prepared to advise on these transfers, and just 16% report completed requests exceeding 5% of scheme members.
There is little doubt about the extent of transfer activity as survey after survey shows a big step up looking back one year let alone to before the pension freedoms were announced over three years ago.
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.