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:

ACA survey finds employer support for Defined Ambition proposals
DWP publishes consultation on reshaping workplace pensions
PPF & TPR publish latest Purple Book 2013
New Pensions Regulator Chair to be recruited by DWP
TPR publishes Trustee Knowhow newsletter
TPR publishes research on DB annual funding statement 2013

ACA survey finds employer support for Defined Ambition proposals

The ACA has published a survey report; ‘The unfinished agenda: growing workplace pensions fit for purpose’. It forms part one of the ACA’s 2013 Pension trends survey.

The survey focused on the initial reform ideas first outlined in the DWP’s workplace pension reinvigoration paper (published in November 2012) and employers’ approaches to auto-enrolment. Key findings are:

Whilst most smaller employers expressed no view on the principal Defined Ambition (DA) ideas that look to retain an element of DB, firms employing 500 or more employees said they were supportive of legislation to permit the following designs:
- core DB schemes with no requirement to index benefits on an annual basis
- an option for a DB scheme where employers could automatically convert leavers’ benefits to a DC scheme (and possibly retirees’ benefits to an annuity)
- an ability for employers to adjust scheme pension age in line with changes in SPA or some other objective index.
Six out of ten employers said they thought there would be a significant difference in the number of employees who would consider joining (or staying in) a DC scheme or who would pay higher contributions if the qualifying default fund secured a guaranteed pension income building up year by year;
A clear majority of employers support a fixed-term pension enabling retirees to draw an income from a small pension pot over a few years rather than converting their pot into what might otherwise amount to a small monthly or annual retirement annuity;
A significant number of employers felt that a fixed term pension should be restricted to only those retirees who defer their State pension (increasing this as a result from when it is drawn under existing Government rules), with others also saying that such a facility should not be available to those retiring earlier than State Pension Age;
Six out of ten employers oppose the Government taking a role in encouraging consolidation of schemes in the pensions market, with smaller firms most strongly opposed to such an initiative;
Over three-quarters of larger employers (with 1,000 or more employees) said they would not offer a multi-employer scheme, whereas over three-quarters of smaller employers (499 or fewer employees) agreed that a decision to opt for a larger multi-employer arrangement was either likely or possible in their circumstances.

DWP publishes consultation on reshaping workplace pensions

On 7 November 2013, the DWP unveiled its plans for “Reshaping workplace pensions for future generations”. The consultation, which follows the DWP’s November 2012 paper on Reinvigorating workplace pensions (see our Alert of 26 November 2012), sets out the Government’s proposals for alternatives to the traditional DB and DC models of pension provision, in the form of “DA” arrangements.

The DWP consultation contains proposals for DA pensions including:

creating a new pensions regulatory framework that would allow for greater risk sharing between parties, which could include employers, members, and insurers and investment managers;
removing regulatory barriers to allow for a new flexible form of DB pensions that will enable employers to continue to offer pensions to members with a high level of certainty, but with much greater flexibility over the nature of benefits provided – these flexibilities will apply to future accruals only within existing DB schemes;
enabling the development of new forms of DC schemes that could provide more certainty for members about their pot or pension income while they are still saving, without adding to employer liabilities; and
enabling new models of collective DC schemes that could provide for risk sharing between members, increasing the stability of pension incomes.

Please see our Alert “The Government redefines its ambition” and the DWP’s press release for further information.

PPF & TPR publish latest Purple Book 2013

On Tuesday 5 November 2013 the PPF & TPR published the eighth and latest version of the Purple Book.

The Purple Book monitors risks faced by 6,150 mostly private sector schemes throughout the UK which represent about 11 million people.

The allocation trends tracked by the Purple Book include a move away from equities into bonds, hedge funds and cash and deposits. In equities themselves, there was an increase in overseas allocations and a fall in UK share. Within bonds, there was a fall in corporate bond allocation and a rise in Government bond allocation for the first time since 2008 when this breakdown became available.

The Purple Book also reported improvements in the economic environment since the end of March 2013, with gilt yields rising sharply and equity markets remaining broadly unchanged. This resulted in scheme funding improving to 93 per cent from 84 per cent in March 2013.

Other highlights include a slow-down in the year on year decline in the number of schemes still open to new members. The Purple Book shows a small fall to just under 14 per cent from just over 14 per cent last year, and 16 per cent in 2011. These schemes currently have more than 800,000 active members still accruing rights.

The percentage of schemes closed to new members fell from 57 per cent to 54 per cent by the percentage closed to future accruals increased from 26 per cent to 30 per cent.

New Pensions Regulator Chair to be recruited by DWP

The DWP will shortly commence recruitment for a new Chair of TPR.

Michael O’Higgins, TPR’s current Chair reaches the end of his term in December, but has agreed to stay on for a further three months to help with the transition. The search for Mr O’Higgins’ successor will start soon.

TPR publishes Trustee Knowhow newsletter

TPR has published a Trustee Knowhow newsletter which is designed to help trustees find out about important developments and understand how they might affect their duties.

In this edition TPR highlights pension liberation fraud, aiming to help trustees limit the impact of this risk, and to put them in a better position to protect their members.

The newsletter also looks at record keeping, auto-enrolment and forthcoming publications and developments.

TPR publishes research on DB annual funding statement 2013

TPR has published a research report on TPR’s DB Annual funding statement 2013 based on the findings from TPR’s quantitative survey. (For further information on the 2013 annual funding statement, please see our Alert.)

The target audiences of the survey were actuaries, trustees and employers of DB pension schemes undertaking their scheme valuations with effective dates in the period 22 September 2012 to 21 September 2013 (Tranche 8).

The main objective of the survey was to determine the extent to which the messages in the statement had reached the intended audiences and were understood. Other objectives included ascertaining perceptions of the statement and the extent to which schemes intended to apply the flexibilities in the funding framework and produce a valuation that was consistent with TPR’s expectations.