4. 4
Batting order
Now Introduction
9.45 am Looking ahead at the past – Richard Murphy
10.15 am Changing the liabilities – Nicola Wynne
10.40 am A smoother investment ride – David Hutchins
11.10 am Coffee
11.30 am Governance and trustees’ workload – John Hamilton
12.00 pm The impact of scrapping default retirement age – Sarah
Peacock
12.30 pm Retirement in the future – Adrian Lamb
12.50 pm Q&A
1.00 pm Lunch
6. 6
How will the past affect the future
Legacy = millstone?
Limited time = not enough time for past and future
2012 – levelling down
Adequacy
Change and manage your liabilities
Get smarter with your investments
Focus on key governance issues – not box ticking
Think and plan ahead – default retirement plus
adequacy
The past can help with the future - if we let it
7. 7
Learn from the past
Pension schemes used to finance restructuring
Little or no inflation protection - and high inflation!
Compulsory membership
Attraction and retention
Part of social fabric?
Retirement to working life ratio 1:4 – now?
8. Lane Clark & Peacock LLP Trustee Consulting Investment Consulting
Corporate Consulting Insurance Consulting Business Analytics www.lcp.uk.com
Blake Lapthorn’s Southern Pensions Conference
Wednesday 10 November 2010
Looking ahead to the
past: Delivering past
service liabilities
9. The moment of truth for DB pensions
“The era of procrastination, of half-measures, of soothing and
baffling expedients, of delays, is coming to a close. In its place we
are entering a period of consequences.”
Winston Churchill
(1936)
11. Agenda
Setting long-term strategies for delivering benefits
Managing and securing the liabilities
Devising viable recovery plans in difficult times
Actions to take now
12. “Fix it so it stays fixed”
Setting the objectives
Deliver promised benefits
Affordable and practical set up going forward
Off the company balance sheet when possible
Minimise costs and risks in the meantime
Employer’s and members’ interests no longer aligned
13. Case study: de-risk to wind-up
Closed to
new
entrants
Closed to
future
accrual
2001 2002 2003 2004 2005 2006 2007 2008 2009
Company decision in
principle to
de-risk over
10 years; deficit £100m
Indicative buyout
quotations showing
opportunity
Competitive buyout
auction - locked in
to deficit of £40m
2010
Completed
scheme
wind-up
Late 2006:
started to switch assets
15. What is a pensioner buy-in?
Trustee purchases an insurance policy as a scheme investment
Policy pays a monthly income to the Trustee
– equal to the benefit payments that the Trustee is due to make to
current pensioners
– value of policy can be used for the benefit of all members
Trustee gains exposure to insurer’s covenant
57%37% Equities
Residual
Liabilities
Bonds
Insurance
Policy
Pensioner
Liabilities
Before After
Equities
Liabilities
Bonds
16. Pension plan pays
Insurer takes on
uncertainties….
What is a longevity hedge?
Longevity improvements
relative to expectations
17. What is a DIY buy-in?
Buy-in with
insurer
Scheme
Insurer
Assets
Interest
Rate Risk
Inflation
Risk
Longevity
Risk
DIY buy-in
Scheme
Provider(s)
Assets
Interest
Rate Risk
Inflation
Risk
Longevity
Risk
18. Setting your strategic plan
Agree objectives
Set asset strategy
– Manage risks
– Set triggers to lock in good
performance as it happens
Get certainty on benefits
Manage liabilities
Agree funding strategy
Monitor and, when opportunities arise, take action
19. Managing liabilities now – the options
Capping of accrued benefits
– Address as part of future changes
– Cap the growth of those liabilities
– Simplify the benefit structures
Closing out the risk
– Buyouts and buy-ins
– (Enhanced) transfer values
20. Pension increase exchange
Member option
Benefit certainty
Cost savings
Increased PPF levy
Watch tax changes
Pensions Regulator
Uplift now
Member option to convert to a level pension
Fixed for lifetime
21. Enhanced transfer values
We believe it is possible to design an exercise to benefit both the
sponsor and the members
smaller scheme
reduced deficit
lower volatility
The platform for win-win
Transfer value Liability
Enhancement
Reduction in
liability
Net savings
Assets Liabilities Assets Liabilities
Overall impact from balance sheet perspective
Before After
22. Meeting the funding challenge
Using the whole toolkit
Longer recovery plans
Back-end loaded
Contingency on profitability
Trigger-based payments
Contingent assets
Parent company guarantees
Anything else!
Assets
Deficit
23. Defining Prudence
Benchmarking funding strategies
Average scheme size
£300m
Allows for:
– Funding assumptions
– Asset allocation
– Employer covenant
Covenant scores have
deteriorated since 2006
No obvious link between
covenant strength and
funding strategy
Be satisfied with your
position before deciding
on your recovery plan
Scheme Risk Index against Covenant Risk Index
24. What’s coming up?
Just arrived – clarity on tax regime from 2011/12
Autumn – CPI / RPI implications
Autumn/Spring – action to mitigate PPF levy
26. The tax calculation: DB
A long serving high earner in a 1/60ths scheme
£160,000 x 24/60 = £64,000 pa
= £65,984 pa
£171,000 x 25/60
= £71,250 pa
£5,266 pa
X 16 = £84,256£5,266
First £50,000 = No tax
Excess £34,256 taxed at 50% = NEW TAX £17,128
+3.1% (2011/12)
but check carry forward
27. PIPs - early start to new tax
Example with a PIP year ending 30 June
Antiforestalling “penalties” still apply here
This part tested against £50k
14
October
2010
5
April
2011
30
June
2010
30
June
2011
2011/12 tax year: new regime applies
28. CPI - BT announcement
4 November 2010
BT today announced the impact of
the Government’s decision that the
Consumer Prices Index (CPI),
rather than Retail Prices Index
(RPI), will be used as the basis for
determining the rate of inflation for
the statutory revaluation and
indexation of occupational pension
rights.
29. The change to CPI – the highlights
1. Minimum statutory increases for pensions in payment deferment are (probably)
changing from the Retail Prices Index (RPI) to the Consumer Prices Index (CPI)
2. Varies by year but CPI has averaged 0.7% pa lower on average than RPI, which
could knock up to 15% off the value of benefits
3. Unusually for UK legislation, this is applying to past service benefits
4. Announcement on the Government’s plans “shortly” but no legislation is needed to
change the statutory requirement from 1 January 2011
5. The impact will depend on the wording of your Rules “ the small print lottery” so
TAKE LEGAL ADVICE
6. If your pension increase month is January, your administrator needs to know in the
next few weeks whether to apply RPI (4.6%) or CPI (3.1%)
7. For deferred pensioners retiring from January 2011 the new increases may apply
8. Do not forget tax-free cash commutation and transfer values
9. We do not know yet how members will react (but it has been surprisingly quiet!)
30. By 2012
Compliance with auto-enrolment
Employer debt
regulations?
Solvency II?
State pension
changes?
2012/13 PPF levy
DC contracting-
out abolished
Planning for
updated IAS19
GMP equalisation?
tPR record
keeping deadline
32. Scope
LCP is part of the Alexander Forbes Group, a leading independent provider of financial and risk services. Lane Clark & Peacock LLP is a limited liability partnership
registered in England and Wales with registered number OC301436. LCP is a registered trademark in the UK (Regd. TM No 2315442) and in the EU (Regd. TM No
002935583). All partners are members of Lane Clark & Peacock LLP. A list of members’ names is available for inspection at 30 Old Burlington Street, London, W1S
3NN, the firm’s principal place of business and registered office. The firm is regulated by the Institute and Faculty of Actuaries in respect of a range of investment
business activities. Locations in London, Winchester, Jersey, Belgium, Switzerland, the Netherlands and Ireland.
This generic presentation should not be relied upon for detailed advice or taken as an
authoritative statement of the law.
If you would like any assistance or further information, please ask.
While this document does not represent our advice, nevertheless it should not be passed to any
third party without our formal written agreement.
33. How to manage liabilities………
Nicola Walker
in a pension scheme
35. Dealing with the liabilities
The Scheme Trustees
The sponsoring employer
The members
36. The options
Managing future service liabilities
– Accrual/contribution rates/salary cap
– Reshaping: DC /CARE/Cash Balance
– Review discretionary benefits
– Cessation of accrual
Managing past service liabilities
– Enhanced transfer exercises
– Pension increase exchange
– Buy ins and buy outs
37. Managing future liabilities – scheme amendments
Amending scheme rules
Powers of amendment
– Just do what it says on the tin?
(but where is it and what does it actually
say?!)
Deed/ resolution/ “pending” powers
using announcements etc
Relevant protections and restrictions
(“fetters”)
NB: Informing members
38. Overriding legislative protection
Section 67 Pensions Act 1995
Prevents “Detrimental
modifications”
– i.e. A modification of an occupational
pension scheme which on taking effect
would or might adversely affect any
subsisting right of any member of the
scheme, or any survivor of a member of
the scheme.
“Subsisting right” means any
right which has accrued to a
member
– i.e. which he would retain if he left
service at the date of the change
39. I have the power!
But do you really?!
– “No such alteration which
would vary or affect any
retirement benefits then
already provided
– “rights or interests which
shall have accrued ”
– rights or interests of any
Member in benefits secured
by contributions
41. Enhanced transfer exercises
Trustee considerations
– Security for remaining members’
benefits
– Funding of the enhancements
– Data protection
– Scheme Rules
– Compliance with Regulator’s guidance
– Informed member consent
Clear and accurate communication
No misrepresentation of the Trustees’ role
Independent financial advice
Reasonable deadline
42. Regulator’s guidance
Start from the presumption that it will not be in the
member’s interests
Five key principles
– The offer should be clear, fair and not misleading
– The offer should be open and transparent
– Conflicts of interest should be identified and managed
– Trustees should be involved from the start
– Independent financial advice should be made available to
members
http://www.thepensionsregulator.gov.uk/guidance/guidance-
inducement-offers.aspx
43. Will it be worth it?
Fair and reasonable enhancement offer
+ comprehensive communications
+ independent financial advice (preferably without fee
or restriction)
+ regard to Regulator’s guidance
+ right level of take-up
= reduced risk and reduced cost
(hopefully!)
44. Pensions Increase exchange
What is it?
– Members with pension increase entitlements above statutory requirements
– Members agree to exchange these increases for;
a cash sum; or
a higher base pension
Why do it?
– Funding level usually improves
– Reduces risk
– May suit certain members (but risk of selection against scheme)
Trustee considerations
– Rule amendment if higher base pension to be provided
– Protecting members’ benefits
– Regulator’s guidance on inducements
– Data protection
45. Legal issues
Section 67 (Subsisting rights)
– Unless member consents
Amendment power restrictions?
Section 91 Pensions Act
– How does this interact with s67?
– Express exception for surrendering
benefits for the purpose of acquiring
entitlement to further benefits under the
Scheme
Strong communication
– Ensure compliance with Regulator’s
guidance
– Provide Independent Financial Advice
Document individual agreement
46. And here’s one made earlier!
ITV Pension Scheme
Proposal made to existing pensioners (of
which there were 11,000)
Ongoing programme of liability management
Pension increase option did not require cash
injection
The offer:
– No effect on spouse’s pension
– Uplift applied in 5 year age bands
– Sharing saved 60/40 in member’s favour
47. Pensioners offer pack
– Personalised leaflet
– Generic explanatory leaflet
– Form
Letters to DB actives
ITV Communication strategy: the offer
50. ITV communication strategy: reminders and
confirmation
Mid decision phase update
– Reminder of offer
– FAQ’s
Final reminder
– Postcard
Confirmation
– No, thanks: confirmation letter to those
who declined
– Yes, please: confirmation statement sent
before first uplifted pension payment
51. ITV: The challenges and the results
Dealing with press interest and
ensuring that the offer was seen in a
positive light
Availability of data
Engaging members remotely
10,300 offers were made, of which
there were 4,419 acceptances (43%
take-up)
Liability saving well in excess of
original £30 million target
52. Buy ins and buy outs
Buy in
– Insurance Policy
– Trustees continue to manage scheme with
added certainty over pensioner costs
– Policy is a scheme asset when held in the
name of the trustees
Buy out
– The ultimate in de-risking!
– Scheme assets and liabilities transferred
– Insurer writes policies in the names of
individual members
54. November, 2010
The Future of Pension Investing
Designing a Smother Ride for both Defined Benefit and Defined Contribution
Schemes
This presentation is issued by AllianceBernstein Limited, 50 Berkeley Street, London W1J 8HA. AllianceBernstein Limited is authorised and regulated in the UK by the Financial
Services Authority (the FSA). This presentation booklet has been provided to you for use in a private and confidential meeting to discuss a potential or existing investment advisory
relationship. This presentation is not an advertisement and is not intended for public use or distribution beyond our private meeting. This document is directed at Professional
Clients, as defined by the FSA, and the products and services described are only available to such clients. This document is provided for informational purposes only and is not
intended to be an offer or solicitation, or the basis for any contract to purchase or sell any security or other instrument, or for AllianceBernstein to enter into or arrange any type of
transaction as a consequence of any information contained herein.
David Hutchins Head—Investment Research & Design, UK & Ireland
55. AllianceBernstein.com
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Through September 30, 2009
Source: FTSE, Investment Management Association and AllianceBernstein
Markets Have Provided a Bumpy Ride
FTSE All Share Index
56. AllianceBernstein.com
Sadly Diversification can also Fail
As of September 30, 2009
Source: Barclays Capital, Dow Jones, FTSE NAREIT, Global Financial Data, MSCI and AllianceBernstein
(54)%
(35)%
(17)%
9%
(19)% (18)%
(67)%
Global
Equities
Global
Property
High Yield
Credit
Investment
Grade Credit
Government
Bonds
Commodities Hedge
Funds
Cumulative Returns October 2007—February 2009
57. AllianceBernstein.com
Who Suffers the Ride?
Defined Benefit
1st
EmployerAssets
2nd
PPF
&
Members
Defined Contribution
1st
Assets
2nd
EmployerTrustees
&
Members
Source: AllianceBernstein
58. AllianceBernstein.com
Asset Allocation Matters
For the majority of investors over 80% of
returns and 90% of risk is explained by asset
allocation rather than individual stock
selection.
As of September 30, 2009
Source: Barclays Capital, MSCI and AllianceBernstein
59. AllianceBernstein.com
Steps to Building a Smoother Ride for DB and DC
Set Clear Objectives based on:
Need for returns and ability to cope with downside
Allocate Assets efficiently using:
Liability sensitive assets (LDI funds) and diversifying return sources
Manage Assets Dynamically to amend allocation as:
Needs and markets change
Ensure Effective Oversight is built in via:
Efficient implementation and clear accountability
Smoother Ride = Happier Members/Employers = Happier Trustees
60. AllianceBernstein.com
Objectives Should Consider Need for Returns versus
ability to cope with the Potential Downside
Coping with Downside / Risk
Flexibility of
Time Horizon
Need for Returns
Flexibility
of Outcome
Outcome
Affordability
Loss
Affordability
61. AllianceBernstein.com
A Simple Glidepath will Help Set Benchmark for Asset
Allocation Manager
(40) (30) (20) (10) 10
RiskCapacity
1
43
2
Expected
Retirement
Date
Source: AllianceBernstein
Target
Funding
Ratio
DC =
Time
DB =
Funding
Ratio
60% 70% 80% 90% 110%
62. AllianceBernstein.com
Liability Sensitive Funds Reduce Risk for DB Schemes
Assets Liabilities
£20.0 Mil.
Assets Liabilities
£27.0 Mil.
Assets Liabilities
£23.5 Mil.
£80 Mil.
£100 Mil.
£83 Mil.
£110 Mil.
Without
LDI
With
Prudent
LDI £86.5 Mil.
£110 Mil.
£50 Mil. Equities
£30 Mil. Bonds/LDI Funds
10% liability
increase
Source: AllianceBernstein
63. AllianceBernstein.com
Risk of a Static Portfolio Changes Significantly with
Markets
Portfolio Volatility
60% Global Equities / 40% Global Bonds* 1970–2009
0
5
10
15
20
70 73 76 79 82 85 88 91 94 97 00 03 06 09
The results depicted above are hypothetical and are derived from a back-tested simulation. Please read “Note on Simulation Results” in back of presentation for important additional
information.
Through September 30, 2009
Global Bonds refer to Global Government Bonds Hedged to USD and Global Equities refer to Global Developed Equities Hedged to USD.
Static portfolio results are based on a portfolio that is 55% MSCI World Index, 35% Barclays Global Aggregate Index (as adjusted to reflect duration only) and 10% FTSE NAREIT,
rebalanced halfway back to target when weights become +/- 5% from their long-term target.
Source: Barclays Capital, MSCI and AllianceBernstein; see Disclosures and Important Information
60/40
Average
Volatility
9.2%
Percent
64. AllianceBernstein.com
8.0%
34.5%
S&P 500
Investors Are Not Always Compensated for Elevated
Risk
6.5%
4.2%
6.8%
23.9%
Global Equity
1.0%
2.4%
2.1%
8.7%
Global Bonds
2.0%
1.5%
7.0%
13.1%Foreign
Currencies
4.6%
3.7%
6.2%
21.8%Commodity
Futures
Excess Returns 12 Months
Forward
Through September 30, 2009
Excess returns refer to returns over cash. All asset classes are sorted by quintile of volatility, showing highest and lowest quintile, except foreign currencies, which are sorted by
tercile. Periods covered, by asset class, are: S&P 500—since 1928; global equities—since 1970; fixed income—since 1970; currencies—since 1974; commodity futures—since
1970. Past volatility is an exponentially weighted average using daily data with a three-week half-life (5% decay per day).
Source: Barclays Capital, Global Financial Data, FTSE NAREIT, MSCI, S&P and AllianceBernstein; see Disclosures and Important Information.
Past Volatility
7.6%
5.3%
Highest Quintile Lowest Quintile
65. AllianceBernstein.com
A Good Asset Allocation Manager will Look to Smooth the
Ride
Dynamic Asset
Allocation
Lower Returns Higher
Conventional Asset
Allocation
Fewer
Large
Gains
Fewer
Large
Losses
Frequency
66. AllianceBernstein.com
That is Good Asset Allocation Manager will tend to
Reduce Volatility whilst Maintaining Long Term Returns
0
5
10
15
20
70 73 76 79 82 85 88 91 94 97 00 03 06 09
60/40 Rebalanced Dynamic Allocation
Through September 30, 2009
The results depicted above are hypothetical and are derived from a back-tested simulation. Please read “Note on Simulation Results” in back of presentation for important additional
information.
Global Bonds refer to Global Government Bonds Hedged to USD and Global Equities refer to Global Developed Equities Hedged to USD.
Static portfolio results are based on a portfolio that is 55% MSCI World Index, 35% Barclays Global Aggregate Index (as adjusted to reflect duration only) and 10% FTSE NAREIT,
rebalanced halfway back to target when weights become +/- 5% from their long-term target.
Source: Barclays Capital, Global Financial Data, FTSE NAREIT, MSCI and AllianceBernstein; see Disclosures and Important Information.
Nifty
Fifty
1987
Crash
Bank
Crisis
Russia/
LCTM
TMT
Bubble
Credit
Crunc
h
60/40Dynamic
9.2%
7.8%
Percent
Simulated Portfolio Volatility
60% Global Equities / 40% Global Bonds
Average
Volatility
68. AllianceBernstein.com
Derivative overlays:
Interest Rate Swaps
Inflation Swaps
Currency Forwards
Equity Options
Collateral management
Proactive de-risking strategies
Lifestyling strategy
Today
AllianceBernstein
Equity
Holdings
Fixed
Income
Holdings
Other
Holdings
Trustees Manage Asset Allocation Against
Scheme Specific Objectives
UK Global
Small Cap Large Cap
UK Global
Fixed
Index
Linked
Property Annuities
Commoditie
s
Private
Equity
Infrastructure
Venture
Capital
Duration CreditActive Passive
Style Active Passive
Tactical
Asset
Allocation
Hedge
Funds
70. AllianceBernstein.com
AllianceBernstein Solutions
Defined Benefit Schemes
*Launching in 4th quarter 2010
Defined Contribution Schemes
Retirement StrategiesSM
Small schemes + contract based
schemes
Pre-built Target Date Funds
Passive with Volatility Management
From December 2010
Customised Retirement
StrategiesSM
Larger schemes
Customised Target Date Funds
AB accepts accountability
Fully open-architecture
ABdb
Small schemes
Scheme specific liability benchmarked
investment strategy which includes:
Liability sensitive investments
Market sensitive risk management
Dynamic de-risking glidepath
Full implementation and reporting
71. AllianceBernstein.com
Disclosures and Important Information
The views and opinions expressed in this presentation are based on AllianceBernstein's
internal forecasts and should not be relied upon as an indication of future market
performance or any guarantee of return from an investment in any AllianceBernstein
services.
Past performance is not a guide to future performance.
The value of investments and the income from them can fall as well as rise and you may
not get back the original amount invested.
The value of non-exchange securities may be subject to exchange rate fluctuations.
74. Why governance is an issue for pension schemes
“Good Scheme governance underpins secure pensions and
enables the effective management of risk”.
The Pension Regulator
“Governance is a key issue of our times. As the bar has risen on
standards of governance within companies, the NAPF believes
that pension schemes – on which million of people depend –
should also apply high governance standards”
NAPF Discussion Paper (July 2005)
75. The legal framework for pension scheme
governance
Trust law
Pensions Act 1995
– Member Nominated Trustees
– Reports and audited accounts
– Record keeping
– Relationships with professional advisers
Pensions Act 2004
– TKU – new trustees have only 6 months to get up to speed
– Duty to report breaches
– Notifiable events.
– Internal controls.
76. Other strands of governance
Myners principles
Data Protection Act 1998
Disclosure regulations
FSA regulation
77. Internal controls
Article 14(1) of the European Directive 2003/41 EC
Section 249A of the Pensions Act 2004
Regulation:
“ The trustees or managers of an occupational pension scheme
must establish and operate internal controls which are adequate
for the purpose of securing that the scheme is administered and
managed:
− In accordance with the scheme rules; and
− In accordance with the requirements of the law.”
78. Putting this into practice – what does the Regulator
now expect of trustees?
Regulators Code of Practice
Key themes:-
Code provides guidelines rather than a prescription.
Schemes must have internal controls but trustees have the
flexibility to determine how these internal controls are
implemented.
Risk-based approach
Trustees should consider the circumstances of their own
scheme.
Proportionate and common sense approach.
79. Putting this into practice – a risk based review
Ask yourselves the question – “What are we trying to
achieve?”
– Minimising financial and non-financial risk in the
running of your scheme.
Identify risks – look at processes to see where the main
potential for risk arises.
Define success – be realistic when setting targets.
Assess risk.
Produce action plan – e.g. set out ideas for internal
controls against each risk.
Implement the plan.
Monitor and review.
80. Putting this into practice – identifying the key risks
Risk that internal controls don’t work.
Risk of fraud
Corporate risk
Funding/investment risk – the risk that scheme investment
strategy is no longer appropriate.
Compliance/regulatory risk – failure to comply with scheme
rules or breach of legislation.
Administration risk – overpayments etc.
Computer system and database failures.
Poor scheme management.
Risk of ineffective decision making – trust law (wrong factors),
conflict etc.
81. Putting this into practice – identifying the key risks
Source: based on Watson Wyatt business management cycle
Documenting your risk review process
82. Common pitfalls for trustees
– Failing to implement an action plan for controlling risk –
compliance should not become a box ticking exercise.
– Ineffective management of conflicts.
– Ineffective record keeping.
Importance of record keeping.
Legislative requirements.
– Ineffective supervision of delegates and advisers
Establish a process for assessing your advisers and delegates.
Are their internal controls adequate - don’t be afraid to ask!
83. Common pitfalls for trustees (contd.)
– Forgetting the basics
Not understanding the trust deed and rules.
Misunderstanding the difference between duties and
discretionary powers.
Misunderstanding the balance of powers
Not acting as a trustee
– Forgetting the wider responsibilities
Data protection – consents, unauthorised processing,
inadequate security measures.
Focussing on the present and trying to forget the past! – e.g.
equalisation.
84. What more can trustees be doing?
Conduct of trustee meetings
– Keep key risk areas on the agenda for every trustee meeting – e.g.
conflicts, covenant assessment
– Frequency
– Manner by which Trustees conduct business
– Use of sub-committees
– Include legal/technical update as a regular agenda item
Composition of your trustee board
– Ask yourselves, is the trustee board effectively representing the interest
of members?
– Having difficulty finding MNTs – ask yourself why?
– Consider the appointment of an independent trustee – not necessarily a
professional trustee.
85. What more can trustees be doing? – cont’d
Scheme Documentation
– Do you understand your deed and rules?
– If the answer is no, what action should be taken?
Training?
Rule rewrite
Prepare a working copy
Make use of benefit and legal audits
Maintain a balance of powers summary
Communication
– Timescales, manner, content
– Open meetings with members?
– How can you best make use of modern media?
86. What lies ahead?
Data cleansing and tPR
– What are you doing to reach the Regulator’s target
deadline?
– Is this built into your action plan for internal controls?
MNT – will we see a move to 50% as a mandatory
requirement?
Increased exposure for Trustees under DPA?
The impact of Government cut-backs in public
spending?
Increase in litigation?
87. And finally … let’s not forget DC!
Contract based schemes – “the Governance
Vacuum” (NAPF 2005 discussion paper)
Pension committee
Should there be some risk sharing for the employer?
88. Scrapping the default retirement age –
what does this mean for
employers and employees
Sarah Peacock
89. Phasing out from April 2011
Consultation ended on 21 October 2010 and the
Government intends to publish a response in
November 2010. Proposals:
Retirements that have been notified before 6 April
2011 to take effect before 1 October 2011 are valid.
If notified before 6 April 2011 to take effect after 1
October 2011 will not be valid.
90. DRA will cease completely on 1 October 2011
No new notices of intended retirement may be issued
after 6 April 2011
Statutory retirement procedures will be abolished
91. Compulsory Retirement - Objective justification
Seldon v Clarkson Wright and Jakes and anor
Court of Appeal - September 2010
Rosenbladt v Oellerking Gebaudereinigungsges mBh
European Court of Justice - October 2010
93. Disadvantages
Fewer opportunities for career development for
new/younger employees
Reduced capability
Performance diminishing with age
Difficulties in succession planning
Less natural wastage
Increased sickness absence
Increase cost of insured benefits
Impact on pension arrangements
94. Insured benefits
Life assurance
Medical cover
Income protection schemes
Critical illness cover
Permanent health insurance
Employee Share Schemes – good and bad leavers
95. Government assurance
Most employers agree to requests to work beyond
retirement age
Most employees only choose to work one or two
years past the age of 65
Work performance in most jobs is not affected up to
the age of 70
97. Is the past any guide to the future?
Review what we have covered so far
Look at some of the issues that still remain from the
“legacy”
Some things to be on the look out for
98. Changing the scheme’s liabilities
RPI/CPI – will it be overriding?
Ceasing DC contracting out – another transfer
window?
Liability reduction exercises stay on the agenda
Good process, good communications are critical
99. Investment
A key risk!
Smarter solutions and options now available to all
Diversification, speed of decision making, dynamic
adjustments, etc.,
Trustees to focus on strategy – 80:20
Contributions likely to remain limited so investment
performance – risk v. return – more important than
ever
100. Governance
Monitoring plan for employer covenant with annual
review (minimum) and actions where necessary
Focus on the key risks
Standing item on their meeting agenda
Refer to TPR where relevant
TKU burden increasing – think about how best to
cope
Trustees and employer monitoring role for advisers,
administrators, managers, etc. – understand what is
possible
Don’t forget the data and the TPR deadlines
101. Default retirement
and age discrimination
Benefit provision
Insurance availability
Cost alone is not a justification
DB or DC?
Life cover, private medical, etc?
102. 2012 -2016 – auto enrolment and NEST
Auto enrolment a reality
3 month window – but how much will this help?
Additional costs for employers and employees
Will this force more opt outs?
Danger of levelling down
Application depends on employer size
103. Employer (by PAYE scheme size or
other description)
Staging date
120,000 or more 01-Oct-12
50,000-119,999 01-Nov-12
30,000-49,999 01-Jan-13
20,000-29,999 01-Feb-13
10,000-19,999 01-Mar-13
6,000-9,999 01-Apr-13
4,100-5,999 01-May-13
4,000-4,099 01-Jun-13
3,000-3,999 01-Jul-13
2,000-2,999 01-Aug-13
1,250-1,999 01-Sep-13
Auto-enrolment staging
104. Employer (by PAYE scheme size or
other description)
Staging date
800-1,249 01-Oct-13
500-799 01-Nov-13
350-499 01-Jan-14
250-349 01-Feb-14
Certain employers with less than 50 01-Mar-14
240-249 01-Apr-14
150-239 01-May-14
90-149 01-Jun-14
50-89 01-Jul-14
Other with less than 50 Aug 2014 to June 2015
Auto-enrolment staging
105. And Also
TPR spreads net
– Nortel - Financial Support Directive
– Lehman Brothers
– Bonas Group – Contribution Notice
PPF to be self sufficient by 2030?
Act now to get your surplus or at least to make sure
you retain the right to get at it
106. And not forgetting ……
Disclosure changes
Regulator’s data deadlines
Annuitisation deferral – the first step to collectivism?
Tax changes – annual allowance, reduced lifetime
allowance, etc.
108. Questions to ask - Trustees
Are we focusing on the key risks?
Can we get more from our current and future assets?
How rigorous is our covenant monitoring? How
rigorous does it need to be?
Have we reviewed all our liabilities and operational
issues
Have we considered all options and issues?
Have we challenged our advisers on these issues?
Have we challenged ourselves and assessed our
own performance?
109. Questions to ask - Employer
Are we fully engaged with the Scheme?
What is our strategy? Have we thought about the
end game?
Have we considered all of our options?
Have we started to think about 2012 and the effect
of the tax changes?
110. To Do List
Work together – establish and maintain a good
working relationship
Review governance and operations
2012 is even closer now!
Be active rather than reactive
Keep your nerve
111. 2020 Vision (or 2040?)
No such thing as a normal pension age
Retirement commonly age 70 (or later)
Older workers
DC inadequacy – 10 more years of DC, 10 less of
DB!
Employers and employees understand the need to
save enough
Cloud Pensions (Collective DC – double Dutch, going
Dutch of just learning from the Dutch)
Forced annuitisation a thing of the past
