Dalriada Review of Pensions in 2013
2nd December, 2013
2013 is a year which will be largely remembered for two things. Firstly, as the year during which a British man won Wimbledon. And secondly, as the year during which we finally started to see the green shoots of economic recovery.
The fundamentals of the pensions market have changed little. Auto-enrolment has finally swept into the SME sector. Closed defined benefit schemes remain a burden for employers, and waves of additional legislation have generally added to the burden of running schemes.
So what exactly did hit the headlines in the pensions industry in 2013 and what impact have these developments had for Trustees?
January: The year started with a bang when the Regulator published its consultation regarding standards for DC schemes, with particular emphasis on Master Trusts and a proposed code of practice for DC trust based pension schemes. Trustees looked to see how their schemes compared…and many found them wanting. February: The Regulator goes a step further in the fight against pension liberation, launching its ‘Scorpion’ campaign designed to make the members aware of the dangers of pension liberation and what it might mean to their financial future. However, Trustees seemed to be trapped between a statutory requirement to pay transfer values and warnings that they should be careful.A tribunal ruled that pension rights to civil partners should be paid prior to 2005, and indeed for all service. Unsurprisingly, this has been appealed. BAE entered into a £3.2 billion longevity swap with Legal and General – the biggest in history. March: The new single state pension was announced in the budget. Without a doubt there will be winners and losers under the new system, but anything that could simplify the current system has to be welcomed with open arms. However….does anyone remember “Simplification”? April: The ‘Small Pots’ proposal was announced by the Department for Work & Pensions which proposes an automatic transfer system for balances of £10,000 and less. This is another layer of administration that Trustees will have to ensure is in place, although it will only apply to DC schemes to begin with. May: Following a consultation, the government announced that GMP equalisation guidance will be delayed while they consider the best way forward. The issue will still have to be addressed, but it will only be in the New Year before anything further will happen – a full 23 years since equalisation first reared its ugly head. The Regulator also published its 2013 annual funding statement, which encouraged Trustees to produce plans that take an integrated approach to managing the risks to their scheme, including funding levels, investment performance and the employer covenant. June: On a light hearted front here are a couple of pertinent quotes that I read. Jane Austen said “people always live longer when an annuity is involved” and George Foreman said “the question isn’t at what age I want to retire, it’s at what income”. Both will be recognised as pertinent in the current world of pensions. July: A revised code of practice is published by the regulator. It sets out practical guidance to help trustees meet the legislative requirements for running occupational trust-based DC schemes. The Finance act was published which reduced, again, lifetime allowances. August: A survey showed how difficult it is to be a Trustee, and that for a lay person it is now becoming all but impossible. This is largely due to legislative changes and the Regulator’s standards that each individual Trustee must reach and maintain. September: We were very pleased when Dalriada was appointed to the PPF’s Trustee Advisory Panel. September also saw the OFT issue a paper setting out its findings into the Defined Contribution market. Again, the industry is found wanting. October: Dalriada were in court regarding some legal issues surrounding 9 pension schemes where we had been appointed as Trustee due to concerns around liberation. The ruling confirmed they were occupational schemes, and therefore the Regulator was within their powers to take action to protect the members’ funds. November: The purple book shows that de-risking continues unabated in defined benefit schemes. December: We look to the New Year, which is likely to be varied and challenging. Without a doubt, pension liberation will not go away and Trustees will need to be ever vigilant to make sure that only transfers to bona fida schemes are allowed.Employers will continue to look for innovative solutions to their pension problems. Trustees will seek to work with them where the members’ best interests are served.Mr Webb will continue to bang the drum with regards Defined Ambition.But, provided the costs of running schemes are under control, and the PPF aside… an inescapable truth will remain. What schemes will ultimately provide, whether they are defined contribution, hybrid, defined ambition, career average etc., will be determined by the amount of money the sponsors and members are prepared to put in.Whilst the government insists that members contribute at 1% – 3% through auto-enrolment, the pensions which those schemes generate will be woefully inadequate. Many will think “I’m paying in, it’s been developed and publicised by the British Government, and Nick Hewer says he’s in, so I’ll be fine”. They won’t.
On that merry note… Happy Christmas!