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Industry news
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1st April 2013
Cartwrights announces acquisition
We are delighted to announce that, with effect from 1st April 2013, we have acquired the trust-based pensions business of Gallagher Benefits Consulting Ltd.
The deal expands the number of staff within the group to 60 and boosts the actuarial team to 16, including 8 qualified actuaries.
Ian Cartwright, who started the group in 1986 said, 'We have had a professional association with the Gallagher business (and its predecessors) for over 20 years and this acquisition complements our services and client portfolio. We are all extremely excited about the opportunities that it brings'.
We offer a full range of services to assist trustees and employers in managing their pension and benefit arrangements, delivering quality services, quickly.
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15th Febuary 2013
New Auto-Enrolment website launched
A new website has been launched by the NAPF to help employers and HR professionals better understand how to auto-enrol its staff into a workplace pension. The site has been broken down into a number of sections and is designed to help employers understand the technical requirements of automatic enrolment and its issues so that they can be feel more confident about pensions.
Commenting on the new site, Marion Stanley of Cartwrights said ‘this new website is intuitive and easy to use and complements the advice and support that we are providing to our clients. Small to medium sized employers do not generally have the time or resources to build sophisticated AE solutions or licence middleware – any additional support and guidance is welcomed’.
To view the new website, click here
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13th Febuary 2013
GMPs to remain unequal...for now
The government has delayed plans to force schemes to equalise guaranteed minimum pensions until Spring 2014, pensions minister Steve Webb announced today.
Whilst administrators can breathe a sigh of relief (the proposed method of equalisation was complex to say the least), it appears to be only a temporary respite.
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10th January 2013
RPI – No change, but changes ahead!
After a three month consultation period, the Office for National Statistics (ONS) has decided NOT to change the way the Retail Prices Index (RPI) is calculated. The possible change had been mooted to bring the index more closely in line with its sister index, the Consumer Prices Index (CPI). The latter has, for some years, tended to average a lower annual rate of increase.
Pensions in payment (state and private) will continue to rise in line with the RPI, where they do so at the moment.
This will be seen as ‘good news’ for pensioners, who might otherwise have seen a reduction in their annual increase. For sponsors of occupational schemes, it will be seen as ‘bad news’ as the amount of money they have to put in to the schemes to fund any deficit will not decrease.
The ONS has decided to introduce two new indices from March, known as RPIJ and CPIH. RPIJ will use a different arithmetical formula to RPI for calculating average prices. CPIH is CPI adjusted for house prices. Both are intended to sit somewhere in the middle of the two existing indices. Quite what the new indices will be used for and whether these will have any impact on the cost of pensions, only time will tell.
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5th December 2012
The best pensions bits from the Chancellor's Autumn Statement
The Chancellor of the Exchequer, George Osborne, delivered his Autumn Statement this afternoon (5 December), which, as expected, included a number of announcements on pensions. The widely predicted reduction in the Annual Allowance happened, albeit delayed until 2014, offering a period of respite for savers.
The key points are:
• The Annual Allowance is to reduce from £50,000 to £40,000 for Pension Input Periods ending on or after 6th April 2014. There is estimated to be around 100,000 people in the UK who save £50,000 or more into pension schemes each year.
But, this reduction to £40,000 will not only hit the high earners. It could have an impact on more modest earners who are in generous final salary schemes with long service. For example, someone earning £55,000 with 20 years service in a final salary scheme giving them 1/60th of final salary for each year of service, would be handed a one-off tax charge if they were to receive an increase on their salary of say £10,000 during the year. They may be able to offset these charges if they have any unused allowance from the previous 3 tax years and so avoiding tax in the short-term.
• The ‘scheme pays’ rules remain the same. This allows individuals who exceed the new Annual Allowance for 2014/15 to request that the scheme pays the AA charge on their behalf. They will have until 31 July 2016 to notify the scheme administrator of their intention. However, notification is required beforehand if they plan to take all of their benefits.
• There will be no change to the carry forward rules; the ability to claim unused annual allowances from each of the previous three tax years continues. The amount which can be carried forward will remain at £50,000 for the three years prior to 2014/15.
• From the 2014/15 tax year the Lifetime Allowance (LTA) for pension savings is to reduce from £1.5m to £1.25m.
A new category of protection called ‘Fixed Protection 2014’ will be offered to anyone who may already have savings in excess of the LTA, but who does not already benefit from one of the earlier forms of protection. This will allow individuals to continue to benefit from the higher LTA, provided that no further pension saving occurs after April 2014.
The Government is set to discuss the possibility of offering a form of ‘personalised protection; which will give individuals an LTA of the greater of their pension rights (up to a maximum of £1.5m) on 5 April 2014 and the standard LTA (£1.25m from April 2014). Unlike Fixed Protection 2014, this will allow for future pension savings. Whether an individual will be able to apply for both fixed (2014) and personalised protection will also form part of the discussions.
The Government is also proposing that for anyone who dies before 6 April 2014, but where lump sum death benefits are not paid until on or after 6 April 2014, that the lump sum will be tested against the LTA at the point of death and not at the point of payment.
• For pensions drawdown, the capped drawdown limit for pensioners of all ages will revert to 120% of the value of an equivalent annuity. Although the Statement did not confirm a date to implement this, 6 April 2013 could be a possible start date. We understand that HMRC will be consulting with providers to find out how soon the change can be implemented and if they would require the amending legislation to be passed before they can adopt the new rules or if they would be happy to work with draft legislation.
HMRC has published an Overview Note which summaries the new legislation. A draft Bill is expected to be published on 11 December 2012, with the Finance Bill 2013 formally enacting the legislation.
Other pension related announcements in the Autumn Statement were:
• During 2013, the DWP will consult on providing the Pensions Regulator with a new statutory objective to consider the long-term affordability of deficit recovery plans for sponsoring employers. This will include considering whether to allow companies who undergo a valuation in 2013 or later to introduce smoothing of the discount rate when calculating the defined benefit pension liabilities and assets. This could allow employers to pay lower contributions.
• The Basic State Pension will increase by 2.5% from April 2013, (an increase of £2.70 per week for those receiving the full pension). This falls in line with the Coalition’s ‘triple lock guarantee’ to pay the highest of the increase in earnings, prices and 2.5%.
• Although National Insurance thresholds and limits are to increase, there will be no increase to the percentage rates of Class 1 and Class 4 National Insurance Contributions.
The HMRC’s Overview Note can be read here.
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5th November 2012
A practical approach from tPR? Perhaps, but perhaps not...
On the face of it, the recent announcement form the Pensions Regulator (tPR) that schemes can “...allow a £2 per week tolerance level...” when reconciling GMP data appears to be a sensible attempt to speed up the process of winding up a pension scheme. On the face of it....
Unfortunately, as is the way with pensions administration, we deal in detail; detail that potentially affects an individual and for whom a greater level of accuracy is often important.
We have undertaken a large number of GMP reconciliation projects; sometimes when the scheme is winding up but more usually as a pre-cursor to a wind-up and as part of a larger exercise to reassure trustees that their data is in order (winding up may still be on the agenda some way down the road, of course).
Tony Thornton, Head of Administration commented, 'our experience of such projects suggests that the issues are not primarily whether the GMP for a particular individual agrees with HMRC’s records, but more whether the individual appears in both the pension scheme database and on the HMRC computer. It was not uncommon for pension scheme administrators to ‘forget’ to tell the authorities when someone left contracted-out employment and it is certainly true that payroll departments could provide year end returns to the government that differed from those provided to the pensions team. This is the most time consuming part of a GMP project – agreeing the membership on both sides.'
Once this is done, checking whether the GMP agrees (to within an agreed tolerance level or exactly) is a much simpler process. But, don’t forget that subsequent pension increases are often applied by the scheme only to the excess over the GMP figure; any discrepancy will lead to a miscalculation of the amount of that increase. It could be argued that such changes only amount to a few pounds per year and is not material, but will the pensioner see it that way, particularly if this is to their detriment? This is particularly true if the individual compares what the trustees say is the ‘correct GMP’ with what the government says when they notify the member of the increase in State pension.
Whilst any attempt to reduce the time and effort taken to reconcile and correct member data, perhaps to allow a scheme to be formally wound up, is to be encouraged, it should not be done at the expense of the member. It will be interesting to see how the pension buy-out insurers view this ‘relaxation’ and how it affects their data requirements.
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9th October 2012
Cartwright Group joins PASA
We are pleased to announce that we have joined PASA (Pensions Administration Standards Association), the independent body which sets and promotes standards for pensions administration.
Tony Thornton, Head of Pensions Administration at Cartwright Group, comments 'we have long been an advocate of complete and accurate data, and strong and robust procedures as a means of providing a fast and efficient administration service. We have consolidated this view by formally joining PASA and supporting them in their goals to achieve good standards across the industry.'
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1st October 2012
Auto-enrolment arrives!
After years of 'will it, won't it' discussions and frequently changing ideas and bases, it has finally arrived. Auto-enrolment starts today.
Well, at least it does for the very largest employers. For most of us, the staging date (the date it comes into effect) is some time in the next three years.
But, regardless of when your own staging date is, you need to start your planning now, if you haven't already done so. It is important to ensure that when your staging date does come around, you have:
- the budget in place (or planned for)
- an appropriate pension arrangement in place (or planned for)
- a communications programme
- a process (including systems) to identify, notify and enrol eligible jobholders and other affected employees.
Putting all this in place may take up to 18 months. If your staging date is April 2014 or sooner, this 18 month window is already open. You should act now.
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14th August 2012
Auto Enrolment Updates issued
The (surprisingly?) easy to read guidance on the what, when, where and how of auto enrolment has just been updated by the Pensions Regulator.
Specific guidance on certification of DB and hybrid schemes follow new regulations from the Department for Work and Pensions, and changes to some staging dates are included.
AE, as it is popularly described, is coming, like it or not. If you want to know more about how it affects you (as it will), please get in touch.
Otherwise, you can enjoy the full suite of guidelines here
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17th July 2012
Pensions Regulator publishes multi-employer debt guidance
Following new, more flexible pension scheme debt rules for employers exiting mutli-employer schemes, the Pensions Regulator has issued guidance to help affected employers and trustees understand their duties. The new rules came into effect on 27 January 2012.
Employers are now able, providing they meet certain conditions, to use a 'flexible apportionment arrangement' to avoid triggering a Section 75 deb when leaving a multi-employer DB scheme.
The full guidance can be found on the Regulator's website by clicking here.
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17th July 2012
DWP confirms 'pot to follow member' approach
The Department for Work and Pensions (DWP) has confirmed that small pension pots will 'follow' employees when they change jobs.
Opting for this approach, rather that the aggregator model suggested by several pension providers, the DWP believes that this will halve the number of small pension pots by 2050 and is the approach preferred by employees. It is considering four limits for automatic transfer - £2,000, £5,000, £10,000 and £20,000.
Martin Ralph, Cartwright Group Head of Consulting commented, 'this is potentially a step forward in managing the issue of small pots and orphaned pension funds, and follows the headline approach that we have been advocating for some time. It will now be down to the providers to build the processes to enable this to happen efficiently, and to minimise the risk that members may lose out as a result, through higher charges or worse administration.'
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12th June 2012
The Pensions Regulator provides an update on its scheme record keeping and data survey
The Pensions Regulator has published its third survey on the progress of trustees in ensuring that the data quality of their schemes is in line with the requirements first set out in 2010.
The survey indicates that, whilst progress is being made towards a goal of 95% for legacy data and 100% for new data by the end of 2012, there is still a sizeable minority of arrangements that do not yet have plans in place to measure data quality and monitor improvements. This is particularly true of smaller schemes.
According to Tony Thornton, Head of Pensions Administration at Cartwright Group, this is not surprising. He says “The smaller DB schemes are invariably legacy arrangements set up many years ago, which have been closed to new joiners and/or future accrual for some time. As such they only affect a small minority of the sponsor’s employees and are not a major focal point of day to day business activity.”
Tony added “Unfortunately, ignoring the problem will not make it go away and delaying any plan to identify gaps in the data and correct them is likely to be a false economy. The end game for most small DB arrangements is to secure the individuals’ correct entitlements with an insurance policy. This rids the sponsor of the expense of providing the scheme and complying with the complex rules and regulations for an ever diminishing number of individuals. But, if the data is not complete and accurate, the cost of securing such benefits is likely to be higher than it need be as insurers will add a premium to reflect the risk of the unknown. We urge all trustee boards, large and small, to not only plan for and implement a data quality review, but also to monitor its progress on at least an annual basis.”
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27th April 2012
The Regulator reinforces scheme funding requirements
As suggested by Bill Galvin in February, the Pensions Regulator has today published a guidance statement relating to the funding of defined benefit pension schemes with actuarial valuation dates falling between September 2011 and September 2012. Seen by most commentators as an easement to the current funding regulations and guidance, the statement has been released in recognition of the exceptionally difficult economic and trading conditions.
The Regulator is aware that the current exceptionally low gilt yields, to a large extent driven by the Bank Of England's quantitative easing programme, can result in a huge increase in the liabilities for a scheme undergoing a current funding review, and that the volatile markets impact the asset valuation that is used and combining together to significantly increase scheme deficits. A typical scheme being valued as at December 2011, when gilt yields hit record lows, is likely be in a worse asset position than a scheme being valued in March 2012.
In essence, the Regulator has reinforced the existing Regulations and states that there is sufficient flexibility within these to deal with the current economic situation. Certain trustees and sponsors remain able to agree to longer scheme recovery periods and to potentially structure deficit contributions differently, such as making greater use of contingent assets. In order to adopt a longer recovery period, the trustees need to satisfy the Regulator that there are genuine financial and trading reasons for the extended period and that the employer is not prioritising other payments, such as dividends to shareholders, over pension contributions.
The Regulator said, 'employers that are struggling have greater breathing space to fill deficits over a longer period. However, we will draw a distinction between this group and those cases where schemes are substantially underfunded and employers are able to afford higher contributions. In such cases we will expect pension trustees to be taking steps to put their scheme on a more stable footing.'
The Regulator has its hands tied somewhat in terms of amending the underlying basis for scheme valuations. As such, we welcome the approach that it is adopting and its recognition of the difficulties that the economic conditions are placing on trustees and sponsors of DB plans. Quantitative easing has done little to stimulate the economy, but has had disastrous effects on gilt yields and the costs of pension provision. This has been further worsened by the continued investment in the UK as a perceived 'safe haven' for investors.
Martin Ralph, Consultancy Director at Cartwrights, comments, 'whilst we remain of the opinion that gilt yields will eventually revert to more normal levels, the timeline and extent of this is impossible to predict. Schemes that undergo valuations in the current conditions have technical provisions that are atypically high, but which their trustees and sponsors must seek to manage within the current tough Regulatory framework.'
A copy of the full Statement, running to 33 points, can be downloaded by clicking here.
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22nd March 2012
A rather uneventful Budget as far as pension provision is concerned
The industry breathed a collective sigh of relief following the delivery of the 2012 Budget by the Chancellor, George Osborne, yesterday.
In a year filled with exciting and monumentus events including the Summer Olympics, the Paralympics, the European football championships and of course, the introduction of auto-enrolment into workplace savings, perhaps there was no room left for big, sweeping pension changes to be announced in the Budget.
Speculation was rife that the tax breaks for pensions were going to be tinkered with. Perhaps a reduction to the Annual Allowance, or a removal of additional and higher rate tax relief on contributions. Would pension commencement lump sums continue to be tax free?
But no, these were all left alone.
Don't misunderstand us, there were changes made which affect pension provision and pensioners, but these have little direct and immediate impact on private pension arrangements.
In the biggest change, the Chancellor has decided to 'simplify' pensions for individuals over State Retirement Age.
By simplify, what George actually means is that he will freeze the existing higher age-related tax allowances for pensioners, to allow the working age population to catch up, and he will do away with these altogether for people that attain age 65 from April 2013.
But, at the same time, George announced that the previously hinted at reform of the State pension system is to go ahead, with a new flat rate single-tier pension of around £140 per week being introduced early in the next parliamentary term. This pension will be contributions related but the detail on this will not be announced until early next year.
Is this simplification? Well yes, it is. Will pensioners benefit? This remains to be seen. According to the Government, no current pensioners will lose out in cash terms from where they are now. Future pensioners will potentially receive lower personal allowances than under the current format.
The Basic State Pension is also be increased from next month by the largest ever cash increase - £5.30 per week.
The other big news for State pensions is the announcement that the State Pension Age will be linked to life expectancy in the future. This follows the model used in Norway and could see today's A-level students having to wait until age 77 to claim their State pension!
There were of course many other fiscal issues discussed in the 2012 Budget.
A full copy of the Chancellor's 2012 Budget can be downloaded by clicking on this link.
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20th March 2012
Unions lose RPI/CPI Court appeal
Following the appeal lodged by various unions against the Government's switch from using the Retail Prices Index to using the Consumer Prices Index for pension revaluation and indexation (see News entry dated 20th February 2012), the High Court has ruled in favour of the Government.
This decision follows the defeat in the debate in the House of Commons over the same subject.
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15th March 2012
Are 100 year bonds good news for pension schemes?
Stephen Cartridge, Senior Actuary at Cartwrights, looks at whether pension fund trustees should be queuing up to buy 100 year bonds from the Government.
We understand that George Osborne is to start a consultation process in his March Budget for the introduction of 100 year term gilts. The aim of this issue being for the Government to lock into the currently very low interest rates and secure low borrowing rates for many years to come.
Effectively irredeemable, this type of gilt was last sold to help finance the World Wars. Those still in the market are currently offering yields close to 4% per annum, compared to 10 year gilt yields of 2.2% per annum and 20 year yields of 3.2% per annum. So, although the Government is likely to have to offer a higher yield than many existing short term gilts in order to sell them, these are still historically low rates and therefore it is potentially a good time to sell the ultra-long-term gilts.
Whether it is a good time to buy them and lock into these low interest rates is a different matter. The majority of defined benefit pension schemes are closed to new entrants and many to future accrual too, and their liabilities are maturing. 100 year bonds may be too long, even for pension schemes, and trustees may prefer 40 or 50 year gilts to be issued.
However, if trustees do buy the 100 year gilts and they underperform it is unlikely that those responsible for the decision will be around to be criticised for doing so when they eventually mature!
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14th March 2012
Pensions Regulator launches 'revamped' Trustee Toolkit
The Pensions Regulator has 'revamped' its Trustee Toolkit, with the new version going live today (14th March).
The Regulator's press release, which includes a link to sign up to the new Trustee Toolkit, can be found here.
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9th March 2012
NAPF publishes guide to property investment
Hot on the heels of its guide to exchange traded fund investment, the NAPF has issued a guide, aimed at pension trustees and managers, looking at property investment.
A copy of the NAPF's press release, which includes a link to purchase the guide, can be found here.
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8th March 2012
NAPF guide to Exchange Traded Funds published
The NAPF has published a guide focusing on Exchange Traded Funds to help pension trustees and managers understand how they work and the role that they may play in pension fund investment.
A copy of the NAPF's press release, which includes a link to purchase the guide, can be found here.
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8th March 2012
Retirement living costs soar by one-third
A report issued by LV= suggests that the typical weekly living costs for pensioners in the UK have risen to around £191, 33% more than in 2000. The weekly spend is almost double the average weekly State pension.
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8th March 2012
NAPF suggests pension funds are £90bn worse off as a result of QEII
In a press release issued today, the NAPF suggests that the latest wave of quantitative easing, which commenced in October 2011, has seen pension fund shortfalls increase by £90bn. This is as a result of the reduced yield available from bonds, which is followed through in the discount rates assumed when valuing pension benefits.
A full copy of the NAPF press release can be found by accessing this link to the NAPF website.
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2nd March 2012
CPI/RPI debate ends in defeat
The debate in the House of Commons, brought about as a result of an e-petition (see the News entry under 29th February), has resulted in an overwhelming vote to retain the change to CPI. MPs voted 232 to 33 in favour of keeping CPI as the measure for revaluation and indexation of pensions.
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