News

50% MNTs looking increasingly likely

James Purnell, Secretary of State for Work and Pensions, has reaffirmed the government’s commitment to increasing the percentage of member nominated trustees comprising a trustee board, from one third to 50%. However, before taking the requisite steps Mr Purnell has commissioned research into its likely impact on the premise that “given the ever greater demands on trustees, [there is a] need to ensure that [MNTs] have the greater understanding, expertise and technical competence necessary to fulfil their role.” Suffice to say, the decision to implement this change would be swift as the necessary provision is already written into the Pensions Act 2004.

Solid as a rock?

Despite Northern Rock’s retail depositors benefiting from a cast iron government guarantee, trustees for Northern Rock’s retirement benefit scheme have yet to receive any additional funding to plug the scheme’s rumoured £100m deficit and weakened covenant. In all likelihood, the Pensions Regulator, which has the power to assess a scheme’s level of funding and set contribution rates, will intervene.

Yet another trustee code

The venerable Chartered Financial Analyst (CFA) Institute – the USbased global association for investment professionals - has produced a new trustee code, comprising 10 high level principles-based responsibilities, to promote ethical behaviour and high standards of corporate governance amongst trustees around the world.

LGPS benefits to be diluted? According to research conducted by Mercer, 75% of local government pension scheme managers and finance officers predict that the final salary Local Government Pension Scheme (LGPS), in which thousands of different employers participate, will be replaced by a career average earnings scheme by 2012. 7% believed that a defined contribution scheme could be in the offing.

Pension deficits covered

Meanwhile, KPMG has found that nearly three quarters of FTSE 100 companies could cover their IAS 19 scheme deficits in a single year with discretionary cash flow whilst two thirds are collectively paying £20m more than is needed to plug their deficits within the Pension Regulator’s 10 year timeframe.

Don’t panic?

The Bank of England Monetary Policy Committee is tasked with keeping consumer price inflation within defined limits. However, against the backdrop of rising prices, the Bank of England’s pension scheme has sold all of its equities, property and immature private equity holdings and put all of the proceeds into, yes, you guessed it, index linked gilts.

Think of a number

Each year, Lane, Clark and Peacock reports the funding position of FTSE 100 company sponsored defined benefit schemes and, where possible, discloses the discount rate used to value the scheme’s liabilities. Despite the IAS 19 accounting rules demanding that high quality or AA rated corporate bond yields being employed for this purpose, the rates employed by sponsoring companies vary quite considerably. Add to this widely varying longevity, inflation and wage growth assumptions built into scheme liabilities and the result is a somewhat spurious collection of numbers. For these reasons, Prof David Blake, of the Pensions Institute at the Cass Business School, has suggested that sponsoring companies, rather than report a single number in their accounts, instead report parameters around the best estimate of a scheme funding position to reflect the inherent uncertainty and subjectivity that surrounds this number.

And finally…

Recently when asked why, at the age of 77, he was still beavering away enthusiastically as chairman of the Pension Corporation, Sir Mark Weinberg, an expert on longevity, replied “…if you retire you die soon afterwards.” Whilst this may be true for a 77 year old about to retire, the ONS longevity statistics tell us that the average 65 year old man can expect to live another 17 years and 65 year old woman, 19.8 years.

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