PENSION NEWS 01/04

January 15th, 2004 by JCB
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PENSION NEWS

This is a summary of a speech given to the UKMPA at their annual conference held in Liverpool in November 2003.

Thank you Liverpool for making me feel so welcome.

PNPF and the Secretariat

Compared to 2002, 2003 has been a relatively quiet year for the PNPF and the Secretariat with the Government only managing to produce one white paper in response to two green papers issued in December 2002 and one curve ball from the Trustees in the form of relocating the office.

We have now settled into our new offices and a comfortable routine, although so far

no one has felt like a visit to the ‘sticks’ to see if we really are here. If you do drop in

use the side entrance unless you want your teeth seen to as the ground floor is occupied by a dental practice. The first three months of 2003 saw a fall in the stock market which hit the fund quite badly, but the downward spiral had been reversed by the second quarter and the Fund had reached £316.23m at the end of October 2003 – a rise of 6.14% since the end of March.

 

Occupational and Personal Pension Schemes (Disclosure of Information) amendment Regulations”

This longwinded new regulation means that from 6 April 2003 annual forecasts know as Statutory Money Purchase Illustrations (SMPIs) came into effect.  These illustrations affect the Additional Voluntary Contributions Scheme and will be produced by the scheme providers.  The SMPI focuses on the projected pension at retirement age expressed in real or today’s money terms. They will be covered in caveats as to why the eventual benefit received may differ from the illustration. The theory behind the SMPI is to promote better understanding of money purchase arrangements and assist members in targeting for their retirement. In reality they may have the opposite effect.

 

Working and Saving for Retirement: Action on Occupational Pensions”

June saw the publication of the Government’s white paper – “Working and Saving

for retirement: Action on Occupational pensions” in response to the two green papers, “Simplicity, security and choice: working and saving for retirement” and the more radical “Simplifying the taxation of pensions: increasing choice and flexibility for all” published in December 2002.

In the white paper the Government has outlined its plans to address the ‘pensions crises’. The approach is basically threefold:

·        Protecting Employees on scheme wind up

·        On change of jobs

·        Funding and Benefits

PROTECTING EMPLOYEESON SCHEME WIND UP

The Government proposes increased protection of benefits whether or not the employer is solvent. This is a direct result of a number of high profile winding up cases over the last 18 months.

From 11 June 2003 for any solvent employer winding up his pension scheme the employer-debt provision will be extended to cover the full cost of buying out all liabilities. The debt calculation will include increases to pensions in payment and revaluation of pensions in deferment.  A compensation scheme known as the Pensions Protection Fund (PPF) is proposed. This will be run by a statutory body and will be used to secure 100% of pensions in payment and 90% of working or deferred members’ accrued benefits should an underfunded scheme be wound up. The cost of the PPF will be met by a flat rate levy on all employers with defined benefit pension schemes. In addition to this there will be a ‘risk based premium’ which will reflect the funding of the scheme.  Changes to the statutory priority order on wind up are proposed to provide extra protection to long serving members in that increases to pensions in payment will come after other members’ basic entitlement. This will apply whether or not the employer is solvent.

ON CHANGE OF JOB

Members with as little as three months services will be entitled to take a transfer out of their funds as an alternative to a refund of contributions.

FUNDING AND BENEFITS

·        The Minimum Funding Requirement (MFR) is to be replaced by the application of scheme specific funding (SSF), based on advice from the actuary and will be set out in a Statement of Funding Principles (SoFP).

·        The cap on Limited Price Indexation (L.P.I.) increases has been reduced from 5 to 2.5%.

·        The Government wishes to simplify the administrations of Guaranteed Minimum Pensions (GMP) and is continuing to consult on this area.

·        In addition to the changes mentioned above:

·        In future Trustee Boards will need to ensure that at least one-third of the trustees are nominated by the membership.

·        The New Kind of Regulator (NKR) will take a more active role in protecting pension benefits and will produce guidance in order to ensure that trustees have sufficient knowledge and skills to fulfil their responsibilities.

Funds will no longer be required to provide an Additional Voluntary Contributions Scheme facility and membership of schemes will not be compulsory.

It is also proposed to raise the age from which a member may take voluntary early retirement from 50 to 55 as from 2010.  The Government published the second stage of its Pensions Simplification proposals on 10 December 2003 and consultation on this draft will close on 5 March 2004 and an announcement is expected to be made in the 2004 Budget. If introduced the new (simplified!?!) regime would take effect from 6 April 2005.

 Debbie Marten

Debbie@pnpf.co.uk