Archive for the ‘Final Salary’ Category
Spring cleaning for pensions
It’s that time of the year when the daffodils are beginning to break through and thoughts turn to a spring clean after the deep dark winter. And this is as true in the pensions world as anywhere else!
We have been reading an excellent publication from Squire Sanders entitled “Spring Clean Your Pension Scheme”. You can click through to the document here. It’s a really good catch all of the issues that an employer or Trustees should be looking at for their pension scheme. Some of the issues only apply to Defined Benefit schemes and others to Defined Contribution and Defined Benefit schemes.
Pension Input Periods
The piece on Pension Input Periods will affect anyone that pays into a registered pension scheme. We have been doing some work lately for owner managers amongst our clients and the issue of Pension Input Periods is one that needs some careful examination – especially for people that have earned over £130,000 over the last three tax years. Getting it wrong could result in a tax bill for the member.
We hope that you find the publication interesting and a useful prompt if you haven’t been getting advice on these subjects from your usual source. If you are a pension scheme Trustee reading this should count towards your Trustee Knowledge & Understanding programme.
Lord Hutton’s 27 Recommendations
It’s been another very busy day on planet pensions! As we mentioned last week the Independent Public Services Pensions Commission under Lord Hutton has issued it’s final report.
Professional Pensions have done an excellent summary of the 27 recommendations made by the Committee. You can click through to the article here.
In short Hutton has recommended a move to a Career Average Revalued Earnings Scheme for future service across the public sector. He is strongly of the opinion that promises made under the current structure should be protected. That means older longer serving employees will still get the promises they have been given if the government protects the past service element.
So the main impact will be felt by younger employees or those with little past service. Interestingly he has also recommended that future public servants should not be given access to Defined Benefit scheme so we probably have to look forward to some form of Defined Contribution arrangement for new joiners.
Like all these things the devil is in the detail. We’ll be reviewing the contents over the next few days and no doubt there’ll be further articles on the subject.
One thing is for sure that something has to change if the public service pension promises are to remain affordable for future generations. It is a brave government that has decided to grasp this particular nettle rather than, like their predecessors, bounce the problem down the line.
These reforms must also dovetail with the changes to the Basic State Pension to ensure a uniformity of approach. It’s going to be a busy time over the next few years.
As is always the case…….watch this space!
Hutton report on public sector pensions – final date set
The Treasury has confirmed Lord Hutton will publish the final report of the Independent Public Services Pensions Commission on Thursday 10 March.
The report will lay out Hutton’s recommendations to government on “sustainable and affordable” pension arrangements, the Treasury said.
There is some talk about the relaxation of the rules on pension promises when employees are transferred out of the public sector. This is known as the “Fair Deal” regulations. If the combined political aim of The Big Society and Public Sector Deficit Reduction are to stand any chance of success these regulations need to be reviewed.
Those in the private and third sectors are not in a position to fund final salary benefit promises for employees who are transferred to them. Without some relaxation there will be less interest from organisations that the government needs to run these services in the future.
If, as rumoured, trades union pressure has led to the postponement of an increase in member contributions this will be disappointing. There clearly is a need to address the sustainability of public sector pension promises. In the last week the CWU union brokered a deal at O2 where employees voted to increase their contributions from 6% to 10% of salary in order to keep a final salary scheme. If it’s possible in the private sector surely the public sector should follow suit.
It looks like it’ll be an interesting week next week. Watch this space!
Multi employer pension schemes – no storm in a tea cup!
In all of the latest gender related nonsense from Europe you’d have been forgiven for missing the latest tale of woe from the world of multi-employer pension schemes.
We’re grateful to Jennie Kreser of Silverman Sherliker for publishing an excellent article on the fate that has befallen the Wedgwood Museum – home of all that is great and good in the world of the eponymous pottery. Have a read of the article here – it’s well worth looking at. Jennie has a great style and brings complex issues to life in a clear and understandable way. You can subscribe to Jennie’s blog here.
We work with a number of employers in the Third Sector who are members of multi-employer pension schemes. Many of them will recognise this tale of woe. It is one that has befallen some charities who have found themselves having to close due to the imposition of huge (relative to their reserves) pension debts.
The Section 75 Debt regulations were primarily designed to avoid employers dumping pension liabilities by restructuring the business or group. The Law of Unintended Consequences means that not only are we seeing perfectly viable charitable organisations in danger of closing but also the possible loss of part of our national heritage.
The government are currently consulting on a change to these regulations but as far as we are aware no mention has been made of relaxing the regulations in situations like this. Clearly, something needs to be done.
Meanwhile, if you are in Staffordshire you may want to pop along to the museum before the shelves are bare!
A gender for change
You may remember that we wrote about the European legal case that was on the horizon that could have a massive impact on the pensions and financial services industry. Well today is the day and the European Court of Justice has published it’s decision. You can read the full press release here.
From December 2012 unisex rates must be used when looking at premiums and benefits. What does this mean?
Is it just Sheila’s Wheels?
If you have listened to the TV or radio or read the newspapers they are very much concentrating on the impact that same sex rates will have on car insurance rates. Here’s a good example from the BBC.
However, this judgement will go well beyond car insurance. It’s not just younger women drivers who will suffer the cost of the European unisex quest.
In fact the use of separate male and female rates stretches across the financial services industry.
Buying a Pension
One major impact will be in the rates that you can get when you come to use your pension pot to buy a pension at retirement. As women statistically live longer than men up until now for the same pot of money on the same basis at the same age a man will get more income. This was to reflect the fact that on average the man would be drawing his pension for less time.
From no later than December 2012 the rates will have to be the same. That’s going to create a bit of turmoil in the pension market over the next couple of years. It will also mean that those who are thinking about using their pension pot to buy a pension soon will need to get some advice regarding the timing of that decision.
From a pension scheme perspective the Financial Times have published an article commenting on the impact for company pension schemes that use annuities to provide income when a member retires.
One way or another if you are an employer with a pension scheme of any description you are going to have to sit down and look at the implications for your scheme. Even if you have a Stakeholder or Personal Pension Plan you may wish to alert members who may be considering taking benefits about this change.
Life Assurance, Income Protection & Critical Illness
These benefits – whether you take them out yourself or offer them through a company scheme – take into account gender differences. The different genders have statistically different claims histories and typical conditions. For life assurance for example it’s cheaper to insure a woman due to the longer life expectancy. In other words at nay age it’s less likely that a woman will die than a man of the same age if both are in good health.
We’re likely to see a change in the cost of these benefits as unisex rates start to be used. If you are looking at any personal cover it will be worth getting advice regarding whether it is wise to do this before December 2012 – particularly if you are a woman.
The Need for Advice
It’s clear that the impact of this judgement will be felt by far more than younger women drivers who may have to pay higher premiums. It will have a wide ranging impact for most individuals and their employers.
This will be a good test for how good your current adviser is. Firstly, to see how long they take to tell you about this and, secondly, how quickly they come up with a strategy for you!
Over time the financial services industry will work out how it intends to comply with the judgement. As we say all too often on this blog……watch this space!