Pension News 07/06

July 15th, 2006 by JCB
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PENSION NEWS

THE SECRETARIAT

Well 6 April 2006 (A-Day) has come and gone and both Richard and I appear to have survived, but it has been a dramatic change and it is clear that it will be some time before the dust completely settles. The new rules are radically different and we have a whole new set of terms and acronyms to get used to. Expressions like Benefit Crystallisation Event (BCE) and Pension Commencement Lump Sum (PLCS). Well I suppose it keeps us from becoming complacent!

Rules & Explanatory Brochure

Benefit changes arising from the 2004 valuation as well as tax simplification have meant major revisions to the Explanatory Brochures and the Rules. We hope to be in a position to provide pilots with updated copies in the near future.

Annual Report & Accounts 2005

The Trustees Annual Report & Accounts for the year ending 31 December 2005 has been sent out to all active pilots and pensioners of the Fund. If you have not received a copy and wish to do so please contact the Secretariat on tel. no. 01732 779460.

Investment Strategy

The Trustees are in the process of implementing the investment strategy, as recommended by the Investment Consultant, following his review of the Fund’s asset allocation. To this end on 1^st November 2005 £40m was disinvested from the equities portfolio and transferred to Goldman Sachs Investment Management for investment in their fund of hedge funds, Direct Strategies II.  A further £50m is to be disinvested from equities and transferred to Quellos Europe Limited for investment in their fund of hedge funds QIP Ltd. This investment will commence from 1 July 2006.

Once the value adding assets are in place the Trustees will be turning their attention to the bonds and equity managers.

Summary of Funding Statement

By no later than 22 September 2006 the Trustees must send to members an annual funding statement. If no scheme funding valuation has been completed prior to this date then the funding statement must be based on the most recent MFR valuation.  The statement will be the members’ main source of information on how securely their benefits are being financed and must explain the relationship between the assets and the benefits already accrued under the Fund. It should also cover the main risks to members of the Trustees’ investment strategy.

The challenge for the Trustees will be to put the information in a context that is user friendly and easy to understand.

Government White Paper

In 2002 the Government established a Pensions Commission, headed by Adair Turner, to investigate the existing ‘voluntarist’ approach to retirement saving in the UK. The Commission has since published three reports.

The first report set out the results of the Commission’s investigation into retirement savings. It stated that unless people were prepared to work longer, pay more tax and save more they would have to accept poorer retirements.

The Commission’s second report set out their proposals of how the three-pronged approach – save more, pay more tax or work longer – should be balanced. The third report was a short reply to some of the criticisms levelled at the second report.  In its White Paper, Security in Retirement – towards a new pensions system, published on 25 May 2006 the Government set out how the Commission’s proposals will be put into effect. The main features of the White Paper are:-State pension increases will be re-linked to earnings rather than prices by 2012, subject to an affordability test that could delay the change until 2015.

State second pension (S2P) will be a flatrate weekly pension payment of £60 by 2030.

Contracting-out for defined contribution schemes will be abolished.

The proportion of pensioners on meanstesting is estimated to fall from 45% to 33%.

State pension age for women will rise from 60 to 65 between 2010 and 2020.  There will be further rises for both men and women beginning with an increase from 65 to 66 in 2024, then again to 67 in 2044 and finally to 68 in 2046.  Employees will be automatically enrolled into the National Pension Savings Scheme (NPSS) at the age of 22 and will pay 4% of salary. Employers must contribute 3% while the Government will contribute 1% in the form of tax relief.  The number of years of National Insurance Contributions (NIC) needed to qualify for a full basic state pension will be cut to 30 (currently women need 39 years of contributions while men need 44).  Reduction of burdens on schemes by bringing forward legislation to allow schemes to convert guaranteed minimum pension (GMP) rights into scheme benefits.

Age Discrimination Regulations

On 1 October 2006 The Age

Discrimination Regulations come into effect. The impact on occupational pension schemes is that there will now be a national default retirement age of 65, making compulsory retirement below 65 unlawful unless objectively justified.  Employees will now have the right to request to work beyond 65 or any other retirement age set by the company. The employer has a duty to consider such requests.

Working Past Age 65

The Government’s White Paper has restored the link between the basic state pension and rises in average earnings which was broken in 1980 by Margaret Thatcher, but to fund this change the state pension age will now rise to 68.  A recent survey carried out on 243 U.K.  pension providers revealed that 85% of schemes say their members do not want to work beyond age 65. Only 27% of schemes surveyed said they actively encourage members to stay on after the age of 65. And of the individuals questioned only 11% intend to retire at an age older than 65 with nearly two-thirds looked to retire before that age.

Given the results of the survey you have to wonder if the Government really knows what Joe Public wants.

Debbie Marten

Debbie@pnpf.co.uk