Little by little the pattern of employer-sponsored pensions has been shifting towards contract-based defined contribution schemes; Group Personal Pensions (GPP) in the main. We can probably trace the start of this trend right back to the early 90’s when a combination of recession, social security legislation and equalisation first made smaller employers question the appropriateness and affordability of a final salary scheme.

With successive Pensions Acts adding to the administrative burden and pensions ‘simplification’ sweeping many of the tax differences, the Trust-based variant of defined contribution also saw its popularity wane.

It seems the current deep recession has all but seen off the final salary scheme open to future accrual.

Rightly or wrongly, GPPs have flourished in this environment with their inherent cost controls, light bureaucracy and their implicit shift of responsibility to the employee.

Throughout this transformative process, a number of traditional consultancies have struggled to come to terms with their role in this brave new world. The comfortable familiarity of the trustee meeting and investment manager beauty parade has been replaced by one which requires developing working relationships with insurance companies and building engagement and communication tools for the employee.

There has been significant divergence, with some embracing the new challenge and others doing their utmost to stem the GPP tide. However, as King Canute found, some things can prove to be an irresistible force.

Many consultancies have taken the role of ‘ringmaster’: acting as adviser in the selection process but then leaving the chosen provider to take on the mucky business of dealing with the membership.

However, there seems to be further transformation afoot. With even the largest employers closing schemes to future accrual and putting GPPs in their stead, some consulting practices are starting to consider, quietly, how they might change their current role and develop in-house pension and investment products to receive this new flow of money. Do they really need an insurance company?

At the same time, in hushed corners, some insurance companies are questioning whether a ‘direct to market’ strategy might not be their best tactic. With strong brands, established products with developed implementation and communication capabilities (ironically built up in response to the demands of the ringmaster strategy of some consultancies), they too are wondering whether the old dynamics of the consultant/provider relationship still holds good.

Insurance companies acting as consultants? Consultants acting like an insurance company? The next few years really could be a mixed up, muddled up, shook up world.

• 0 Comments

It’s emerged that Cambridgeshire Police are to take on the costs of healthcare and food for their retired police dogs. So any dog that has had its day in serving the police force and county of Cambridgeshire is now entitled to a pension (of sorts) to cover its food, vet bills and housing costs throughout its retirement.

Apparently, eight dogs have benefited from the canine pension plan – Pensions Age wonders how much of a bite this takes out of taxpayers’ money?

The Association of Consulting Actuaries (ACA) has also been barking away this week about the expenditure of taxpayers’ money, calling for a post-General Election review of public sector pensions, which would aim to keep Exchequer costs to 20 per cent.

Also this week, Rockingham Retirement has had a bone to pick with pensioners (and their advisers) who have health problems and haven’t taken out enhanced annuities. Research from the firm has shown that individuals who smoke or have serious cardiac problems could have had much better incomes in retirement if they had searched for a better annuity. As a result, some of the best deals (the firm claims that one of its clients has had an improvement of 80% in his retirement income) are just left unclaimed.

The message? Light up those cigars and don’t walk the dog so much.

Elsewhere, as everyone is now aware, the FTSE 100 was shown up earlier this week by Pension Capital Strategies (PCS) for having made a real dog’s dinner of their pension funds, with deficits breaking free of the leash at £90bn. FTSE 350 schemes have fared even worse, however, with £187bn of deficits across the books.

But it’s not all doom and gloom dogging the pensions world this week - the longevity risk transfer market is set to hit £10bn this year. At least providers in that area have something to wag their tails about!

• 0 Comments

They say it’s more gratifying to give than to receive…I wonder if giving back holds as much pleasure.

This week we have our pick of people to ask that question to. As the MP expenses row continues, with the latest criticism coming over the decision not to publish personal details about those in question. It is now estimated that a total of almost £500,000 is pledged to be returned to whichever fund it came out of. Mind, that’s nothing when you consider Fred the Shred’s agreement this week to give £4.7million of his pension pot back – this supposedly equates to over £350,000 of his annual “retirement” income. He is said to have volunteered to give the money up so he could end his ‘self-imposed exile’ from the UK. They’ve kept a bit quiet about him keeping the £2.7million lump sum he decided to take just after his retirement though…

Another form of giving, although in the metaphorical sense, comes from the National Association of Pension Funds (NAPF). They’ve had a busy couple of weeks, giving their opinions, mainly to the detriment of the Government’s decisions surrounding the Budget 2009 and Personal Accounts, to anyone who will listen.

Last week, they released their fourth Workplace Pensions Survey, which showed, surprise surprise, that education could improve pensions saving. However, things got a bit more exciting when the organisation slated the Department of Work and Pensions’ (DWP) timescales for 2012, declaring that they could lead to high costs for employers and risk leveling down of existing provision in companies that just don’t want the hassle of applying the rules to their current arrangements.

And then things got even more exciting…the NAPF is urging MPs to re-think the proposals for high earner tax contributions as set out in the Budget 2009, as they will have a negative impact on pension saving. The claim follows NAPF chief executive Joanne Segars’ turn giving evidence at the House of Lords Economic Affairs Sub Committee on 20 May, and concerns that the rules applied to higher earners could easily be carried through to medium earners in the longer-term.

Finally for the NAPF (for now), Lindsay Tomlinson has been elected to leave behind his vice-presidency at Barclays Global Investors Europe (and indeed the tatters of its defined benefit pension scheme) and sit in the NAPF’s big chair when Chris Hitchen steps down in October this year.

Perhaps Barclays’ decision to axe its defined benefit scheme is a good one - we’ve all seen how much trouble under-funded pension schemes can find themselves in. In fact, a report by Policy Exchange claims that the UK government has allowed public sector pension liabilities to run “out of control”. The independent educational charity has labelled public sector pension schemes “the Second National Debt”, with estimates that, taken into account with national debt, this amounts to £1.854trn, or 150 per cent of GDP. Shocker. Let’s just hope the Government pulls its socks up and all the stops out as it tries to deal with these massive deficits.

• 0 Comments

BT used to claim that “it’s good to talk”. And they certainly seem to have been talking to the Pensions Regulator (TPR) after the deficit-stricken company elected to inject an additional £525million per year for the next three years into its closed final salary plan, a move that has slashed dividends to just 6.5p per share.

On the one hand, this looks as if BT has heeded TPR’s advice over putting pension payments before dividends, but on the other, it would appear that BT has told the Regulator that there is absolutely no chance that it can cut its deficit – likely to be way more than £4bn - within 10 years as TPR wants everyone to do. That’s bad news all round.

Elsewhere, Fujitsu today admitted that it has been forced to close its final salary scheme to future accruals, which consultant Punter Southall has prophesised as the start of a defined benefit apocalypse - Simon Banks, a principal at the consultancy, believes this closure marks the beginning of another wave of them.

And just when we thought a shining light had squeezed through the dark clouds of the pensions sector with the announcement of the first longevity swap featuring Babcock International Group, Trustee GAAPS went and spoilt it all with a dampener for trustees considering this option. The trustee search and selection firm is concerned that trustees may neglect to consider the price they are paying for these swaps, and overlook the importance of the covenant strength of the counterparty to that swap.

However, the overall consensus is that this market can grow, and Hewitt Associates predicts it will exceed £5bn over the next year. No doubt there will be more on this next week.

And speaking of next week, look out for an exclusive chat with a US law firm…

• 0 Comments

Talking about SIPP fees can always get a bit tricky. There’s the headline fee, then there’s the ‘hidden’ cost of losing a chunk of the interest on the cash element of a portfolio. A tacit agreement seems to have existed between SIPP holders and their providers for a while on this: ‘You augment your initial fees, that’s OK, you’re not a charity. I don’t hold that much cash anyway - and even if I do it’s only for a short while’.

Which was all fine, until interest rates plummeted and people fled to cash to defend themselves against falling markets.

This has left SIPP providers with a big hole in their business models and will lead, according to Martin Tilley, Business Development Manager at Dentons (one of the few firms who pride themselves on their transparency when it comes to fees) to a period of serious re-pricing, which has already begun to happen. The alternative is a cut in quality of service.

But what happens when interest rate levels start to pick up again? Will providers no longer take a bit for themselves from their customers’ cash accounts? Or will they drop their headline fees and return to their tried and tested remuneration methods?

Look out for a more in depth look at the issue in Pensions Age in the near future.

• 0 Comments

On the morning of 15 April, 1912, the Titanic, the “unsinkable” ship, the “ship of dreams”, sank in the middle of the Atlantic Ocean. Thousands of lives were lost, not to mention hundreds of thousands of pounds’ worth of possessions. Lifeboats saved a mere 705 lives.

Fast forward 97 years and one day, and we are confronted with the bombshell that the pensions “lifeboat”, the Pension Protection Fund (PPF), is swamped by defined benefit (DB) deficits of over £250bn. The figures are massive. Put into perspective, only three-quarters of the benefits the PPF aims to provide are covered by the assets in these DB funds.

Unsurprisingly, it has also emerged this week that pension scheme trustees are losing faith in DB plans’ ability to stick it out over the long-term - not a huge surprise though considering 87 per cent (according to Aon Consulting) of them have reported that the funding levels of their final salary pension schemes have worsened over the last year.

Also this week, Pensions Age staff have been warned that the soon-to-be implemented new powers for the Pensions Regulator could pose massive issues for businesses engaging in general corporate activity (more on this in next week’s newsletter).

So is our pensions “lifeboat” simply another sinking ship? Will the Pensions Regulator begin to sink its big, long teeth into pension schemes’ business? Well, tomorrow Pensions Age will present its twice-yearly conference. At the London Stock Exchange, over the course of the day, delegates will hear from industry experts on the future of pensions in the UK. Lawrence Churchill, chairman at the PPF, will be there - maybe he can shed some light on how to put the anchor down to stop these costs disappearing away at a rate of knots. And Tony Hobman, chief executive at TPR, will be telling us about the Regulator’s new focus - defined contribution. Odd that.

Hope to see you there for a productive and informative day - oh, and a few drinks after the conference to (either) celebrate the whatever positives we can find, or simply drown our sorrows…

• 0 Comments

This morning brought news that the Metropolitan Police’s Assistant Commissioner, Bob Quick, has resigned following an incident where he accidentally revealed details of the counter-terrorism’s ’secret’ plans for an anti-terrorism operation. His indiscretion led to raids and arrests being brought forward to avoid a possibly disastrous terrorist attack. No doubt, pressure was exerted on Quick from all sides to clear his desk.

Meanwhile, stressed companies continue to take their own pre-emptive action in an attempt to stave off their own involuntary job cuts. And guess what, pensions are high up on the agenda when it comes to cost-cutting.

This week, Aon revealed that it is to cut its pension scheme contributions by up to half, and news broke this morning that Aviva is to call time on its free pensions, forcing almost 16,000 employees to contribute for the first time.

Those involved in pensions management have been hurt by the downturn too of course, with law firms, for example, now culling parts of their pensions teams - so much for law being a safe haven.

And Independent Financial Advisers (IFAs) have been told they may need to double the annuity business they write in order to stay in business, according to recent research from Just Retirement.

The problem with all this, of course, is that it helps pension saving and retirement planning not a jot. Scheme funds with less money in them and less resource for advice are less likely to deliver the goods and IFAs handing out shoddy ‘advice’ on the sometimes very complex area of annuity purchasing will result in individuals missing out on many thousands of pounds.

Quick has paid a high price for his mistake, as people may well do in years to come thanks to the continual mistakes made over pension provision.

• 0 Comments

So it’s all quietened down in the Square Mile after yesterday’s G20 protests, and we here at Pensions Age towers have had time to catch our breath and reflect upon recent events.

Yesterday’s usual April Fools jokes were somewhat overshadowed by the arrival in the capital of twenty of the world’s most powerful leaders, ahead of today’s G20 Summit in Docklands.

Division has so far seemed to be the order of the day with France’s president Nicolas Sarkozy and Germany’s chancellor Angela Merkel fronting a Euro-zone push for stricter regulations on the financial system, while Brown and Obama have confidently outlined their joint desire to continue racking up debt in a effort to get the wheels of the global economy turning once again.

The streets of the City were also divided, as a rush of denim-clad office workers scuttled to their respective jobs, while protesters set up camp and prepared for battle. The issues under contention were wide ranging – from anti-capitalism to climate change. Whether the protesters achieved anything or not is debatable, but the message of a growing disparity between rich and poor, privileged and unprivileged, seems more apparent than ever, and not least in the pensions industry.

As reported in the Pensions Age newsletter last week, the whole of the UK may soon be suffering a massive rise in council tax due to the spiralling deficits in the Local Government Pension Scheme (LGPS).

Similarly, while many of us are more concerned about whether or not we will still have a job tomorrow, let alone the state of our pension, there are further revelations that City Minister Lord Myners was fully aware of the £703,000 annual pension former chief executive of the Royal Bank of Scotland, Sir Fred Goodwin, was set to enjoy. The unfairness is palpable for the ordinary man on the street.

Once this G20 Summit and its achievements or failures are played out, perhaps Westminster could turn its full attention to the growing pensions divide in the UK.

• 0 Comments

It seems to me that the past week or so has been one of owning up - admitting mistakes and accepting blame, and subsequently trying to do something to put it right.

Take the Financial Services Authority (FSA) - at the NAPF conference in Edinburgh last week, Hector Sants, the watchdog’s chief executive, admitted that the supervisory body would be publishing a report addressing the systematic failures of the banking world. Indeed, they have. The Turner Review is up and available on the website. It is clear from the report that Lord Turner is effectively saying that the FSA made bad mistakes in the run-up to the credit crunch.

Next, we have Friends Provident, weaving into their review of 2008 that they have put aside £217million to account for corporate bond loans. OK, they’re admitting it. And on Wednesday, Hewitt Associates announced that their latest finding is that there has been a 50% rise in the number of trustees seeking advice on their roles and practices since the onset of the financial downturn. We have trustees admitting they are wrong, and big enough to admit they need help.

Even our dear leaders have got in on the act. Gordon Brown has said that he accepted full responsibility for his part in the financial crisis, although he stopped short of actually saying sorry. Barack Obama has also been beating his chest over a gaffe he made on a US chat show where he likened his bowling skills to that of a competitor in the “special” Olympics.

But sometimes it all comes a little closer to home: this morning, the Pensions Age news desk was greeted with an email from an individual lambasting our story on the proposed securities claim against RBS and accusing us of not checking our facts. Cue the office going into meltdown: we immediately removed the story and apologised to the individual, thanking him for his email and asking him to point out our mistake.

However, having accepted this blame, we then received a gracious email from the victim, who apologised profusely as he had in fact mixed us up with a competitor. Phew. Needless to say, the story went straight back up.

I wonder if RBS and Sir Fred himself will be admitting to anything should the case go ahead?

• 1 Comment

James Carrick is a lively chap. One of Legal & General Investment Management’s economists, I had the pleasure of listening to his infectious take on when we might start to crawl out of recession today.

Anyway, behind the haze of flailing arms, Carrick’s voice was an enthusiastic and (partially) convincing one.

He argued that the worst of the manufacturing downturn may well be behind us here in the UK: “Business confidence should therefore improve as the sector is sensitive to the economic cycle.”

What’s more, the UK is, he believes, well positioned for three main reasons. Firstly, given low interest rates and the relative ease and frequency (compared to say, the US) with which fixed rate mortgages can be changed to variable rate ones, consumers will soon find themselves with a significant amount of extra spending power. Secondly, energy prices have fallen considerably and thirdly, Carrick predicts an easing in credit availability in the very near future.

This has all led L&G to abandon its pessimistic view and argue that the UK will recover faster than other economies, which is the exact opposite of what the IMF has concluded and is also out of step with the general consensus out there on the economy.

Carrick did admit that risks remain, most notably deflation, but if he and his colleagues are right, as they pretty much were last year in their predictions, then perhaps now is the time for pension funds and scheme members to up their allocations in UK equities?

The cheer doesn’t end there either.

According to new research from Aon Consulting, the vast majority of pension fund trustees remain committed to their responsibilities despite the pressures of the credit crunch.

Perhaps predictions of the slow death of the lay trustee have been slightly exaggerated…

• 0 Comments