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Minding the gap
A recent survey by Mercer of 265 defined benefit pension schemes confirms that the average scheme expects to close its deficit within 6.5 years, against the benchmark 10 year recovery period, set by the Pensions Regulator in 2005. This marks a dramatic reduction from the 8.5 year recovery period recorded by Mercer six months ago. Not only that, the median scheme has now built in an additional 10 months of post retirement life expectancy into their liabilities. However, this may not go far enough as recent longevity research undertaken by Prof David Blake, Director of the Pensions Institute at the Cass Business School, suggests that the average male retiring in 2050 aged 65 may well live for 6 years longer than currently expected.
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If the cap fits
This anticipated improvement in scheme finances will certainly be given a helping hand once the RPI cap applied to the annual revaluation of deferred defined benefit pension benefits is reduced from 5% to 2.5%. This provision within the Pensions Bill 2007, published on 5 December, will apply to all pension rights accrued from the date on which the bill receives royal accent.
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Pension Accounts move a step closer
The latest Pensions Bill also cleared the way for the introduction of Pensions Accounts, the new national pensions savings scheme, in 2012. In the absence of an employer offering a better alternative, employees earning between £5,000 and £33,500 will be automatically enrolled in the scheme. Employees will contribute 4% of their pay with the employer adding 3% and the state 1% through tax relief. It is thought that by 2050 the scheme, to be overseen by the Pensions Regulator, would have attracted up to 9m members and have £150bn of assets under management.
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Pensions rescue package unveiled
The government brought some much needed Christmas cheer to those 130,000 people who, having lost their pensions between 1997 and 2005 as a result of their employer going bust, qualified for assistance under the, government funded, Financial Assistance Scheme (FAS). Very much seen as the poor relation to the Pension Protection Fund (PPF), set up in 2005 and funded by the occupational pensions industry, the government has promised that FAS benefits will now be equivalent to PPF benefits. That is, claimants will be eligible to receive 90% of the value of their pension benefits, subject to a cap of £26,000 pa, payable from their scheme retirement age. Payments will also receive some index linking and be backdated to 2004, as appropriate. In addition, 11,000 members of the failed pension schemes of solvent sponsors, who were ineligible for the FAS, will also benefit.
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Myners principles likely to remain voluntary
The National Association of Pension Funds (NAPF) believes that whilst trustees are by and large abiding by the 10 voluntary principles articulated in Paul Myners' 2001 report into institutional investment, they should be replaced by six higher level principles and overseen by the Pensions Regulator rather than the Treasury.
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PPF levy net widens
Schemes that are as much as 140% funded will be required to contribute to the PPF levy in 2008/09 and only schemes that are at least 120% funded will benefit from a reduced levy. While the levy is currently based on a scheme’s funding position and the strength of the sponsor’s covenant, it is likely that the scheme’s investment strategy will shortly be taken into consideration.
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Buyouts online
Meanwhile, innovation continues to abound in the buyout market. Paternoster secured the transfer of oil exploration company, Lasmo’s £150m defined benefit pension scheme in the UK’s largest online buyout auction. The auction, overseen by Mercer, saw some of the largest buyout firms compete on price to seal the deal.
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Pensions Corporation acquires Telent
The Pensions Corporation has succeeded in its acquisition of Telent, the telecoms equipment manufacturer, but has been asked by Unite, the union that represents Telent’s 2,000 employees, for firm assurances on the funding and management of the scheme assets and job security.
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Green thinking
FairPensions, the responsible investment campaigns group, found that half of the UK’s 20 largest pension schemes, with assets totalling nearly £300bn, do not have a formal policy on environmental, social and governance (ESG) issues. Meanwhile, research currently being undertaken by Cardiff University, working in conjunction with the Association of Chartered Certified Accountants (ACCA), into how trustees’ perceive and approach ESG issues, is to be circulated to policymakers and the media alike in an effort to promote ESG factors within pension provision.
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And finally…
…the Pensions Watch team would like to thank all of our readers for their comments and observations throughout the year. We wish you all a very Merry Christmas and a Happy, Healthy and Prosperous New Year and look forward to bringing you more of the latest on pensions in 2008.
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