bryn davies union pension services 1 ier conference - occupational pensions - delayed wages...

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


PPF/tPR Purple Book - 2009

IER Conference - Occupational Pensions - Delayed wages subtracted - March 2010 3

The recession


Assets allocation


Investment experience


Funding levels – 31 March 2009


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.


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.


Pension funds assets and liabilities


“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?



The front page of the FT on Saturday


PPF 7800 Index – February 2010 Update

24% deficit

6% deficit

Estimated change since March 2009 on technical provisions basis


£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


bryn davies union pension services 1 ier conference - occupational pensions - delayed wages...

Documents

pensions regulator emphasis

employer covenant

lengthening recovery

tprs approach

pension scheme

end loading of recovery

funding objective

funding levels