UK: Pension Trustee Bulletin: A Briefing For Occupational Pension Scheme Trustees And Their Advisers - Autumn 2012

Last Updated: 27 September 2012
Article by Bob Brassington

NAPF annual conference and exhibition 2012 – 17-19 October 2012, ACC Liverpool

With schemes and employers looking at ways to minimise costs for pension provision, the two key themes for our stand at this year's National Association of Pension Funds (NAPF) annual conference centre around:

  • how we can help trustees save costs on scheme administration, actuarial and other services
  • how to make scheme audits more effective and efficient.

The conference is one of the most important annual events for anyone involved in pensions, typically attracting 1,000 top industry professionals. From trustees, pension managers and finance directors who control assets worth billions of pounds, to HR specialists responsible for workforces of thousands of people, the delegates are made up of the most important pension decision makers in the country.

The conference includes keynote speeches, streamed focus sessions, fringe meetings, a trustee learning zone, welcome drinks reception, conference gala dinner and exhibition.

All visitors to the Smith & Williamson stand will be entered into a prize draw. We look forward to seeing you there.

Financial Support Direction – Pensions Regulator statement to insolvency sector

The Pensions Regulator (the Regulator) recently published a statement on financial support directions and insolvency to help banking, insolvency and restructuring professionals to understand the Regulator's approach to its Financial Support Direction (FSD) power in insolvency situations.

In 2010, the High Court ruled that FSD liabilities rank as an expense in an administration. This was upheld by the Court of Appeal last year. Concerns were expressed that the judgment could frustrate the administration process and make banks more reluctant to lend if their debt did not have priority over an FSD in insolvency.

There are substantial reasons why, in practice, fears about the potential impact of the Nortel-Lehman judgment upon the 'rescue culture' are unlikely to be realised. The Regulator has highlighted these issues before but is happy to be able to respond to industry requests for further reassurance with a published statement.

Stephen Soper, executive director for defined benefit regulation, said: "We fully recognise the importance of an effective restructuring and rescue culture, and do not intend to frustrate its proper workings, nor those of the lending market. We've met with many of the key players in the sector to explain our approach and we hope that today's statement provides further reassurance."

Incentive exercises: update

The Pensions Regulator has reviewed its guidance on incentive exercises and replaced it with a short, principles-based statement on incentive exercises following publication last month of an industry code on this area.

The guidance in the industry code as to how employers should properly conduct incentive exercises, if they choose to do so, is aligned with the Regulator's principles.

Therefore, the Regulator has abbreviated its guidance to avoid any confusion arising from two standards – focusing on the overarching principles published in its December 2010 guidance.

The Regulator's guidance also addresses the role of trustees, which is not covered in detail in the industry code. It remains the Regulator's view that trustees should approach such exercises with caution and presume that they will not be in most members' interests. This will involve taking advice, where necessary, and acting in accordance with their legal obligations to scheme members.

The Regulator's chief executive, Bill Galvin, said: "The Regulator welcomes the industry's bid to drive up standards. This is important because any transfer out of a defined benefit scheme poses a significant risk to members who may not be equipped to make an informed decision, and such offers won't be in most members' best interests.

For those employers that decide to undertake such an exercise, the industry code sets out the good practice principles that should be applied. If conflicts are appropriately managed, trustees are engaged throughout the exercises, and the principles in the industry code are followed, then exercises should fulfil and be consistent with our principles."

Damaging pension plans being rushed through by Europe

The European Commission (EC) is rushing through harmful plans that could saddle UK pension funds with at least an extra £300bn in costs, and its impact assessment for these 'Solvency II-type rules' proposals is flawed, pension experts warned recently.

NAPF said the UK was not being given enough time to consider the EC's proposed approach to estimating the impact of a Solvency II-type regime for final salary pensions. It also criticised the omission of key questions from the study, and the unexpected introduction of complicated new issues.

Darren Philp, NAPF policy director, said: "It is astonishing that the industry has been given only six weeks to assess very complex and technical issues, which will help determine the future of pension provision in the UK.

Solvency II-type proposals could have extremely damaging consequences for our pensions and the wider economy. They would hit businesses running final salary pensions, and would also take jobs and investment out of the UK's faltering economy.

Crucially, the consultation does not answer the key question of how the Holistic Balance Sheet will be used in practice. Will it form a new funding regime, or will it simply be a disclosure item for trustees?

The consultation also throws up completely new concepts, such as the question of how to value pension protection schemes and employer support for a pension scheme. These issues deserve their own round of Quantitative Impact Study."

The NAPF has calculated that Solvency II-type rules could cost UK pension funds at least an extra £300bn as they would be forced to dramatically increase the capital in the fund. Faced with extra funding demands, many companies would have no choice other than to close their final salary pension schemes.

Automatic enrolment: don't leave it too late

Employers have been urged to step up their preparations for automatic enrolment as evidence emerges that businesses are underestimating the time it will take to get ready.

Rising levels of awareness and understanding of the reforms are reported in research published in July, as the UK's largest employers approach their automatic enrolment staging date.

98% of large businesses – with staging dates between October 2012 and February 2014 – remain confident that they will be ready on time, and 82% have taken steps to prepare.

But 28% of large private sector employers believe automatic enrolment preparations will take less than three months.

Executive director for employer compliance at the Pensions Regulator, Charles Counsell, said: "Based on what we've seen so far, we estimate that it will take the average large business about 18 months to plan and get ready, including making the necessary adjustments to processes and systems like payroll, HR and pensions. Leaving it as late as possible runs the risk of making preparations more costly and complex."

Smith & Williamson's financial services team are working with our clients to ensure that they are ready to meet the challenges of auto-enrolment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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