I cannot believe another year has come and gone and that it is 2010 already.  May I take this opportunity to wish you and yours a healthy and happy new year.

The Secretariat Alternate Trustees

The last quarter of 2009 saw the appointment of a new Alternate Trustee Director.  The Association has appointed Captain Robert Baker, Chief Harbour Master of Forth Ports plc.

Benefit Statements 2009

We are currently in the process of obtaining and confirming year end earnings for active members and should be in a position to send out benefit statements by the end of February.

2010 Pension Increases and Calendars

Just before Christmas all pensioners and widows were sent letters confirming the percentage increase they would be receiving from 1 January 2010, as well as a calendar for the year.  If you have not received yours please let us know at the Secretariat and we will put another in the post.

Pensions Payroll

Although it should not affect pensions in payment, just to let you know, we are doing a parallel run during the January payroll as we are changing our BACs provider and bringing the BACs transmission in-house.  The parallel run should highlight any teething problems so we should be fine when flying solo in February.

Overseas Pensions Payments

The Bank of Scotland has decided to terminate its overseas payment facility (probably due to cost cuts) from 1 January 2010.  So we had to look around for another provider that would not cost an arm and a leg.  No mean feat with so few overseas payments.  The good news is Loretta has found one, the bad news is they could not take us on until March.  This means we are paying January and February by cheque, unless requested to pay into a U.K. bank account.  Apologies for any inconvenience this may cause.

Expression of Wish Forms

Just a brief reminder that active members whose personal circumstances may have changed should review the contents of their Expression of Wish form as they may wish to make a new one.  If so, please let the Secretariat know and a new form will be sent to you for completion.

Pensions 2010

So what can we look forward to in 2010 for pensions on a legal and regulatory front?

Personal Accounts

2010 will be a year of law-making in respect of personal accounts.  Areas likely to be covered are employers’ duties and automatic enrolment, the establishment of a personal accounts scheme as well as a scheme administrator.

State Pensions

There will be changes to the State pension system, in particular, the number of ‘qualifying years’, ie number of years the full National Insurance contribution was paid, required to obtain a full Basic State Pension will drop from 44 years for men, 39 years for women to 30 years for both sexes.

Minimum Pension Age

From 6 April 2010 the earliest age from which a member of a pension scheme may take a pension (other than on ill health grounds), without higher tax charges applying, will rise from age 50 to 55.

Default Retirement Age

The government has announced that 2010 will see a review of the ‘default retirement age’ of 65.  It is expected that this age will either be raised or abolished.

Pre Budget Pledges

Public Sector Pensions

The full liability in respect of the unfunded public sector pensions will be calculated and disclosed for the first time in the 2009/10 ‘Whole Government Accounts’.  These schemes will have employer contributions capped to limit the liability to us, the taxpayers, and high earners are expected to pay more.  In theory, these reforms will save £1bn. a year.

The State Pension

The state pension will rise by 2.5% in April compared to a September Retail Price Index inflation of -1.4%.  Do you think the Government is trying to buy the ‘grey’ voters?

Tax Relief

Individuals who earn more that £130,000 and pay pension contributions of more than £20,000 pa will now be caught by the restrictions on pension tax relief.

In Brief

Equitable Life

Equitable Life will reverse last year’s cuts in policy values and award with-profit holders a 3.5% interim bonus due to improvement in investment returns during the second half of 2009.

Centenarians

The number of people over the age of 100 is set to almost double from 12,000 to 20,000 over the next ten years.  By 2050 the number could soar to 280,000 when the total number of pensioners will be around 16 million compared to 12 million today.

Branding

The Personal Accounts Delivery Authority has renamed personal accounts, following nine months of research.  They will now be known as the National Employment Savings Trust (NEST).  Let us hope these live up to their new name.

Debbie Marten

The Secretariat

Annual Accounts 2009

We finally managed to get the Trustee’s Annual Report & Accounts for 2009 out to members around the middle of August.  If you have not received a copy, but would like one please let either Loretta or me know.

Additional Voluntary Contributions

Loretta has sent out the additional voluntary contributions renewal to those few members still contributing to the A.V.C.s scheme.  The next step is the annual A.V.C.s benefit statement which we are currently awaiting receipt from Equitable Life and Aviva (aka Norwich Union).

Summary Funding Statement

All of you should have received a copy of the annual funding statement sent out in September.  This has resulted in numerous telephone calls to the Secretariat and pilot trustees from worried members.  I realise that it made less than palatable reading but it contained information that we are required to tell you by statute.  One pensioner even told me it looked like an obituary notice, for which I apologise but my colour copier went on the blink halfway through printing them and I could only use the black print setting as I was up against a deadline.

Change of Address

We have had several instances of returned correspondence and would like to remind members that we are not psychic and if you are changing address please write and tell us your new address.

Early Access to Pensions Lump Sum

In Setting pensions free, the LibDem MP, Steve Webb, presents an argument for extending early access to pensions savings.  He would like members to have the option to take the tax free cash sum early, to clear mortgage arrears, put down a deposit on a house or for a large capital purchase.  This more flexible approach could provide a significant boost to the economy and may even increase the total amount saved.

Expat Pensioners and Widows

If an appeal to the European Court for Human Rights succeeds over 500,000 expatriate pensioners and widows could see their state pension double.  At present expats living in countries where the U.K. does not have a reciprocal social security agreements, such as Australia, South Africa, Hong Kong and Canada have had their state pension frozen.

If the appeal to the Grand Chamber is successful, those affected pensioners could see their weekly rate double to £82.05 a week depending on their level of national insurance contribution.  A decision on the appeal should be made by March 2010.

The countries that the U.K. has social security agreements with are: Barbados, Bermuda, Bosnia-Herzegovina, Croatia, Israel, Jamaica, Jersey and Guernsey, Mauritius, Montenegro, Philippines, Serbia, Turkey, USA (whew!) and the former Yugoslav Republic of Macedonia.

News in a Nutshell

Total PPF Levy fixed for 2010/11

The Pension Protection Fund (PPF) has announced that the total levy for 2010/11 will be £700m, increased in line with wages inflation.

Consultation on Future of MPs’ Pensions

The Senior Salaries Review Board has published a consultation paper on MPs’ pension as a first step to reducing costs.

Pension Deficits at all-time High

The FTSE 100 companies with defined benefit (final salary) pension schemes had a combined deficit of £96bn at mid-July 2009.

Chadwick’s Interim Report

Sir John Chadwick has issued an interim report indicating a more flexible approach will be taken to determine the relative losses of Equitable Life’s policyholders.  They will no longer need to demonstrate that they relied on flawed government information.

Ombudsman Overcomes Case Backlog

The Pensions Ombudsman has managed to reduce his backlog of cases in 2008/09 by around 90% according to his report and accounts for 2008/09.

TPAS copes with Maladministration

In 2008/09 The Pensions Advisory Service (TPAS) saw a rise in the number of complaints of about 10%.  The main reason for the increase was a 59% rise in complaints about maladministration.

Regulators New Statement on Economy

The Pensions Regulator (tPR) has issued a third statement setting out its position on the current economic volatility.  TPR indicates that it will view favourably flexible approaches in setting recovery plans to reduce deficits.

A Costly Affair

I had to include this item as it appeals to my sense of humour.

According to an extramarital dating website cheating husbands and wives spend massively more on their love affairs that they do on the pensions.  According to the website cheaters spend on average £3500 a year or £291 a month on maintaining the affair, including hotels, phone calls and flowers which is five times more than the average £59 a month spent on pensions (source: Halifax 2009).

It is amazing the articles you can discover in turgid pensions magazines.

Debbie Marten

debbie@pnpf.co.uk

Retirements

May 2009 to July 2009

D. Barnicoat Falmouth

June

G. H. R. Duff Yarmouth

May

S. D. Wood Liverpool

June

Pensioner Deaths

May 2009 to July 2009

L. E. Fane Ipswich

F. I. Forsaith Shoreham

J. J. Frankish London South

J. Hamilton Clyde

T. D. Hettle London T.H.

R. D. McGlashan Forth

E. T. Milford S. E. Wales

A. J. Moore Harwich

P. A. Roberts Dover

J. S. Robertson Clyde

W. G. Wilcox Liverpool

E. F. Williams S. E. Wales

The Secretariat

Things have been relatively quiet in the Secretariat over the last quarter, well as quiet as possible under the circumstances, so there is not much to report.

Annual Report & Accounts 2008

I must apologise to members about the delay in getting the 2008 Trustee Annual Report and Accounts out to you, but a change in the audit team meant a new approach was adopted and PKF refused to sign off the accounts until the last t was crossed and i dotted.  You will have them by the end of summer – I promise.

Ill-Health Rule

The trustees have agreed to expand the ill-health rule to allow them the discretion to reduce an ill-health pension (currently they can only suspend ill-health pensions).

I am hopeful that this will be the last change for the rest of the year and that I will be able to send the Rules off to be reprinted in the not too distant future.

Budget 2009

This year’s budget on 22 April 2009 introduced a range of measures, some of which take effect from 2010-11 and others from 2011-12.  Fiscal tightening was expected, but major changes to the pension’s tax regime for higher earners were never anticipated.

The vast majority of pension scheme members will not be affected by the new provisions, the government believes only 1.5% of pension savers will be.  However, for members earning more than £150,000 pa its impact could be both immediate and in the longer term serious.

The Budget announced that from 6 April 2011 tax relief on pension contributions would be restricted for members with an income of at least £150,000.  When the new regime is in operation, members affected will be entitled to retain no more than basic-rate tax relief (20%) on pension savings.  Some tapering is expected with the restriction in basic rate tax relief applying in full to individuals with income of £180,000, or over.

Transitional anti-avoidance provisions, effective 22 April 2009 to prevent “front-loading” of benefit accrual to obtain the full tax relief at 40% in advance of the 2011/12 changes were also announced.

These restrictions apply not only to money purchase arrangements, but to final salary arrangements as well.

It is a move designed to boost Treasury revenues, but has triggered fears that it could be a precursor to further reductions in pensions tax relief.

Although the changes will only affect a small number of people they are most likely to be senior managers who influence the employer’s pension policy.

default Retirement Age

The government’s review of the default retirement age, which allows employers to force workers to retire at age 65, has been brought forward from 2011 to next year, in response to “changing demographic and economic circumstances”.  There has been mixed response to this action as the Confederation of British Industry (CBI) believes that a default retirement age assists staff in determining when it is right to retire and allows firms to plan ahead with more confidence.  Whereas the TUC welcomed the early review but said that employers should not force workers into working longer by inadequate pension provision.

Trivial Commutation

Finally, under much delayed regulations pension pots up to the value of £2000 can now be taken as a lump sum at retirement, regardless of the member’s other pension provision.  Previously members who had overall pension pots amounting to £17,500 were forced to find an accumulative annuity.  These provisions will not apply to personal or stakeholder pensions.

Debbie Marten

debbie@pnpf.co.uk

Retirements

February 2009 to April 2009

G. Turner Tees

March

Pensioner Deaths

February 2009 to April 2009

J. P. Baines Manchester

W. V. Fry Manchester

J. H. Law Manchester

C. A. Rhodes Medway

K. N. Taylor Liverpool

PNPF COURT CASE

PNPF court case

This topic was the subject of a special debate at the Interim Delegates Conference in May. Chairman of the Trustees, Richard Williamson (Boston), referred delegates to the report contained within the conference pack (available to members on request) but explained that due to the litigation process he had been unable to include specific details. The Court hearing has been set for 18^th January 2010 and a “deliberation” will be made within three months of the hearing. Richard explained that the hearing and subsequent deliberation would not conclude the issues but would represent the beginning of what was sure to be a long process in determining liabilities for the fund deficit. Because of the complexities of the hearing, a sub committee had been set up to trawl through the vast amount of documentation going back as far as the 1970’s when the new Pilotage Act was first mentioned. In a highly unusual, but welcome development, all available documentation has been placed  on the solicitors’ (Lovells) website to which all members have access upon application.

Due to these court proceedings it had not been possible to complete the Triennial Valuation and consequently the PNPF had met with the regulator to explain the situation. The outcome of the meeting was that the regulator was satisfied that the legal action was necessary and in the interests of both members and pensioners.

Following the presentation Joe Wilson announced that Richard was now standing down from Chairman of the PNPF Trustees to become Vice Chairman and paid tribute to the phenomenal amount of time and effort that Richard had put in on behalf of fund members and pensioners during his time as Chairman, especially bearing in mind that the Trustees were about the only part of the court proceedings not receiving any remuneration!

JCB

The Secretariat

February saw the end of Richard Williamson’s three year term as Chairman of the P.N.P.F. and I am sure he could not hand over the reins fast enough as it certainly had not been the easiest three years for the Fund.  Mrs. Heather McGuire took over as Chairman of the P.N.P.F. on 12 February and Richard Williamson is now the Deputy Chairman.

Benefit Statements 2008

We have delayed issuing the annual benefit statements to the active members of the Fund until we have all the 2008 pensionable earnings information confirmed.  At the time of writing this article there are still two districts outstanding but we hope to be sending them out this month.

Tax Code Changes

Some of you will have received notification of your 2009/10 tax code changes recently.  No matter what the notification says there is no need to ring the Secretariat to update us as we download the information direct from HMR&C’s website.  If you have a query on the calculation of your tax code the HMR&C telephone number to ring is 0845 300 0627, quoting reference 951 PI 74.

Deferred Pensions

From 6 April 2009 there will be a reduction in the rate of required revaluation of the deferred pensions of members who leave the scheme before reaching their normal retirement date.  The maximum inflation protection (LPI) for deferred pensions will be reduced from 5% to 2.5%.  This only applies to the portion of the deferred pension attributable to pensionable service accrued after 6 April 2009.

A.V.C.s Benefit Statements

The annual statements in respect of your A.V.C.s investments have been sent out to all members who have investments with either, Equitable Life, Clerical Medical or Norwich Union.  If youany queries Loretta is more than happy to deal with them.

Trustee Annual Report & Accounts 2008

As I write the 2008 annual accounts are being audited by PKF.  We hope that the final version will be signed off at the Trustees’ quarterly meeting in May and a printed copy sent out to all active members and pensioners during the month of June.

Equitable Life

In response to the publication of the Parliamentary Ombudsman’s report on the regulatory failure in respect of Equitable Life the Chief Secretary to the Treasury agreed that there had been maladministration in areas and that an ex gratia payment would be made to those who had suffered “disproportionally”.  A former Appeal Court judge is to advise the government on the payouts.  Unfortunately all celebrations are put on hold as the payment of compensation looks set to be delayed, possibly for years, as the process of getting data and assessing relative losses will be very slow, cumbersome and complex.  The resulting compensation payment may be miniscule.

The Public Sector GMP Error

In December 2008 the House of Commons were advised of an error in the payment of some public sector pension entitlements.  It appears that since 1978 inaccurate data resulted in higher annual pension increases being paid than should have been.   The five public sector schemes affected are the NHS, Teachers, Armed Forces, Judicial and Civil Service pension schemes.  An estimated 95,000 people are affected across the five schemes or 5% of the total number of pensioners within those schemes.  The overpayment is estimated at £126m.  The government has been advised that there is not a cost-effective method for recovering these monies, but correct pension payments will be effected from April 2009.  If this had happened in the private sector legislation requires scheme administrators to pursue any overpayment of more than £250 or face a minimum 40% unauthorised surcharge levied by HM Revenue & Customs on the member.

“Pension Apartheid”

The media coverage of the overpayment of public sector pensioners has succeeded in highlighting the disparity between public and private pensions.  In response to mounting pressure the three main parties came out in support of a review to look at ways of cutting down the costs of MPs pensions.

The Conservatives say they would move all new MPs into a defined contribution pension scheme if it won the next election as well as scrapping future accrual into the MPs’ final salary scheme.  It would also bring public sector schemes in line with cheaper arrangements in the private sector.  Why should judges who only contribute 2% of their salary to their pension be given overly generous pensions from the taxpayers’ pocket when private sector employees are being forced to buy annuities from pension ‘pots’ that have fallen in value as a result of the recession and falling stock markets?

Benefits of Deflation

Pundits are predicting that rapidly falling inflation risks tipping over into deflation, but this could prove beneficial to the country’s pensioners.  The latest Retail Price Index (RPI) inflation figures show headline inflation fell from 3% to 0.9% in December, thanks largely to falls in mortgage rates and the cut in VAT to 15%.  The high levels of inflation seen over the past year have had a negative impact on pensioners, but with deflation the falling food and energy prices could help increase pensioner spending power.

Debbie Marten

Happy New Year to you all.  I am sure 2009 will present a challenge to us all.

The Secretariat

I am pleased to report that there have been no changes within the Secretariat and Loretta is fast approaching her first full year with the P.N.P.F.

Alternate Trustees

The last quarter of 2008 saw the resignation of Peter McArthur, a Manchester pilot, as an Alternate Trustee of the P.N.P.F.  To date no member has put himself forward to fill the vacancy.

Benefit Statements 2008

We are currently in the process of obtaining and confirming year end earnings for active members and should be in a position to send out benefit statements by the end of February. 

2009 Pension Increases and Calendars

Just before Christmas all pensioners and widows were sent letters confirming the percentage increase they would be receiving from 1 January 2008, as well as a calendar for the year.  If you have not received yours please let us know at the Secretariat and we will put another in the post.

Rule Changes

During the course of 2008 the Trustees made four changes to the P.N.P.F. Rules, which are summarised below:

Rule 11(2) – “A” Members.  The Trustees have adopted an upper age limit of 55 for new joiners.

Rule 18(6) (7)(8)(9) – Basic Meaning of Pensionable Service.  The Trustees have introduced part-time membership of the P.N.P.F. for employed pilots (new Rule 18(6)&(7)) and self-employed pilots (new Rule 18(8)&(9)).  This Rule also details the adjustments that will be made when calculating the benefits to reflect the part-time membership.

Rule 44(4) – Transfers.  The Trustees have agreed to give members the option of transferring out their additional voluntary contributions to another registered pension arrangement.

Rule 49(4) – Pension Sharing.  The Trustees have amended this rule which now allows ex spouses to retain a Pension Credit in the P.N.P.F.

The Rules are due to be reprinted shortly and an amended version will be sent out to all active members in due course.

Member Communications

I, like all of you, attempt to do my best to be environmentally friendly and so I must apologise for the number of trees that have been felled during 2008 to provide the member communications you have been inundated with in respect of the legal proceedings.  I cannot see this changing in 2009 as we must be seen by the court as endeavouring to keep all concerned appraised of the situation.

Fund’s Solicitor

Last year I advised you of Andrew White’s retirement and the appointment of our new solicitor at Mayer Brown.  The Trustees have decided to amalgamate the litigation and day to day legal admin under one roof and Claire Southern at Lovells is now the Fund’s solicitor.

 Pre Budget Report (PBR)

In his November Pre Budget Report the chancellor announced a number of changes to savings, pensions and taxation to be implemented over the next three years.

The main pension related announcements were:-

•  State pensioners entitled to the Christmas bonus will be paid £60 in the new year, which equates to bringing forward the April increase to the state pension to January.

•  The level of the full basic state pension will rise in line with prices by £4.55 per week to £95.25 per week in April 2009.

•  In April 2009 the age related tax allowance will be raised in line with prices to £9490 for 65 – 74 year olds and £9640 for people age 75 and over.  The government has estimated that by April 2010 only 40% of pensioners over the age of 65 will be paying income tax.

•  The lifetime allowance and annual allowance will be frozen from 2011/12 to 2015/16 at the 2011/12 values of £1.8m and £255,000 respectively.

• The government will be launching a campaign to get an estimated 1.5m individuals on low incomes, particularly pensioners, to register to receive interest on their bank or building society accounts tax free and to claim back any overpaid tax.

• High earners get dealt a blow in the PBR in that from 2010/11 the basic personal allowance for income tax will be reduced for gross incomes above £100,000 per year.  Those earning at least £100,000 per year would see their personal allowance reduced by at least 50% and no personal allowance would be available for incomes of £140,000 or more per year.

• From 2011/12 the rate of income tax on earnings above £150,000 will be 45%.

Negative Retail Price Index (RPI) Inflation

The government’s economic estimate for September 2009 is that inflation, as measured by the Retail Price Index, will be negative.  The basic state pension is increased by the September RPI or 2.5%, whichever is greater.  This means that in 2010/11 there will be an even larger real terms benefit for state pensioners.  So its not all doom and gloom!

Debbie Marten

Debbie@pnpf.co.uk

PENSIONS NEWS

The Secretariat

There is not much to report in respect of the Secretariat, except that Loretta has successfully completed her six month probationary period and appears to be settling in well. Loretta has become a firm favourite of the pensioners and widows who have dealt with her.

Scheme Funding Statement

You should have all received your annual Scheme Funding Statement last month. As you will have seen it was basically a rehash of last year’s as there really was nothing new to tell you. By the time there is anything to tell you, you will be so bored with receiving the same old, same old that you will probably chuck it away without reading it.

Cash Equivalent Transfer Values

From 1 October 2008 it will be the responsibility of the Trustees to take the decisions on which assumptions the calculation of cash equivalent transfer values (CETVs) are based, as set out in government legislation. Previously the calculation had to be certified by the Fund’s actuary. At their meeting held on 2 September 2008 the Trustees instructed the Fund’s actuary on the basis to be used based on the actuary’s recommendations. (As if the Trustees do not have enough on their plate already!)

Disinvestment From Goldman Sachs

30 June 2008 was the redemption date for the disinvestment of the funds held by Goldman Sachs and the last instalment was paid across on 2 September 2008. These sums have now been invested in Guaranteed Deposit Accounts held by Bank of Scotland to earn the highest interest possible. This now means that the number of investment managers has reduced to four, these being Henderson Global Investors, BlackRock Alternative Advisors (Quellos), EIM SA and Legal & General Investment Management.

Pension Protection Fund (PPF) Levy

A recent survey found that although 61% of respondents support the existence of the lifeboat fund, 94% believed the structure to be unfair. One in four of the schemes surveyed believed that the levy could seriously jeopardise the future existence of their business with more than a third of respondents having the view that it is likely to negatively impact future pensions provision. Comments expressed in the survey ranged from the PPF levy as a corporate stealth tax threatening both pension provisions and employers to concerns that schemes are being forced to participate involuntarily.

The P.N.P.F. Trustees have had their own run in with the PPF over the 2007/08 levy. When an invoice amounting to £268,505.00 was received in April it was quickly dispatched to the actuary to check the accuracy of the calculation, where it was discovered that the PPF had used incorrect data which artificially inflated the fees being charged. It has taken 5 months of continuous appeals, but with Aon’s help we have managed to get the levy reduced to £131,443.00.

2007 Valuation and Impending Legal Proceedings

I am not going to add anything to what has already been communicated to members regarding the above. Suffice it to say no details of the 2007 valuation can be confirmed until it has been finalised and this is unlikely to be achieved before a decision is reached with regard to the legal proceedings. (A real “Catch 22” situation.) I can say that the papers have been served and the solicitors are attempting to agree a timetable in respect of the lodging of evidence.

Savings Crises

According to the Office of National Statics (ONS) in quarter 4 of 2007 pensioners suffered a bigger jump in the cost of living than most other households. The 5.6% rise in the cost of living is largely due to increases in food, electricity, gas and council tax bills. This gloomy fact was compounded by the additional statistic that revealed for the first time the U.K. has more people of pensionable age than children under 16.

Another recent survey, this time by the CBI, found that 3 in 10 employees reaching retirement age asked to postpone their retirement, with 8 out of 10 requests being granted. Many of the older workers were either not ready to retire or did not feel financially secure enough to do so.

Lost Data

It seems like we are being told, on a monthly basis, of another government department losing members’ personal data. But in Japan they do it on a mammoth scale. Japan’s social insurance agency admitted to misplacing 18.4 million records and confirmed that one of its official encouraged firms to make up records if they were lagging behind. (Maybe we are not so bad after all.)

Nova Scotia

Well I can think of nothing else to tell you about pensions and as I still have some space to fill I will bore you with details of my last holiday. It’s taken 34 years of marriage for my husband, Tom, to tell me that he had always wanted to visit Nova Scotia, because as a child he always considered it the back of beyond. (Well it has got to be better than Tierra del Fuego!) Not my first choice of destinations, but at least it did not involve too many medieval cathedrals, challenging sculptures or crowded beaches. It is a truly beautiful place and the denizens were definitely friendly. Tom now wants to retire there. The holiday definitely had a nautical feel and I learned more about the Bluenose racing schooner, the Titanic and trawler fishing than I could wish for, but the Canadians enthusiasm for their history was catching. I also attempted to eat my way through Nova Scotia’s annual lobster catch, but failed miserably.

Debbie Marten

Debbie@pnpf.co.uk

This is a summary of my presentation given to the U.K.M.P.A at their annual conference held in Harrogate in May 2008.

P.N.P.F. 2008

Richard Williamson, as Chairman of the P.N.P.F., told the members what had been happening to the fund since last we all met in November 2006. I, therefore, dealt with the more turgid topics of current affairs in the Pensions World.:

Pensions Bill

Since November 2006 there have been several new pension bills, one of which is currently working its way through Parliament. Each bill has been a little bit different from the last. The 2004 bill concentrating on protection of scheme benefits and the 2008 Bill concerned with Personal Accounts, the central thrust of the Bill being auto-enrolment.

The new requirement of the 2008 Bill will be that nearly all U.K. employees will be put into a pension scheme by their employer, the default scheme will be Personal Accounts if the employer does not have a suitable scheme of its own.

Under the Bill employers must automatically enrol all employees between age 22 and state pension age into a “suitable” pension scheme. Suitable being:

• The company’s own occupational pension scheme
• Personal Accounts, which will be a centralised scheme.
• A personal pension arrangement

Enrolment should take place as soon as a member is employed, but where the scheme provides benefits above the minimum required by Personal Accounts then a waiting period of up to three months will be allowed. For a defined benefit scheme it must provide benefits broadly equivalent to or better than a pension payable from age 65 with a 1/120^th accrual rate.

Employees will be allowed to opt-out should they so desire.

The Pensions Regulator will be responsible for monitoring and enforcing the new legislation. The Bill also covers amendments to existing occupation pensions legislation, including a new power for The Pensions Regulator to impose its own calculation of technical provisions if it does not think the trustees have been prudent enough.

Budget 2008

Alastair Darling was always going to find Gordon Brown a hard act to follow as Chancellor, therefore to set his own stamp on the budget he decided to adopt a “go green” approach. Many of the environmental measures in his first budget do not directly target pension schemes, but show the increasing effect that this area of policy is likely to have on every aspect of the economy.

The measures in the budget that do impact on pensions include.

· Changes to authorised payments

· Changes to the Lifetime and Annual allowance, which have been raised to £1,650,000 and £235,000 respectively

· Easement in the trivial commutation rules

· Easements to the rules concerning taxable property and 25% lump sum rules

· Confirmation that in calculating deductions for corporation tax purposes in respect of pensions costs a company can only use the pensions contributions actually paid.

An Agenda for Trustees

There are vast arrays of important issues facing trustees and it is essential they tackle these matters, some of the key topics are:

(1) Governance

The trustees need to demonstrate ‘good governance’ in the performance of their duties. A good governance structure will help the trustees in minimising risk, identifying and maximising efficiencies and identifying interest of scheme members. The attributes of good governance include:

· Proper and timely execution

· Good decision making

· Clear accountability

· Regulator review and assessment

(2) Investment Strategy

An expanding range of investment choices has added to the complexity of this area and increased demand on trustees. The trustees’ primary concern lies with the interest of the members of the scheme, but matching the expectations of members has never been easy in respect of investment returns. The time required of trustees to make informed decision on investment strategy is increasing dramatically now that choice and complexity is so high.

(3) Employer’s Covenant

A key aspect of the new requirements for scheme funding is the need for trustees to assess the covenant of the employer. One of the greatest risks facing defined benefit pension schemes is the financial position of the employer and its ability to service the pension scheme.

(4) Scheme Funding and Recovery Plans

When going through the funding process the trustees must bear in mind The Pension Regulator’s (TPR) policy on “triggers”, most notably the funding target for technical provisions (aka scheme liabilities) and the shortfall recovery period. For the technical provision TPR’s primary focus will be on ensuring they are prudent given the scheme’s circumstances.

For the recovery plan(s) TPR has retained a ten year trigger point, but has emphasised that this should not be considered the industry “standard”. Recently TPR has issued a consultation document on longevity assumptions, which may in themselves become “triggers” as TPR has stated that 96% of all valuations are using longevity assumptions that are not prudent enough to take into account that people are living longer.

(5) Internal Controls

The Trustees are responsible for assessing the risks to the scheme, and not just the financial ones, and documenting the controls in place. Where a control framework is in place a review and update should be undertaken on an annual basis.

(6) Trustee Assessment

A key element to good governance is assessment of skill and knowledge. Trustees should be making formal assessments of their own procedures and decisions, which include their skills and knowledge following assessments of strengths and weaknesses action plans for improvements can be developed.

Survey

I thought we could end on a recent survey carried out by Axa which has discovered that most people in the U.K. fear public pension reforms will mean they will retire on less state benefits and have to work longer. 91% think it will mean an increase in the number of years they will have to work. Whereas 57 % of the U.K. workers think they will have enough to live on, 64% of retirees say their retirement income was sufficient. Over 80 % thought they would have a better retirement than their parents, but only 40% thought their children would have a better retirement.

Harrogate was lovely and I would like to thank the U.K.M.P.A. for inviting me.

Debbie Marten

Debbie@pnpf.co.uk

The month of March saw changes in the Secretariat’s staff with Thursday the 20^th being Richard Wiscombe’s last day with the P.N.P.F. before staring his new job up in London. On Monday the 10^th Loretta Eccleston joined the Secretariat as Richard’s replacement. Loretta joins us from the Virgin Atlantic Pension Scheme where she was the Senior Administrative Officer.

Accounts 2007

The 2007 annual accounts are currently being audited and should be finalised by the Trustees at their May quarterly meeting. It is hoped that printed copies of these accounts will be sent out to pilots and pensioners by the end of June.

Member Nomination Forms

It has recently been reported in the pensions press that it is a common problem that nomination forms are not updated to take account of changes in a member’s circumstances. This can delay the payment of lump sum death benefits. So now might be an opportune time for me to remind members to ensure that their nomination forms, aka “Expression of Wish” forms are up-to-date.

2007 Triennial Valuation

The 2007 triennial valuation is well and truly underway, with the first meeting to discuss the data in April. This valuation sees the Trustees setting the economic and mortality assumptions.

Expectation of life is now one of the most important assumptions in the valuation of pension liabilities. It will be crucial for the trustees to get it right as over recent years there has been evidence of a rapid increase in longevity in the U.K. population.

The Regulator recommends that good practice requires assumptions to be evidence based and there has been much talk in the press about the “cohort effect” (i.e. an effect related to the year of birth). Trustees beware, where valuations use mortality assumptions that appear to the Pensions Regulator to be weaker than the long cohort (i.e. assumes additional improvements in longevity until 2040) these will attract further scrutiny from his office.

Longevity and mortality assumptions have all made the job of the trustees increasingly difficult and should make for some interesting discussions around the table.

Budget 12 March 2008

The 2008/09 tax year will see significant changes to the way in which income tax and National Insurance (NI) is calculated. The upper limit for NI will jump from £34,840 to £40,040; the 10% income tax band will be abolished and the basic rate of income tax falls from 22% to 20%. Most employees will save on their combined tax and NI bill in the new tax year, but anyone earning less than £15,400 is going to pay more in tax and NI during 08/09. Tax credits may be available to offset the effect of this.

The biggest winners are those earning around the £35,000 mark, they will see a combined saving of about £375. Anyone earning more than £35,100 will pay more NI but this should be offset by savings in income tax.

Personal Allowances

The changes in personal allowances include:

	2008/09	2007/08
Aged 65 or under	£5435	£5225
Aged 65 – 74	£9030	£7550
Aged 75 or over	£9180	£7690
Married couples (age 75 and over)	£6625	£6365
Married couples (aged less than 75 and born before 06.04.35	£6535	£6285
Married couples – minimum	£2540	£2440
Blind person’s allowance	£1800	£1730
Inheritance Tax	£312,000

The measures in the budget impacting on pensions include:

· Changes to the Lifetime and annual allowances

· Changes to authorised payments

· Easements to the trivial commutation rules.

Anti-Money Laundering Requirements

As if being a trustee was not complex enough, the Government is bringing in new anti-money laundering requirements that could well apply to trustees who are paid for acting in that role. As the requirements are at best opaque, clarification is being sought by legal firms, but it seems clear that unpaid trustees will not be affected.

News in Brief

1908 to 2008

2008 sees 100 years of the State Pension which all started with Lloyd George’s 1908 Old Age Pensions Act. In 1901 life expectancy for men and women was 45 and 49 years respectively but a State Pension Age of 65 was still proposed, but eventually set at 70 to reduce costs. Many questions raised by the 1908 Act remain unchanged, however life expectancy has changed dramatically.

National Money Advice Service

In his final report on generic financial advice Otto Thoresen calls for a national money guidance service. This service would provide information on budgeting, saving, borrowing, protection, retirement planning, tax and welfare benefits and jargon busting, but would stop short of recommending specific products.

Gurkhas Protest

Hundreds of retired Gurkhas protested outside Parliament to demand pensions equality with British soldiers. At present Gurkhas who retire after 1997 receive a pension equivalent to the rest of the British Army. However those that retired prior to that date receive one-sixth of the amount received by a U.K. soldier, which they believe is discrimination.

Debbie Marten

Debbie@pnpf.co.uk

Deputy Secretary

I have some bad news to impart to P.N.P.F. members and beneficiaries, in that Richard Wiscombe has decided that his career path does not lie with the P.N.P.F. and has taken another job in London. Richard will be leaving the Secretariat in March and the search for his replacement has begun in earnest. Not an auspicious start for 2008!

Alternate Trustees

The Association of Participating Bodies has recently appointed Stephen Bracewell, Chief Executive of Harwich Haven Authority, as an Alternate Trustee Director.

Benefit Statements 2007

We are currently in the process of obtaining and confirming year end earnings for active members and should be in a position to send out benefit statements by the end of February.

2008 Pension Increases and Calendars

Just before Christmas all pensioners and widows were sent letters confirming the percentage increase they would be receiving from 1 January 2008, as well as a calendar for the year. If you have not received yours please let us know at the Secretariat and we will put another in the post.

Triennial Valuation

Those of you who follow this sort of thing will know that the Fund is due a triennial valuation as at 31 December 2007. This means that 2008 will be a busy year for the Trustees as well as the Secretariat as this will be the first valuation prepared under the requirements of The Pensions Act 2004.

Not only will the Trustees need to learn a whole new set of pensions jargon, they will also have to set the assumptions to be used in the calculations. (with advice from the actuary) There is no doubt the whole process will be time consuming and drawn out. So do not hold your breath as the final results may be a long time coming.
Fund’s Solicitor

Many of you will know that Andrew White has been the Fund’s solicitor since the mid 70s and has seen out many a trustee, well now it is his turn and Andrew retired at the end of 2007. We will now be looked after by another senior partner at Mayer Brown, Philippa James.

NEW STATE PENSION RATES

The Government has announced the rates of State Retirement pension which will apply from 7 April 2008. These are:

£ pw Increase
Basic State Pension
£90.70
3.89%
Married woman’s basic on husband’s National Insurance

£54.35

3.92%
Age 80 addition
£0.25
0.00%

NEW PENSIONS BILL

The Pensions Bill was introduced to Parliament on 5 December 2007. The Bill builds on the improvements to the state pension system contained in the 2007 Pensions Act. The Bill proposes;

• Automatic enrolment in a workplace qualifying scheme from 2012.
• Introducing a new Person Accounts scheme designed for those employers who do not currently offer pension schemes.
• An increased role for The Pensions Regulator as the compliance body that will ensure employers meet their new obligations.
• Further simplification to the additional state benefits
• Measures to ease the burden of regulations on employers.

FINANCIAL ASSISTANCE SCHEME (FAS)

After years of naked protests to show they were “stripped” of their pensions, the Pensions Action Group’s hard fought battle for better compensation appears to have paid off. The Pensions secretary, Peter Hain, has offered a package that will increase the Financial Assistance Scheme payments to the value of 90% of the lost pension bringing it in line with the Pensions Protection Fund levels.
In addition more than 11,000 wind up victims whose employers remain solvent now qualify for FAS help. In total some 140,000 people should benefit from the government change of heart.

STATISTICS

A recent survey by Alliance Trust has produced some interesting statistics in respect of the British adult population’s retirement planning. 43% of U.K. adults expect property to be their main source of income in retirement. Belief that a company pension scheme will fund retirement has fallen to 36%. 18% of the population are hoping for an inheritance or windfall to fund their retirement and a further 19% expect to rely on their partner or spouse.

NICE WORK IF YOU CAN GET IT

Did you know that the Prime Minister, Lord Chancellor and Speaker qualify for a full pension after just one day in office? It amounts to an annuity equal to half their salary irrespective of how long they have served.

MPs on the other hand do not get such a rapid accrual of their pension rights. They have to build it up in chunks of 1/40th of salary over a number of years.

Even then it is nothing as undignified as the rest of us who pay into a scheme for 40 odd years hoping that there well be a pension at the end of it.

Who says politicians have no understanding of pensions?

Debbie Marten
Debbie@pnpf.co.uk

The Secretariat

Buckhurst House

In August of this year the lease on Buckhurst House came up for renewal and I am very pleased to say that the Trustees agreed to the new terms and that the upheaval of another move has been avoided for the foreseeable future.

Alternate Trustees

The last quarter has seen the resignation of Jon Armstrong and John Lorking, two Alternate Trustees appointed by the Association of Participating Bodies. The increasing complexity of pensions’ legislation, as well as the Regulator’s Trustee Knowledge & Understanding requirements may, in the future, make it more difficult to find volunteers to act as trustees, be they alternates or otherwise.

Continuing on the theme of Trustee Knowledge and Understanding, I am pleased to announce that three of our Trustees have successfully completed The Pension Regulator’s e-learning Toolkit.

Scheme Funding Statements

The annual Scheme Funding Statement was sent out to all P.N.P.F. members in September. The details contained therein were not much different from the 2006 Statement and I really cannot envisage too much change in the information until after the 2007 triennial valuation has been finalised.

Triennial Valuation 2007

Although not due until the end of the year the Trustees have already turned their thoughts to the 2007 valuation. For the first time the Trustees will have to determine the assumptions to be used in calculating the valuation results, with advice from the Fund’s Actuary. According to Regulations the assumptions used must be prudent, but unhelpfully they do not go on to define prudence. To assist the Trustees in determining the assumptions the Actuary will be preparing a funding advice report in early 2008.

Change of Address

Research carried out in 2007 shows that since 1996 almost 36% of employees in the private sector failed to notify their pension schemes of their change of address. Locating missing deferred members and pensioners affects most schemes. Which is the reason for this gentle reminder to let us know when you change your address. This is particularly important if you intend to move overseas.

Hedge Funds – A Very Brief History

Hedge funds have received a lot of attention in the press over the last year or two and as you know the Trustees are currently following an investment strategy that diversifies risk and return by investing in alternative assets, ie hedge funds. As hedge funds seemed to have the reputation of being a bit of a chimera I thought I would share with you this brief history of hedge funds that I recently came across.

It may be hard to believe but essentially hedge funds have been around for a number of years and goes back to a well known gentleman by the name of Alfred Winslow Jones. In the late 1940s, Mr. Jones who had been to Harvard and had been a writer at Fortune magazine wanted to offset the risk that was in the market by buying stocks that he liked and finding a means to sell the stocks he did not like. This coined the first phrase of hedge fund. The word “hedge” means to mitigate a possible loss by counterbalancing or offsetting. Over the years it has evolved and various strategies have been developed. But it was in the 1980s and 1990s that it really picked up with ‘specialist managers’ running small unconstrained firms and manufacturing different sources of alpha and beta which is then passed on to the investors.

Quellos

As you know Quellos is one of the Fund’s fund of hedge fund providers. On 1 October 2007 Quellos was acquired by BlackRock, best known for its acquisition of Merrill Lunch. Whereas Merrill Lynch is best known for its acquisition of Mercury Asset Management (MAMs). Those of you with memories that go as far back as mine will remember that up until January 1998 MAMs was one of our investment managers. A real example of what goes around comes around.

PENSIONS ACT 2007

The 2007 Act received Royal Assent on 26 July 2007. It introduces reforms to the state pension system, including proposals to simplify the administration of occupational and personal pension schemes. The changes made by the Act are good news to many, particularly those on low earnings, but also to those people, such as carers, who have no earnings at all.

The general thrust behind the proposals is to ensure that most people receive a suitable level of retirement income by:-

· Improving the level of the basic state pension and at the same time easing the qualifying conditions.

· Making it easier to save for retirement by introducing personal accounts.

· Streamlining the regulatory environment to try and ensure employers retain their occupational pension schemes.

An Overview

The number of years required to qualify for a full Basic State Pension will fall to 30 years for both men and women attaining state pension age after 6 April 2010.

Annual increases to the Basic State Pension will be linked to earnings rather than price inflation.

The State Pension Age will gradually increase between 2024 and 2046 to 68 for both men and women reflecting increased longevity.

Schemes will be allowed to convert Guaranteed Minimum Pensions (GMPs) into scheme benefits so that they can ultimately make savings on benefit administration.

The introduction of a Personal Accounts Delivery Authority which will make preparations for the introduction of Personal Accounts from 2012.

Improvements to the level of payments made under the Government’s Financial Assistance Scheme.

Debbie Marten

Debbie@pnpf.co.uk