7 days

7 Days is a weekly round up of developments in pensions, normally published on Monday afternoons. We collate this information from key industry sources, such as the DWP, HMRC and TPR.

In this 7 Days

• IFoA publishes report into the impact of possible migration scenarios on the state pension system
• Medically underwritten bulk annuities “User Guide” published
• “Retirement Uncovered” report published
• TPR releases scheme funding statistics
• Work and Pensions Select Committee announce “major inquiry”

IFoA publishes report into the impact of possible migration scenarios on the state pension system

On 2 June 2016, the IFoA released a report looking at the potential impact on the state pension of changes to migration flows to the UK, in particular those resulting from possible policy changes that might follow an exit from the EU.

The report was undertaken by the National Institute for Economic and Social Research on behalf of the IFoA, and examined the potential impact in both the medium longer-term.

A key finding was that if EU migration into the UK falls by around 150,000 (in line with current Government targets), the net impact on tax revenues and benefit expenditure could cost the State more than £3bn per annum by 2032 and more than £8bn per annum by 2057. The study suggests that, to offset this funding gap in 2057, a further increase in SPA might be required, from age 68 to 69, or a reduction in state pension of around £300 per person per year.

Alternatively, the impact could be mitigated, or even reversed, through changes in the potential earnings profile of immigrants and their skills mix (for example, by the introduction of a skills-based migration policy, such as Australia’s points-based system). However, the report does not consider whether such policies would and could actually be delivered in practice.

Medically underwritten bulk annuities “User Guide” published

On 1 June 2016, an independent working group chaired by Margaret Snowden OBE published a guide for trustees and other users to medically underwritten bulk annuities (“MUBAs”). Around 20% (by number) of all bulk annuity transactions in 2015 were medically underwritten.

The guide which was externally reviewed by the SPP, was “written to help provide a firm basis of understanding of MUBAs in general terms as well as an appreciation of the variety of approaches and how those approaches may affect outcomes”. It is intended to be a “factual, practical and impartial” guide, explaining the relevant terminology, and providing “an overview of the options available, how it may be undertaken, shar[ing] current best practice and the aspects that should be considered”.

“Retirement Uncovered” report published

On 6 June 2016, the SPP launched “Retirement Uncovered”, a report undertaken by BritainThinks, and commissioned by Aviva.

The report aims to provide “fresh insight on people’s expectations for retirement versus the reality”. Based on significant demographic trends, it groups people into three cohorts: “footloose retirees”, those “working later” and those with “caring responsibilities”.  By using focus groups and in-depth interviews, the report considers the experience of the different cohorts, and what support they need, in order to draw out “valuable lessons” for how government, regulators and the private sector engage with these groups.

TPR releases scheme funding statistics

TPR has published the 2016 update to its annual funding statistics for UK DB and hybrid schemes. The update relates to “Tranche 9” schemes (which have effective valuation dates between 22 September 2013 and 21 September 2014 inclusive). These valuations (with due dates for receipt falling within the period December 2014 to December 2015) bring to a close the third triennial cycle of the scheme funding regime.

The update shows funding trends in the context of market conditions, assumptions and scheme characteristics that impact on valuations. It also describes existing arrangements for recovery plans, employer deficit repair contributions and contingent security.

According to TPR’s findings, over one fifth of Tranche 9 schemes reported a surplus of assets over technical provisions. Detailed figures are set out in the Appendix to the update.

Work and Pensions Select Committee announce “major inquiry”

On 31 May 2016, Frank Field MP and Chair of the WPC, announced the upcoming launch of a new pensions inquiry.

Describing DB schemes as “already creaking from rising life expectancy and record low returns on capital”, he declared that “pension law and regulation must urgently adapt to the issues of the future, rather than the problems of the past. The whole savings edifice is in danger”. According to the announcement, 11 million people have DB pensions, but more than 5,000 of the associated schemes are “in deficit to the tune of £805 billion while the combined surplus of other schemes is £4 billion.”

The inquiry is to look at DB pension schemes “in their entirety”, considering “radical solutions that could be more easily implemented if real returns on capital rise again.”

No date has yet been set for the start of the inquiry.