Archive for the ‘Final Salary’ Category
Budget Bad News for Final Salary Employers
In our recent article we wrote about the impending extra National Insurance costs that faces employers with final salary pension schemes.
This is going to disproportionately affect those employers who participate in public sector pension schemes – not all of whom are public bodies.
In his Budget yesterday George Osborne announced that these employers will start to pay more from 2016. This is a year earlier than we had anticipated. Osborne called it a ‘progressive pension reform’ although for many beleaguered employers in public sector schemes this will be a moot point.
At a time of massive cuts those employers who find themselves participating in public sector schemes as a result of outsourced arrangements may find this another bitter pill to swallow on top of funding and deficit rate increases.
Steve Clark
Local Govt Pensions–give a little and take a lot?
The recent change to the state pension scheme could be bad news for employees and most employers who participate in the Local Government Pension Scheme,
Here’s the rub. The explanation is going to get a wee bit complicated – but I guess that this being an article on pensions it goes with the territory.
What’s the problem?
Sometime before 2017 contracting out of the State Second Pension will stop. No one is exactly sure when but that is par for the course with some of these changes.
When this happens it means that employees who are members o
f pension schemes like the Local Government Pension Scheme will pay more National Insurance.In today’s money that extra will work out at 1.4% of their earnings between £5,564 and £40,040. In return for paying more the employee will get their service counted towards the new single-tier pension of £144 per week that was announced recently.
Do higher contributions mean higher benefits?
As you might imagine nothing is ever straightforward on planet pensions. In pension terms we are kind of looking at an apple and a pear.
However, fear not; our friends at the Department for Work & Pensions seem to think that employees will benefit. Their white paper claims that around 90% of all contracted-out employees will be better off in value terms.
We can probably safely assume that the 10% that don’t benefit are the higher earners.
The straw and the camel
Clearly, there’s a danger that this could be the last straw for some employees when these higher outgoings come at a time of increased household bills and zero pay rises.
Members have already been asked to pay more towards the Local Government Pension Scheme in recent years. Higher earners will pay more for their benefits from next year. Some members are already considering opting out to boost their take home pay in tough times.
So I’m not entirely convinced that the DWP are right when they say that employees will benefit from these changes. What about those that can no longer afford to be a member and opt out or those who will opt to join the less generous 50/50 Scheme (as and when it appears).
What about Employers?
It’s worse news for Employers I’m afraid. Employers will end up paying 3.4% more in National Insurance.
In the Local Government Pension Scheme the Employers are unlikely to be able to pass this extra cost on to members. So it must be passed down to council tax payers (if the Employer is a Local Authority) or met from further efficiencies .
But what about those Employers that are Admitted Bodies to the Local Government Pension Scheme? Where can they find the extra cost?
Many Admitted Bodies are signed up to long term contracts that were negotiated without an allowance for this extra charge. Traditionally, membership of the Local Government Pension Scheme is high amongst employees of these Admitted Bodies. So this is going to hit them hard.
Could we see some outsourced contracts being in jeopardy? If not, then some form of cost cutting and possible redundancies would seem likely.
Is there some stability on the horizon?
Probably not. Having been in the industry for over 25 years I can’t recall a period where there has been anything other than constant change. One thing is clear though all Employers – and especially those Admitted Bodies in the Local Government Pension Scheme – need to keep an eye on the horizon to make sure they know what’s on the horizon. As I’ve said more than once on this blog over the last two and a half years – watch this space.
Steve Clark
New RPI and it’s impact on pension schemes
This article is only really of interest to any employers or Trustees that are involved in a final salary type pension scheme.
Those all round good people at Wragge & Co have published a short paper that outlines some of the issues that you should be considering if your Scheme provides indexation.
You can read the paper by clicking here.
As always if you need any help, or have any questions, after you have read this contact your usual 44 Financial consultant.
Steve Clark
Charities – the ticking pension time bomb
Much has been written about the ticking time bomb faced by charities that participate in multi-employer pension schemes. These multi-employer schemes are a minefield for the uninitiated.
If you’re a member of one of these and you:
· Find yourself with no active or eligible members; or,
· Become insolvent; or’,
· Undertake a merger or other restructure
you could find that your Trustees are on the hook for liabilities way in excess of the reserves and funds that you have.
Take the recent example of The Wedgwood Museum that faces having to literally sell off the family silver to pay a pension debt much of which was nothing to do with it. It’s “crime” was to find itself as the “last man standing” when the Wedgwood group of companies got into financial trouble.
Following this high profile case (which you can read more about by clicking here) the Third Sector and pension industry have been lobbying government. Their case was that the legislation that caused this was meant to stop limited companies from walking away from their pension liabilities following a group restructure. It was, therefore, unfair to impose this fully on charities that were not seeking to walk away from their liabilities.
Conservative peer Lord Flight raised the issue in the House of Lords yesterday, calling for the legislation to be amended to avoid museums and charities being forced to sell their assets.
On behalf of the government, Baroness Rawlings said it had reviewed the Wedgwood case carefully and believed that it would be inappropriate not to apply this rule to charities.
So there seems to be no real will to exclude the Third Sector from the unintended consequence of the legislation. This is potentially bad news. With the drive to outsource public sector services to the Third Sector more and more charities are being asked to consider taking on employer membership of multi-employer schemes such as those within the Local Government Pension Scheme.
If you are a Trustee of a charity that is tendering for this type of contract, or if you’re already in one of these scheme, be very very careful. Take professional advice and enter into any agreement with your eyes wide open.
Steve Clark
Steve Clark has provided front line advice to a number of high profile charities on their pension strategy. Currently, 44 Financial Ltd advise a number of not for profit clients on the business risks associated with outsourcing and pension and benefit liabilities. You can email Steve by clicking here.
Pensions in 2012–A Summary
Well 2012 has got off to a great start here at 44 Financial. We’re working with a number of individual clients on their retirement options as well as three different new corporate tenders. What a fantastic start to the Olympic year!
Conscious as ever that there is so much going on in the pensions world we always try to look out for great articles and documents that will help our clients and blog subscribers to keep up to date. Sometimes its just enough to know what’s going on at a general level so you can decide how much you need to delve into the detail.
To that end we are grateful to those legal types at SNR Denton for their Pensions 2012 article. You can click through to the article here.
As a list to know what you should be keeping an eye on it’s great. There’s brief sections on Auto-enrolment, the abolition of contracting out, gender pricing of annuities.
We hope that you find this useful. As ever if you would like to look at the implications of any of this for your own arrangements please contact us. You can click here to complete our enquiry form.
We’d love to hear from you.
Steve Clark