Occupational Pensions and the Recession - who bears the risk?
-
Upload
mackenzie-gaines -
Category
Documents
-
view
17 -
download
2
description
Transcript of Occupational Pensions and the Recession - who bears the risk?
Bryn DaviesUnion Pension Services
1IER Conference - Occupational Pensions - Delayed wages subtracted - March 2010
Pensions and the recession – the background
The actuarial pressures
Increasing longevity Falls equity markets Lower real yields on bonds
The Pensions Regulator
Emphasis on prudence Reliance on ‘mark to market’ No duty to promote DB provision
Employers
Increasing concern about ‘risk’/lack of control Pressure from accounting standard Cost cutting and fashion for DC
2IER Conference - Occupational Pensions - Delayed wages subtracted - March 2010
PPF/tPR Purple Book - 2009
IER Conference - Occupational Pensions - Delayed wages subtracted - March 2010 3
Investment experience
IER Conference - Occupational Pensions - Delayed wages subtracted - March 2010 6
Funding levels – 31 March 2009
IER Conference - Occupational Pensions - Delayed wages subtracted - March 2010 7
tPR’s approach in a recessiontPR’s Statement – Scheme funding and the employer covenant
(1)
The current regulatory framework and approach to scheme funding is sufficiently flexible to cope with current conditions
Technical provisions [must] be set prudently [but]there is flexibility in setting a recovery plan to repair a deficit to meet the funding objective
Any risk margin in the assumptions for setting technical provisions must take account of the extent to which the employer covenant can support them
Technical provisions should not be compromised to make a recovery plan appear affordable; the size of the deficit does not necessarily dictate annual deficit repair contributions to the pension scheme, these must be determined with reference to what is reasonably affordable for the employer
Assessing the employer covenant is complex and requires openness and cooperation between trustees and their sponsoring employers.
IER Conference - Occupational Pensions - Delayed wages subtracted - March 2010 9
tPR’s approach in a recessiontPR’s Statement – Scheme funding and the employer covenant
(2)
Where employers are cash constrained, trustees should look at the widest range of flexibility in recovery plans, mindful of their duties to secure member benefits; these can include:
lengthening recovery plans, (“... although having a recovery plan of over 10 years is a trigger for us to look more closely at the arrangements, in practice we have considered recovery plans ranging in length from 1 year to over 20 years to be appropriate given the circumstances of the specific schemes involved.”)
step-up payments,
back-end loading of recovery plans, and
further security through the use of contingent assets and
the distribution of profits fairly between creditors and equity providers.
IER Conference - Occupational Pensions - Delayed wages subtracted - March 2010 10
Pension funds assets and liabilities
IER Conference - Occupational Pensions - Delayed wages subtracted - March 2010 11
“Mark to market” Valuations
What does it mean?
“ It is the act of recording the price or value of a security, portfolio or account to reflect its current market value rather than its book value.” - Wikipedia
What is the problem?
Over-dependence on the position on a single day Assumption that it is required by tPR Does it tell us what we need to know? Is it relevant during a recession?
12IER Conference - Occupational Pensions - Delayed wages subtracted - March 2010
IER Conference - Occupational Pensions - Delayed wages subtracted - March 2010 13
The front page of the FT on Saturday
IER Conference - Occupational Pensions - Delayed wages subtracted - March 2010 14
PPF 7800 Index – February 2010 Update
24% deficit
6% deficit
Estimated change since March 2009 on technical provisions basis
IER Conference - Occupational Pensions - Delayed wages subtracted - March 2010 15
£39m£58m
£56m£43m
Pensions and the recession – the results for DB
Benefit changes
Increased retirement age Lower accrual rate Reduce LPI ceiling from 5% to 2½%
‘De-risking’ ‘Buy-ins’ and ‘buy-outs’ Cease contracting-out
Closure to new entrants
What is offered to new entrants? Impact of two-tier workforce Longer-term prospects
Closure to future accrual
What increases for accrued benefits? What benefits in future?
Closure of the scheme
How are benefits secured? Employer has to secure benefits Possible call on PPF
16IER Conference - Occupational Pensions - Delayed wages subtracted - March 2010
PPF/tPR Purple Book - 2009
IER Conference - Occupational Pensions - Delayed wages subtracted - March 2010 17
PPF/tPR Purple Book - 2009
IER Conference - Occupational Pensions - Delayed wages subtracted - March 2010 18
PPF/tPR Purple Book - 2009
IER Conference - Occupational Pensions - Delayed wages subtracted - March 2010 19
PPF/tPR Purple Book - 2009
IER Conference - Occupational Pensions - Delayed wages subtracted - March 2010 20