News

Never knowingly underfunded
Perhaps Christine Farnish’s 2005 prediction, whilst chief executive of the NAPF, that all private sector pension schemes would be closed five years hence, was over exaggerated after all. Department store, John Lewis, on the back of record profits, has opened its £1.7bn non-contributory defined benefit scheme to all staff once 3 years service has been completed and funded this promise with an extra £9m of annual contributions. Speaking of which…

You’re not alone
According to Aon Consulting, a significant majority of Trustees from the UK’s largest 250 defined benefit schemes said they have experienced a considerable increase in their workload, whilst a notable minority believe the role is now unmanageable. Despite this, 80% said they would recommend becoming a trustee to others. No doubt existing and aspiring Trustees must be relieved to hear that…

Budget disappoints
Alistair Darling’s first Budget as Chancellor failed to allow sponsoring employers who significantly increase their pension scheme contributions, to improve scheme funding, to receive tax relief immediately rather than having to wait for two or three financial years for what is rightfully theirs. Meanwhile…

Jargon busters
The aura of mystique that surrounds the pensions industry is about to be broken if Malcolm McLean of The Pensions Advisory Service (TPAS) and the Pensions Regulator have their way in reducing the amount of jargon used throughout the industry.
Regular visitors to www.TrusteeTutor.com will know that the site offers a comprehensive and free-to-access jargon busting guide to pension and investment terms. And finally…

PPF levy puts LDI in the spotlight
The Pension Protection Fund (PPF) levy, which is assessed for all UK occupational defined benefit pension schemes on the basis of the size of the scheme deficit and the strength of the sponsor’s covenant, may soon also take account of the riskiness of the scheme’s investment strategy.
From 2009/10, it is proposed that schemes with a high risk appetite, typically those with significant equity weighting that fail to immunise themselves against adverse movements in interest rates and inflation, will pay more than those who adopt a low risk approach. With around 50% of the PPF’s exposure to schemes being attributable to volatility in the bond and equity markets, as a result of the mismatch between scheme assets and liabilities, this makes perfect sense. Indeed, recent research conducted by KPMG, into 95 large schemes with assets totalling £190bn, suggests that de-risking within UK schemes is minimal, with 39% of the schemes surveyed only hedging up to 10% of this mismatch.
Fortunately, the government looks set to issue £80bn of gilts this year, significantly up on last year’s £58.5bn. Hopefully, a significant proportion of these will be index linked (the matching asset of choice for many schemes).

No strings attached
Following hard on the heels of the recent foray by hedge funds investing in physical, rather than financial, assets, a London based investment bank is about to launch a vintage guitar hedge fund. The fund, to be run by a guitar maker and a former professional footballer, has an advisory board comprising a former Bruce Springsteen backing singer, a former private equity partner and several guitar experts. According to the management team, “The main difference between guitars and wine or art or other exotic investments is that not only can you buy it as an investment, you can play it.” And yes, before you ask, investors will be able to borrow that 1954 Gibson Les Paul Custom they’ve always wanted, from the fund.
Incidentally, for the record, whilst the Stanley Gibbons Stamp Fund never received investors’ seal of approval, the Violin Fund (please see Pensions Watch June 2007) is in the process of collecting the $25m pledged to date (just in case they “bow” out).

I’m a corporate sponsor, get me out of here!
With so much stacked up against corporate sponsors, is it any wonder that Towers Perrin recently found that nearly two thirds of sponsoring employers would consider the buyout route if the price was right and all the key stakeholders were on board.
To tap into this potential demand, more than 15 firms now operate in, what is proving to be, an increasingly competitive UK pensions buyout market, to secure the full or partial buyout of defined benefit schemes. According to Aon Consulting, whilst the market grew significantly in 2007, most of this growth was attributable to the buyout of high profile schemes such as P&O and Lasmo at the tail end of the year, with Paternoster and Legal & General dominating the market, each writing more than £1bn of business. However, if the buyout of the £700m Rank Group pension scheme in March – the UK’s largest to date – by new entrant Rothesay Life, the buyout arm of Goldman Sachs, is anything to go by, 2008 may well be the year of the buyout.
Meanwhile in the world of defined contribution schemes…

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In DC we trust
Despite the number of established occupational trust-based defined contribution schemes winding up, and in many cases adopting a contract-based group personal pensions (GPPs) solution, far exceeding the number of new trust-based schemes opening, the trust-based sector appears to be alive and well. Indeed, while most of those schemes wound up had five or fewer members, the trust-based model is still the scheme of choice for large employers. That  said…