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The new DC code

Are pensions cursed or blessed?

Need fortransparencygreater than ever

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Climatechangeandfinance

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– a revisedfiduciary dutydefinition forthe 21st century

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HEAD OFFICEThe Pensions Management InstitutePMI House, 4 -10 Artillery Lane,London E1 7LS

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Published in the UK by The Pensions Management Institute

Available free to PMI members

ISSN 2046-760534

WWW.PENSIONS-PMI.ORG.UK PMI NEWS OCT 2016 3

FEATURE ARTICLES10 Climate change and finance

– a revised fiduciary duty definition for the 21st century

14 The new DC code

24 Are pensions cursed or blessed?

28 Local authority outsourcing – LGPS: New Fair Deal provisionsunveiled

34 Need for transparency greater than ever

38 Hinton Heralds Horton – creditors hurt, bankruptsheartened, trustees helped

REGULAR ARTICLES04 Editorial

05 Notes from PMI House

06 Qualifications

09 Events

13 Investment Insight – Fiduciary Management

17 Expert Insight – Pension Systems

18 PMI's April 2016 Prize Winners

22 A month in pensions

27 Investment Insight – Bulk Annuity

31 Expert Insight – Independent Trustee

32 Investment Insight – DiversifiedInvestment Opportunities

37 News from the Regions

43 NEST update

45 Regulator update

46 Services directory

52 Appointments

14

4 PMI NEWS OCT 2016 WWW.PENSIONS-PMI.ORG.UK

During the Summer, the Pensions Regulatorissued a discussion paper entitled ‘21stCentury Trusteeship and Governance.’ The

paper sought views on the role of trustees and onhow standards might be improved. It is clear thatthe standards of performance by trustee boards varysignificantly in the UK. Whilst there is someexcellent work done by trustees, there remain fartoo many cases of trustees whose understanding oftheir role falls short of that demanded by thetrustee knowledge and understanding (TKU)requirements. The regulator is keen to improvestandards and is willing to consider new options forbringing this about.

Of particular concern was the way in whichprofessional trustees work in the UK. There are stillno formal barriers to entry into professionaltrusteeship. Any individual may advertise his or herservices as a professional trustee, however, there areno formal requirements concerning qualifications orsupervision by a professional body. Five years afterthe GP Noble trial, this should be grounds forconcern. The creation of the Association ofProfessional Pension Trustees (APPT) in 2012 –formed from the PMI’s Independent Pension TrusteeGroup – has done much to promote high standardsamong its members and to give confidence to themarket. However, membership of APPT is voluntary.The regulator has considered introducing a formalrequirement for professional trustees to complete aformal qualification. It is worth remembering that arecent European Pensions Directive considered thisoption for all trustees – not just professionals – andsuch a requirement has been proposed by the IrishPensions Authority. Whilst the idea has its critics, itwould be a simple measure to implement. It iscertainly preferable to some of the alternatives: it isunlikely that anyone would relish the prospect offormal regulation by the regulator itself.

Qualifications for lay trustees is another optionthat the regulator has considered in its discussionpaper. We should remember that the PMI has offeredtrustee qualifications since 1993, and remains theonly awarding body to do so. Our Award in PensionTrusteeship (APT) is closely aligned to the TKUrequirements and remains an excellent option fortrustees willing to demonstrate compliance withstatutory duties. More recently, qualifications such asthe Certificate in DC Governance have beenintroduced which focus on specific governance issues.

Another theme addressed by the regulator is thattrustee effectiveness is most meaningfully assessedby examining the performance of the board as awhole rather than by focusing on its constituentmembers. One suggested improvement is that theboard should report formally on what it has done tomaintain standards. Some have suggested that theannual scheme return should describe what trusteetraining has been undertaken during the course ofthe scheme year. Another option explored by theregulator is the introduction of a formal continuingprofessional development (CPD) requirement fortrustees. The PMI has offered a voluntary CPDscheme for trustees for some years, and it hasproved to be a particularly successful way of bothencouraging ongoing trustee training and ofproviding a formal record of what has been done.The whole board enrols into the scheme, and eachmember is required to complete at least 15 hours’training activity as CPD. The PMI then awards acertificate on completion. Crucial to the scheme’seffectiveness is the requirement that all boardmembers participate. This ensures that the focusremains at board level and does not allow individualmembers to become the weakest link.

The regulator is to be congratulated for takingsteps to address the nature of trusteeship and toconsider practical measures to improve standards.These are of course longstanding concerns of thePMI too, and members can take pride in knowingthat we remain committed to driving up standardsof professionalism throughout the pensionsindustry.

21st Century Trusteeship and Governance

Tim MiddletonPMI TechnicalConsultant

[ ]n

editorial

The regulator

is to be

congratulated

for taking

steps to

address the

nature of

trusteeship

and to

consider

practical

measures to

improve

standards

PMI becomes ‘First EndPoint AssessmentOrganisation’ for theWorkplace PensionsTrailblazer ApprenticeshipAs part of the apprenticeship process, wehave successfully applied to become the ‘end point assessment’ organisation for theWorkplace Pensions Apprenticeship. We arecurrently the first and only organisation tobe able to undertake this work. In brief thismeans that the PMI will sign off eachapprentice as having completed the standard,and met the relevant qualification andcompetence requirements.

As part of the end point assessment,completed portfolios will be reviewed by the PMI, and each candidate will have areflective discussion with an end pointassessor to ensure they are able to undertakethe role. As a number of individuals havealready started the apprenticeship we arenow beginning to recruit and train suitableend point assessors. We are planning a seriesof training sessions and the first is plannedfor Tuesday 29 November. If you areinterested in finding out more about thiswork contact Neil Scott [email protected], oralternatively visit our website.

Help required – Certificate inPension Scheme MemberGuidanceThe Certificate in Pension Scheme MemberGuidance is designed to meet the needs ofpensions staff who regularly liaise withmembers selecting options from a pensionscheme. As this guidance is in the area of non-regulated advice the qualification provides anoverview of the distinction between regulatedand non-regulated advice, the different types of pension scheme, and the factors that need to be considered in making decisions in regardto benefits.

It will be assessed by telephone, in whichthe assessor assumes the part of a member witha query for the candidate. We will be recruitingtutors and assessors with experience in thisarea. For further details contact Neil Scott atthe address above. .

2016-17 Subscriptions Your membership renewal was due on 1September 2016, and subscription renewalnotices have been sent out to all members. Ifyou have not received your renewal noticecontact the Membership Department [email protected] oron 0207 392 7410.

Those on the Direct Debit scheme needtake no action. Those wishing to join thescheme can find mandate forms on ourwebsite.

Keeping your details up-to-datePlease ensure that your personal details arecorrectly updated on our database to ensurethat there is no interruption to yourmembership service. You can review yourdetails online by logging into the member’sarea of the website; however you cannotcurrently update your details online. If youknow your details have changed contact theMembership Department at [email protected] or on 020 73927410.

If you have trouble trying to access themember’s only area of the website and require a reminder of your username orpassword, contact the MembershipDepartment for support.

Certificate MembershipCertificate Membership is open to those whohave completed one of our qualifications at theCertificate Level. We are pleased to announcethat Ross Oakley has been elected toCertificate Membership, and is now entitled touse the designatory initials CertPMI.

Diploma MembershipDiploma Membership is open to those whohave completed one of our qualifications at theDiploma Level. We are pleased to announcethat the following people have been elected toDiploma Membership, and are now entitled touse the designatory initials DipPMI:Andrew GriffithsJames Kennedy-MyersJennifer MayTim Roberts

Albert SteinerKirsty TaylorLaura Webb

Associate MembershipAssociate Membership is open to those whohave completed the Advanced Diploma inRetirement Provision. We are pleased toannounce that the following people have beenelected to Associate Membership, and are nowentitled to use the designatory initials APMI:Sarah CooperMark CushingBenjamin HawleyFraser RichardsonErin SavageJulie StewartSamantha Watson

Fellowship Fellowship is open to Associates with fiveyears’ membership and five years’ logged CPD. We are pleased to announce that thefollowing people have been elected toFellowship, and are now entitled to use thedesignatory initials FPMI:David Cook Katherine RedheadEmma Watkins

PeopleWe are saddened to hear that Mr MarkDeacon APMI recently passed away.

pmihouse


Follow us @PMIPensionsDiscuss this month’s articlesusing #PMINews

notes from


qualificationsOCTOBER 2016EXAMINATIONS

Examination Admission Permits have beensent to all candidates by email. If you havenot received your permit please contact theQualifications Department.

2016 OCTOBEREXAMINATION TIMETABLE

Tuesday 4 October9.30am - 11.30amCore Unit 1A – Understanding RetirementProvision

9.30am - 12.30pmDefined Contribution Arrangements

2.00pm - 4.00pmCore Unit 2 – Regulation of RetirementProvision

2.00pm - 5.00pmProfessionalism and Governance

Wednesday 5 October9.30am - 11.30amCore Unit 3 – Running a Workplace PensionScheme

9.30am - 12.30pmDefined Benefit Arrangements

2.00pm - 4.00pmCore Unit 1B – Foundation in InternationalEmployee Benefits

2.00pm - 4.00pmCore Unit 4 – Financing and Investing forRetirement Provision

2.00pm - 5.00pmTaxation, Retail Investment and Pensions

VQ RESULTS

The September 2016 results will be posted tothe centre contact, or independent candidate, onMonday 7 November by first class delivery.

VQ ONLINE LEARNING

The programmes were updated ahead of theSeptember examinations. Please note that anykey purchased now will cover the March 2017examinations only.

FINAL CERTIFICATEACHIEVEMENTS

Congratulations to the following VQcandidates who have recently achieved theirfinal certificates.

Award in Pensions Essentials Alex CalderLaura CarruthersLiam CrouseRobert DonnellanKimberley EdwardsDrew FackrellAnna Kowaluk

Certificate in Pensions EssentialsSteven LathanClare Needes

Diploma in Pension AdministrationShane Linton

EXAM INVIGILATORSNEEDEDThe Qualifications Team are always looking for people to help invigilate our examinations across the country.

If you would be interested, please contact the team. An honorarium and expenses are offered.

Devan LawrenceThomas PankethmanBen PrinceAmelia SmithHannah WilliamsKatie Wright

Samantha Sutton


When I joined Accenture in January 2013 Ihad limited knowledge of pensions, and wasshocked by the complexity and how

specialised an area it is. Initially I worked as part of theprojects team – who were tasked with implementingsystem upgrades, along with building and testing thecalculations and processes used in service delivery.

A lot of numerical work is involved in pensionsadministration, and I found as I’d always enjoyedworking with figures anyway that I very much enjoyedthe work, and saw it as something I’d like to progress and build a career in.

I took it upon myself to fund my study and examfees, and opted to take the Certificate in PensionCalculations (CPC). Purely randomly, I started with theLeavers part 1 and 2 exams. Looking through the studymaterial and examples it looked a lot to take in, andthere was – however, after spending some time it lookedfairly familiar. Although fictional schemes and rules, theywere very similar to those which I had becomeaccustomed to when producing manual calculationsduring the testing of system calculations.

I became disciplined in spending some time on studyevery night. I surprised myself with this, as previously I’dnever been great at studying at home on my own, as I’deasily get distracted.

I started by simply looking through the schemesbooklets and getting an idea of the scheme rules anddefinitions; the defined contribution (DC) scheme wasthe most interesting, as it was something completely newto me.

I developed a system of study, in which I would lookat case study examples, looking at the answer and how ithad been calculated, and then work out how that answerhad been derived. Once I was comfortable with theunderlying rules and things to watch out for, I’d go backand try them myself. I’d then compare my answers. Themost important part of this comparison was not to bediscouraged if I had got it wrong, but to find where Iwent wrong and make a more conscious effort to avoiddoing the same again.

Closer to the exam date I used practices similar tothose at work, where I’d create different letter templatesfor different scenarios, and for the calculations I’d createa work instruction that I could follow through to makesure nothing was being missed. These would be veryuseful, as examination candidates could take whatevernotes you wanted into the CPC examinations.

My first CPC exams were set for November 2014,and as they drew close I felt quite confident given thatI’d prepared well, and was making few if any mistakes inmy own mock exams. This is important, as the actualexams allow for very few errors.

I got my first results at the start of the new year, andI was keen to then continue on with the next module,and this time my choice was more reasoned – I opted totake the Transfers exam as a follow-on from work I’ddone through the testing of a new CETV calculation.Other work colleagues were also taking this exam, and itwas nice to have others to bounce queries off.

The Transfers exam was set for May, and Accenturewere supportive and flexible with study time. During thistime I’d also moved from working on projects toworking in the delivery centre as part of ourbereavement team.

After finding I’d passed the Transfers exam I decidedto do the Deaths set of exams next. My reasoning herewas that I could use my work experience to help a lotwith the exams, and probably make this set a little easier.I found this to be true, as the Deaths exams I found tobe the easiest set, and finished both exams with a hugeamount of time spare in comparison to the Transfers one,which I’d just managed to finish in time.

Time management is actually one of the hardestparts of the CPC exams; while three hours seems a lot, itgoes very fast given the complexity of the case studies,and the amount of manual calculations that go intothem. This is aside from the letters on top.

In 2016 I got the Deaths exams results, which I’dpassed. This left only the Retirements exams. As theexams this year had been pulled forward from May toMarch, it also left little time. I believe the Retirementsexams would have been the hardest ones to start with,but by this point I’d gained experience in what to expectand how to prepare, which helped to compensate despitehaving only a month to prepare.

I got my final results at the start of June, which Ireceived a lot of praise for, and since then I have beentaking on more responsibility at work, going fromprocessing cases to more often checking work, planningand helping colleagues. The CPC exams were a lot ofwork, so I am currently taking a bit of a break fromstudy, but hope to start working towards the AdvancedDiploma early in 2017.

Joseph VickersTransactionProcessing AssociateAccenture

My journey to completing the Certificate in Pension Calculations

qualificationsCASE STUDY

[ ]n

EVENTS

Wednesday 2 November 2016

AonHewitt, 122 Leadenhall Street, London EC3V 4AN

Financial Empowerment: Managing the risks of poor member choice

Freedom and choice provided pension scheme members with a greater range of optionsin respect of their benefits. This in turn led to a significant increase in the number andtype of decisions members need to make. Without good financial literacy there is a riskthat members will make poor decisions.

This seminar will provide delegates with an opportunity to hear from a range of expertsabout what they must, should or could do to manage the risks of member choice.

Topics include:

• A view from Government

• Legal responsibilities

• Financial wellbeing

• Communication to members

• LISA v Pensions

• Member guidance – how can guidance lead to better member outcomes?

• FINTECH revolution

• Behavioural finance

For further details and to book visit our website at www.pensions-pmi.org.uk

Hosted by:

1

PMI TECHNICAL SEMINAR

FINANCIAL EMPOWERMENT –MANAGING THE RISKS OF POORMEMBER CHOICE will take place onWednesday 2 November at AonHewitt,122 Leadenhall Street, London.Topics include:

n A view from Governmentn Legal responsibilitiesn Financial wellbeingn Communication to membersn LISA v pensionsn Member guidance – how can guidance lead to better member outcomes?

n FINTECH revolutionn Behavioural finance

See enclosed booking form for further details.

Hosted by:

ANNUAL LECTURE 2016CHANGE OF DATE

Unfortunately, due to a speaker change, wehave had to change the date of our annuallecture. This event will now take place onThursday 17 November at J.P. MorganAsset Management, 60 VictoriaEmbankment, Blackfriars, London.

We are delighted to announce that ournew speaker will be author, futurist andthinker Mark Stevenson. Mark is one ofthe world’s most respected thinkers ontechnology and societal trends, helpingpeople see where the world is going, andhow to adapt. A full biography can befound on our website.

Attendance is free of charge on a first comefirst served basis and PMI members will begiven priority booking. If you wish tocancel your existing place or reserve a placeon the new date, contact the Events Teamat [email protected] or on 0207 392 7425.

SECRETARY TO THETRUSTEE SEMINAR

Our next SECRETARY TO THETRUSTEE seminar will take place onThursday 8 December at Taylor Wessing, 5 New Street Square, London EC4A 3TW.

This event will provide the opportunity toshare experiences and gain insight into howothers carry out the role of the Secretary tothe Trustee effectively. Topics include:

n The role of Secretary to the Trustees –effective meeting preparation/best practiceat and post meeting

n Preparing and monitoring an effective risk register

n Working effectively with the Chair of trustees

n Effective minute writingn Regular annual activitiesn Trustee effectivenessn Effective complaint handlingn Managing conflicts of interestn Development of meeting management

Book before Monday 31 October andreceive a 10% discount. See enclosed bookingform for further details.

Hosted by:

ANNUAL DINNER

Our 2017 Annual Dinner will take place onWednesday 1 March at the DorchesterHotel, Park Lane in London.

The PMI Annual Dinner has been running forover 30 years and still proves to be one of themost entertaining pensions social events of theyear. Attracting over 300 key professionalswithin the industry, it is the ideal occasion torelax and unwind with colleagues and peers in the most prestigious of surroundings.

With pre and post dinner drinks included inthe ticket price together with TonyRobinson as the after dinner speaker, wepromise our guests will enjoy a superb eveningof great entertainment.

Individual and full table ticket prices will beavailable shortly, but to register your interestcontact the Events Team.


events

CONTACT US

Full details on all our eventscan be found on our website,along with all our bookingforms.

If you would like to speak to one of ourevents team email [email protected] oralternatively call 020 7392 7425.

DIARY DATES

Regional Groups’ activities shown in italics

n 16 OCTOBER 2016PMI Midlands Group –Annual Dinner

n 20 OCTOBER 2016PMI Southern Group –Evening Seminar

n 26 OCTOBER 2016PMI London Group –Business Meeting

n 27 OCTOBER 2016PMI Southern Group –Business Meeting

n 2 NOVEMBER 2016PMI Technical Seminar – Financial Empowerment

n 2 NOVEMBER 2016PMI Eastern Group –Autumn Seminar

n 17 NOVEMBER 2016PMI London Group – Pub Quiz

n 17 NOVEMBER 2016PMI Annual Lecture

n 29 NOVEMBER 2016PMI London Group –Business Meeting


– a revised fiduciary dutydefinition for the 21st century

Climate changeand finance


Jacky PrudhommeHead of ESGIntegrationBNP ParibasInvestment Partners

tLet’s get

prepared.

A new set of

risks related

to climate

change is on

the horizon.

We have

entered the

climate change

risk exposure

disclosure and

management

era

Sharper regulations for integratingclimate change risks are on thehorizonWe will soon celebrate the first anniversary of theParis agreement, one of the world’s greatestdiplomatic successes, that closed the UN conferenceon climate change (21st Conference of the Parties -COP21), that took place at the end of last year.Approved by 196 nations, it is the start of a globalawareness that climate change is already affecting,even threatening, the future of humankind, and as aresult our economies.

Below the tip of this heavily media-coverediceberg, a groundswell is rapidly growing that couldchange our finance industry. Let’s get prepared. Anew set of risks related to climate change is on thehorizon. We have entered the climate change riskexposure disclosure and management era.

In September 2015, Mark Carney made a speechcalled ‘breaking the tragedy of the horizon – climatechange and financial stability’; a powerfulintroduction for the launch, a few weeks later, of theTask Force on Climate-related Financial Disclosures1

(TCFD) by the Financial Stability Board (aka G20central bankers group). TCFD aims at developingvoluntary, consistent climate-related financial riskdisclosures for use by companies in providinginformation to investors, lenders, insurers, and otherstakeholders. G20 is actually working on how thefinancial sector could take into account the risksclimate change poses to our financial system. Thereis a need for sectorial approach to characterise theclimate change impacts on our investments, andthus to help investors to reduce their risks offinancial loss.

The progress so far…A public consultation by the TCFD ran from April toMay this year. Stakeholders were solicited to provideinput on existing climate-related disclosureinitiatives, principles for effective disclosure, and tocomment on three main risk groups associated withclimate change: physical effects, transition to a lowcarbon, resilient economy, and finally, climateregulation. Results of the consultation are due out inthe Autumn.

The recently adopted Article 173 of the Frenchenergy transition law2 sponsored by the Ministry ofthe Environment, Sustainable Development andEnergy now requires institutional investors andinvestment management firms to publicly report themanner in which they take environmental, social andgovernance (ESG) criteria into account, and to reporton their contribution to fighting climate change.Article 173 is unique in Europe and the world, as itapplies not only to institutional investors but also to

investment management firms. It makes reportinglines mandatory on the financial sector’s climatechange risks, and its contribution to fundingenvironmental and energy transition. This organisedtransition should naturally bring forth new vocationswithin the sector, help us ask the right questions onthe sustainability of our investments in certainindustries directly affected by climate change orstranded assets, and stimulate innovation in thelaunch of new products and services that arecompatible with a low-carbon economy.

Article 173 has become a source of inspiration for other countries to work on similar disclosureframeworks, and the impetus to make the privatesector invest in the ecological transition. We canexpect other European countries to rapidly developsimilar texts of law.

Finally, the Organisation for Economic Co-operation and Development (OECD) is working on‘rethinking fiduciary duty for a more sustainableplanet’. Fiduciaries need, from a financial point ofview, to take into consideration climate-related riskfactors in the investment decision-making process.

Two sides of the same coin: ensuring clients’ assetsare managed prudently with due care, diligence andeffective risk management, thus integrating climate-related risks on assets (stranded assets, depreciation)and unlocking green investments, despite themsometimes being seen as risky.

Capitalising on a decade of investor experience If governments and international institutions arefinally working seriously on tackling climate change,responsible investors were pioneering in takingactions to reduce the CO2 impact of theirinvestments, and to change companies’ practices interms of climate change impact. They gathered toput pressure on companies for a better disclosure ontheir climate change exposure through twoorganisations: the Carbon Disclosure Coalition(CDP)3 and the Institutional Investors Group onClimate Change (IIGCC)4.

Created in 2000, CDP is backed by 700+investors. The purpose of this organisation is toincite companies to be more transparent on theirgreenhouse gases emissions through a voluntaryformat of reporting. CDP’s data has become theone-stop place for all the CO2-related informationthat is now used by investors. More than 5,000companies now disclose their information. Morerecently, in 2011, CDP led an engagement campaignon the most carbon-intensive companies: called theCarbon Action Initiative5, its purpose is to acceleratecompany action on carbon reduction and energyefficiency activities which deliver a satisfactory returnon investment.

1 https://www.fsb-tcfd.org/

2 https://www.legifrance.

gouv.fr/affichTexte

Article.do?idArticle=

JORFARTI000031045547

&cidTexte=LEGITEXT0000

31047847&categorie

Lien=id

3 https://www.cdp.net/

en-US/Pages/HomePage.

aspx

4 http://www.iigcc.org/

5 https://www.cdp.net/

en-us/programmes/

pages/initiatives-cdp-

carbon-action.aspx


Almost simultaneously, in 2011, the IIGCC wascreated in Europe as a platform for investors (bothpension funds and asset managers) to collectivelyengage with companies and governments with twoaims: changing public policy to ensure a move to alow carbon economy and to change investmentpractices to enhance long-term investment values.Similar organisations were created the year after inNorth America, Australia and Asia. They federated in2012, forming the largest coalition of investors onclimate change, the Global Investor Coalition6 (GIC).

With half a decade of experience using climatechange-related metrics, responsible investors havebeen able to launch a series of environmentalthematic investment strategies financially supportingthe development of renewable energies andinnovative energy efficiency solutions by companies.One of the rapidly growing developments of thesector is the recent mass-adoption of the greenbonds, previously limited to the financing ofenvironmental projects by supranational agencieslike the World Bank7. Many corporate issuers arenow considering this new appealing tool forfinancing their actions to tackle climate change. The number of issues is consistently growing, andmay soon be big enough to make this financialinstrument a new asset class on its own, easing thediversification of investments by investors.

As for the governments, the call of COP21 hascrystallised a new impetus among the financialindustry. New warnings, new spirit, new deal: there isa strong urge to adopt a 2°C scenario for oursocieties, and to make a shift towards a low-carboneconomy. The financial lever of the private sector iskey to achieving this goal. As previously, responsibleinvestors are first movers. Supported by the Principlesfor Responsible Investment8 (PRI) and the UnitedNations Environment Programme Finance Initiative9

(UNEP FI), the Montreal Carbon Pledge10 is a voluntaryinitiative for investors (asset owners and investmentmanagers) to publicly commit to measure and publiclydisclose the carbon footprint of their investmentportfolios on an annual basis. Launched in September2014, it has attracted over 120 investors with overUS$10 trillion in assets under management. TheMontreal Carbon Pledge also allows investors toformalise their commitment to the goals of thePortfolio Decarbonisation Coalition11 (PDC), whichmobilises investors to measure, disclose and reducetheir portfolio carbon footprints. Over US$100 billionhas been committed to this as of COP21.

Plenty of resource and innovation is beingdeployed by investors to fulfil their newcommitments. Indeed, there are no easy anduniversally accepted methodologies to decarboniseassets, because of the complexity of the accounting,the double counting and the overall lack of qualityand availability of the CO2 metrics by companies.Some investors, mainly asset owners and somespecialised asset management boutiques, have takenradical shortcuts to reduce their carbon footprint bydisinvesting from the thermal coal industry, thuspreparing ground for other future waves ofdisinvestments in the fossil fuel industry.

Let’s wake up the sleeping beautyOnly a few major UK pension funds are officiallyactively mobilised to tackle climate change. TheEnvironmental Agency Pension Fund12, the Church ofEngland Pensions Board13, the National EmploymentSavings Trust (NEST)14 are among them, and havepublicly joined PDC, Montreal Carbon Pledge or ParisPledge for Action. Surprisingly, in a country whereMark Carney made his speech, where several assetmanagers made strong commitments towards a lowcarbon economy, and where the involvement ofinvestment consultants like Mercer15 contributes toraise awareness on the impact on climate change oninvestment returns, there is still a low level ofconsideration by pension funds.

Some may say Brexit invites these ‘wait-and-see’behaviours. However, Brexit is not the only reason. It lies in the fact that fiduciary duty has yet to beupdated with the explicit recognition of climatechange-related risks in order to make the industrymove towards a low carbon economy. Nobody canblame trustees for not yet integrating climate changerisks if they are not given proper instruction and easymethods to apply. But all the signals are pointingtowards the same outcome, as aforementionedorganisations work together16 to deliver thisinitiative, and to ensure that sustainability isintegrated into investors’ fiduciary duties for the 21st century.

In the meantime, the lesson to be learnt from the recent bankruptcy of giant coal mining company Peabody Energy should prompt pensionfunds to react and focus on the long-term value of their assets. Don’t wait, the first movers will bethe winners. [ ]n

6 http://globalinvestor

coalition.org/

7 http://www.worldbank.

org/en/topic/climate

change

8 http://www.unpri.org/

9 http://www.unepfi.org/

10 http://montrealpledge.

org/

11 http://unepfi.org/pdc/

12 https://www.eapf.org.uk/

en/climate-change-

carousel

13 https://www.churchof

england.org/clergy-

office-holders/pensions-

and-housing/church-of-e

ngland-investment-fund-

for-pensions.aspx

14 http://www.nestpensions.

org.uk/schemeweb/Nest

Web/public/whatisnest/

contents/Responsible-

investment.html

15 http://www.mercer.com/

our-thinking/investing-in-

a-time-of-climate-

change.html

16 https://www.unpri.org/

press-releases/fiduciary-

duty-in-the-21st-century-

announced-a-three-year-

programme-to-integrate-

sustainability-into-

investors-fiduciary


T o facilitate the debate on long-term investing,we launched the social newsroomwww.shiftto.org this spring. An

introduction to this topic is set out below in a Q&A with Dominic Barton, Global ManagingDirector of McKinsey & Company and a member of the editorial board.

In your opinion, what changes must bemade in asset management?Asset management has a critical role to play inreorienting the investment value chain toward long-term value creation. First, asset owners andmanagers must reorient their portfolios towardlonger-term performance, looking to asset classesand investments, like infrastructure, that providelong-term value, but may take longer to see returns.

To support these changes, asset managers shouldalign compensation and performance measurementwith these longer time horizons – such as GIC’s(investment corporation of the Government ofSingapore) policy to evaluate manager bonuses on 5- and 10-year performance. Furthermore, newbenchmarks have a role to play in encouraging assetmanagers to take a longer view and encouragecompanies to adopt and showcase sustained valuecreation plans. For example, the recent creation ofthe S&P Long Term Value Creation Index –and thestrong interest in using the new benchmark – is agreat step forward.

Finally, asset managers must devote more time andresources to engagement with management teamsand boards. There is no substitute for active investorswho develop a deep understanding of businesses and promise support for long-term value creation.

What has been your motivation inlaunching the Focusing Capital on the Long Term (FCLT) initiative?Along with our partners, McKinsey helped to launchthe FCLT initiative because we saw the growing costsof short-termism. I had spent over a decade livingand working in East Asia, where corporate andinvestor timelines are far longer, and when I returnedto living in London, I was surprised by how muchpressure CEOs felt to demonstrate results in a matterof quarters. We saw that this was destroyingeconomic value, diminishing shared prosperity

among a broader set of stakeholders, andundermining trust in capitalism in the wake of thefinancial crisis.

How – and with what measurements – canyou determine when long-term investing isa success?Long-term investing is a notoriously difficultoutcome to measure. However, there are severalareas that are key indicators. First, and foremost, we can look to investment returns for managers over horizons and whether asset owners are meetingtheir most fundamental long-term objectives (e.g.can pension funds meet obligations without takingundue risk?). Similarly, we can look at corporationsand boards’ dedication of time and resources tolong-term strategy (e.g. how long are they spendingon these topics?) and the tenor of corporate-investordialogue (e.g. are analyst calls focused on minutiaeover the next quarter or truly strategic issues?).Long-term health measures such as quality of talentpipeline, innovation rate, trust levels with keystakeholders, and resilience also need to beidentified for each company.

At a systemic level, we can measure long-terminvesting by the proportion of cash flow and profitsgoing back to investment (either in capitalexpenditure or R & D), and unfortunately thesenumbers seem to be falling. Finally, we continue toconduct qualitative surveys of how much pressuremanagers feel to demonstrate short-term results,and what value sacrifices they are willing to make to meet short-term targets.

What do you find particularly significant in such initiatives as FCLT andwww.shiftto.org I am impressed by the breadth of interest in theseinitiatives. Despite the geographic differences inbusiness culture or regulation, we find that short-termism is of concern around the world. Unlikemany business associations, these efforts haveattracted an incredibly diverse set of stakeholdersacross geographies and industries– from mining toconsumer products and from hedge funds togovernment officials. In addition, I believe thepractical orientation of these efforts is unique.

FIDUCIARY MANAGEMENT

Christy JesudasanBusinessDevelopment DirectorKempen

Despite the

geographic

differences in

business culture

or regulation,

we find that

short-termism

is of concern

around the

world

Combat the growing short-term mindset

[ ]n

insightInvestment

O n 28 July the Pensions Regulator published its newCode of Practice no. 13 ‘Governance and administrationof occupational trust-based schemes providing money

purchase benefits’ (the DC Code), along with six accompanyingDC Guides. In this article, we focus on changes made since the2013 version of the Code, taking each of the Guides in turn.

What are the DC Code and the DC Guides?The DC Code sets out the regulator's expectation of trustees,and what is required of them to comply with legislation,including the recent changes to introduce increased flexibilityfor members with money purchase benefits. The Code isshorter and simpler than its 2013 predecessor, and replaces theexisting 31 ‘quality features’ with guidance and practicalexamples.

The language used in the DC Code differentiates clearlybetween legal requirements (‘the law requires’) and theregulator's expectations (‘we expect’). The regulator has alsomade clear that the new DC Code is not intended to increasethe regulatory burden, but to update the existing regulatoryregime to reflect recent changes in the law. There is a self-assessment template accompanying the Code which enablestrustees to map the old quality features to the requirements ofthe new Code and assess their performance. As with all Codesof Practice, compliance is not a legal requirement, but the Codeand the Guides do set out examples of best practice.

The new DC code


Tamara Calvert Partner DLA Piper UK LLP


t

Does it apply to my scheme?The Code applies to all occupational pensionschemes offering money purchase benefits, includingtrust-based defined contribution (DC) arrangements,hybrid schemes, master trusts and defined benefit(DB) schemes offering money purchase additionalvoluntary contributions (AVCs) or underpins. Wherethe only money purchase benefits under the schemeare AVCs, trustees can take a proportionateapproach, and some of the requirements do notapply to AVC only benefits.

Key changes from the 2013 versionBehaviours and processes associated with the 2013Code and the quality features should now bebusiness as usual for trustees, so we focus below onareas of new or enhanced regulatory content as aresult of changes in the law since 2013.

The trustee boardThe Code and Guide now provide: n additional guidance about determining fitness

and propriety of new trustee candidatesn information about the new statutory requirement

to appoint a chair of trustees. The regulatorprovides guidance on the appointment process,the role of the chair, and the qualities that a chairshould possess

n detailed guidance on board composition, and asuggestion that trustees give serious considerationto appointing a scheme secretary to help them toachieve the scheme's business plan objectives,manage advisers, facilitate meetings and reviewboard effectiveness

n more detail about sub-committees, particularlyrecording and reviewing their terms of reference

n additional guidance on matters to be covered atboard meetings (reports of sub-committeedecisions have been added to the list) and anexpectation that trustees should meet at leastquarterly

Scheme management skillsThis section of the DC Code and the related Guidelooks at trustee knowledge and understanding (TKU),managing risk, working with advisers and serviceproviders, working with the employer and conflictsof interest. New to the 2016 version are:n additional detail about appointing advisers and

service providers, including a checklist of things tolook for when reviewing terms of appointment

n updated guidance on risk management processes,including increased vigilance against pensionscams and cyber security threats, and an examplerisk register

AdministrationThe regulator continues its focus on goodadministration by adding to the Code and relatedguidance its expectation that:n administration will be a substantive agenda item

for every trustee meeting and will feature on therisk register

n trustees will receive regular reports andinformation from their administrators

n procedures will be put in place for trustees tocheck that individuals administering the schemehave the appropriate training and expertise, andto check whether the administrator has anyindustry accreditation (noting that accreditation is voluntary)

n there will be a continued focus on good record-keeping (as in the 2013 Code) but with additionalguidance on keeping member addresses up todate, and at least monthly reconciliation ofcontributions and investments

n ‘core financial transactions’ such as investment ofcontributions, investment switches, transfers andpayments to members should be undertakenpromptly and accurately (a legal requirement sinceApril 2015). The regulator notes that electronicmeans should be used where possible, and thatlegislative timescales should be treated aslongstops and not targets. The regulator givesexamples of what it would consider, or notconsider, to be unnecessary delay

Core financial transactions -example of the regulator'sexpectationsn where the scheme operates a daily dealing cycle,

contributions are invested within three workingdays of receipt, and

n where there is a less frequent dealing cycle,contributions are invested within five workingdays of receipt

Whilst the regulator has not set a timescale forcompletion of transfers, it does emphasise the needto streamline processes and for increasedtransparency on performance – best practiceguidance is expected to follow in the new year.

Investment governanceThe DC Code covers much the same ground as the2013 Code, but with additional guidance in thefollowing areas:n new statutory requirements in relation to ‘default

arrangements’, including having a statement ofinvestment principles in relation to the default

The DC Code

sets out the

regulator's

expectation

of trustees,

and what is

required of

them to

comply with

legislation,

including the

recent changes

to introduce

increased

flexibility for

members

with money

purchase

benefits


arrangement, and monitoring its performance. A ‘default fund’ is one where contributions areplaced without the member having expressed achoice, or an arrangement where more than 80%of the members have chosen to invest

n new sections on fiduciary management, the LawCommission's 2014 guidance on responsibleinvestment, and information about theassessment of security of assets

n more detail around designing investmentarrangements, including understanding themembership, assessing fund options, fundselection and documentation

n further guidance on engaging with members inlight of the new DC flexibilities, and designingand reviewing an investment strategy with theflexibilities in mind

Value for membersNew statutory governance standards introduced in2015 include the requirement for trustees tocalculate charges and transaction costs borne bymembers, and assess whether they represent valuefor money. This new section of the Code andaccompanying Guide sets out the regulator'sexpectations, including that:n the regulator expects charges to represent value

for money where the cost, and the serviceprovided for that cost, is appropriate to themembership as a whole, and compared to otherproducts on the market

n trustees should as a minimum consider thefollowing areas when assessing value: schememanagement and governance, administration,investment governance and communications. The Guide also contains an example approach to assessing value

Trustees should note that the ‘value for members’requirement is separate to the ban on member-borne commission and active member discounts, and from the charges cap. Compliance with thoserequirements will not necessarily mean that thescheme offers value for members.

Communicating and reportingLike the previous guidance, the DC Code promotesclear and accurate member communicationstargeted at your scheme's membership. The Codealso looks at the new requirements to signpostPension Wise (introduced in 2015) and the provisionof retirement risk warnings (introduced in 2016).

The regulator sets out a ‘best practice’ process forthe provision of retirement risk warnings, includingexample wording. Note that the regulator's guidancegoes beyond the statutory requirements in somerespects, including:n the regulator counsels against sending any

application forms for options at the same time asinformation about member options (the lawallows these to be sent at the same time)

n the regulator also suggests that any applicationform includes a statement to be signed by themember that he/she has read the retirement riskwarnings, and confirming whether or not he/shehas received Pension Wise guidance or financialadvice, although these are not statutoryrequirements

Other aspects of the regulator’s guidance which have been strengthened include:n the suggested provision of information about

scams in all relevant member communications,not just transfer packs

n a separate note on the regulator's website aboutcommunication with members about tax relief andhow the two methods – relief at source and netpay arrangements – can affect different members.The regulator also provides example wording

The ‘reporting’ section of the Code covers the newChair's statement and what should be included, butthe regulator has said that it is not its role to providea template. Failure to produce a Chair's statementattracts a mandatory financial penalty of between£500 and £2,000, with the first fines having alreadybeen issued.

What do trustees need to do now?n read the Code and the Guides (they are very

accessible and easy to navigate online)n assess your scheme against the standards in the

Code using the self-assessment tool provided(noting that not all of the requirements are relevantwhere the only money purchase benefits are AVCs)

n the assessment tool uses a traffic light system. For those items where the scheme ranks amber orred, trustees should consider an action plan toimprove those standards

n use the DC Code and the Guides for guidancewhen specific issues arise, such as adviserappointments or changes to the defaultinvestment provider.

The regulator

expects

charges to

represent

value for

money where

the cost, and

the service

provided for

that cost, is

appropriate

to the

membership

as a whole,

and compared

to other

products on

the market

[ ]n


[ ]n

insightexpert

P ost pensions freedoms instances ofindividual and bulk DB pensions transfershave been rising but transfer times are

under FCA scrutiny. The right technology canhelp improve the outcome for consumers,schemes and TPAs.

Since the introduction of the pensionsfreedoms, demand to transfer out of definedbenefit (DB) schemes to defined contribution (DC)pensions has escalated.

There are two main drivers of this: the abilityprovided by the new legislation for someone aged55 or above to access the cash from their DCpension and use it as they will, and also the ability topass on wealth through the pension to beneficiariesfree of tax, where the pension holder dies before 75,and at the beneficiaries’ nominal rate of income taxafter that age.

It is easy to see why this is appealing compared towhat could seem more restrictive DB pensionarrangements. Hence, financial planning and inparticular, inheritance tax mitigation, are now majordrivers to move money out of the DB environment.

Furthermore, events like the BHS pension schemecollapse and the imbalance between liabilities andassets reported on DB schemes will have raisedconcerns with many people, who may want to taketheir money out and put it into a DC scheme, wherethey can have more control.

Post the EU Referendum and the Bank ofEngland’s decision to cut the interest rate again,from 0.5% to 0.25%, gilt yields have fallen,increasing transfer values which is also making themovement from DB to DC more appealing.

So, it is not surprising to learn that recentresearch among financial advisers found that 75%report a rise in client requests for DB pensiontransfers, with 40% reporting significant demand.

But the demand is not limited to personal pension holders.

Post-pension freedoms, there has also been anoted rise in the number of trustees looking tosecure the best outcome for scheme members,resulting in the need for bulk DB transfers. These arein addition to the incentivised bulk transfers, beinginstigated by employers.

This trend is likely to continue as people seek thegreater control and flexibility available to them inrespect of their retirement funds.

The problem for all concerned is that due to thecomplexities of this kind of transfer, the process tomove the money can be intensely time consumingfor end consumers, advisers, pension schemes andthird party administrators (TPAs) alike.

As well as this, the Financial Conduct Authority(FCA) has turned its spotlight on the issue of slowtransfer times and the lack of transfer automation bythe trust-based occupational sector, establishing anIndustry Working Group to help drive forward bestpractice in this area.

AdviceThe need for individuals or trustees to have soughtprofessional advice to ensure the action being takenis right for them or the scheme members is vital. Butthis can be very time intensive, with regulatedfinancial advice taken up to an estimated 20 hoursor more to complete.

Then, if having taken advice the decision is tomove forward with the transfer, then the schemeactuary needs to be involved to calculate a finaltransfer value. For many schemes this would thenlead to a paper process to carry out the transfer.

TechnologyIt is here where technology can be brought in tocreate greater efficiencies in the process, making itfaster for the end consumer and also more costeffective for the ceding and receiving schemes.

Using an automated transfers system can make allthe difference – enabling the execution of thetransfer instruction and payment so that it can beautomated, tracked and captured for auditing. Addto this the removal of paperwork and the process issignificantly smoother and faster, improving theoverall experience for the end consumer.

The changing landscape and shifting consumerexpectation that we’re now seeing doesn’t marry allthat well with existing manual processes.Automation is the only real way to ensure thattimescales are met, data is tracked and controlledand security levels are consistently adhered to.

This applies to individual as well as bulk schemetransfers using automated transfers services.

By necessity, the DB pension transfer adviceprocess will take time, but where the process can beaccelerated it makes sense to do so - improving theoutcome for all involved – especially members.

PENSION SYSTEMS

Paul PettittManaging DirectorOrigo

Making DB transfers simpler, smoother, swifter

Automation is

the only real

way to ensure

that timescales

are met, data is

tracked and

controlled and

security levels

are consistently

adhered to


Congratulations tothe PMI’s April 2016Prize Winners

The Core Unit 1A prize

I joined BBS Consultants & Actuaries in 2015 after graduating from the University of Aberdeen. I currentlywork as a pensions administrator, but I am due to join the consultancy team later this year.

BBS are keen to support their employees in achieving professional qualifications, and encouraged me to sitthe PMI exams after I completed the Retirement Provision Certificate (RPC).

Taking the PMI exams is greatly expanding my knowledge of all aspects of pensions, which is one of myprimary objectives in terms of furthering my career in this industry. My aim is to eventually complete theAdvanced Diploma in Retirement Provision (ADRP). As a nationally recognised qualification, ADRP representsone's dedication to their work and their high level of expertise.

Lena WyszynskaPensions AdministratorBBS Actuaries

The Core Unit 2 prize

I started as an apprentice at Aon Hewitt just a year after completing my A-levels, and have now been workingin the pensions sector for almost two years. During my apprenticeship I passed the RPC exam, and followingthe completion of my apprenticeship I was keen to grow my knowledge of pensions further. I felt this wouldbe extremely beneficial for my career progression, and so I started studying towards the ADRP.

My daily role involves scheme secretarial work and assisting pension managers, and so the material coveredin both Core Unit 1a and 2 of the Advanced Diploma is very relevant. I enjoyed studying for both these coreunits because it was very satisfying when I saw how something I had learnt applied to my everyday role, andhow all the pieces fitted together. I look forward to developing my knowledge further as I progress throughthe other units.

Hazel HollandJunior ConsultantAon Hewitt

SPONSORED BY

SPONSORED BY

We are delighted to recognise the outstanding performance of

the Prize Winners following the April 2016 examinations. In each

Module, one candidate is awarded the prize for best performance.


SPONSORED BY

SPONSORED BY

SPONSORED BY

PRAGThe Core Unit 3 prize

I have been at Lane Clark and Peacock (LCP) for just over two years. I work mostly with occupational definedbenefit (DB) schemes, but I have recently started working on a defined contribution (DC) scheme too.

I found Core Unit 3 (Running a Workplace Pension Scheme) really useful for my day-to-day workbecause it has strengthened my understanding of some key areas, and also given me new knowledge thatI can apply to my work. For example, my understanding of annual allowance and lifetime allowancelegislation under the current tax regime has improved vastly, which has in turn improved my confidence inareas of my day-to-day work.

I have now completed two exams for the ADRP qualification, and I was thrilled to have also won the prizefor my performance in my first exam. I received lots of support from my employer whilst studying for bothexams, which was a great help.

Nicole FieldPensions AdministratorLane Clark and Peacock

The Core Unit 4 prize

I started other, wider-reaching financial exams earlier in my career, but couldn't stick with them. The maincontributor being the lack of relevance with my day-to-day role – I think it's a lot harder to invest the timewhen deep down you don't feel you will use the knowledge after the exam date. I think the relevance of theAdvanced Diploma syllabus, coupled with the fact that you can so often apply the learning in a liveenvironment, has meant the process has been a lot more fruitful this time around.

I manage a pension administration team at JLT Benefit Solutions, and a lot of the members of the team areat varying stages of the Advanced Diploma, and even more are currently working through the calculationmodules. JLT encourage all staff to work towards PMI qualifications, and have put together a very good studyand reward package including sponsorship, study days and monetary rewards for exam passes.

I started the PMI exams because I was working at a small consultancy surrounded by incredibly experiencedpeople. It was suggested to me by a senior manager that the Advanced Diploma could level the playing fieldsomewhat in terms of experience/skills gained.

Previously I fulfilled a role of PMI mentor to less experienced staff embarking on their PMI qualifications.Still today I can't recommend them enough to anyone who asks.

Neil CowiePensions AdminstratorCPRM Limited

The Defined Benefit Arrangements prize

I joined LCP after graduating from the University of Southampton with a degree in economics. I have nowworked in their pensions administration department for almost four years.

LCP has a generous study programme which has allowed me to prepare for multiple exams. I have passedthree modules of the ADRP and I am currently studying for two exams in October.

The ADRP exams have helped me gain understanding across the breadth of pensions areas, which helpsplace my day-to-day work into context.

With the majority of my exam experience being in analytical subjects, sitting the ADRP exams has alsoreally tested my memory skills. The use of anagrams is a key part of my study technique.

Leanna WollacottPensions AdministratorLane Clark and Peacock


The Defined Contribution Arrangements prize

I began my pensions career in May 2013, when I joined Capita Employee Benefits on the administration sideof the business, dealing with all aspects of administering both DB and DC occupational, trust-based schemes.In October last year I moved into a client-facing role, supporting more senior consultants in working with arange of both trustee and corporate clients of various scheme types and sizes.

Capita has a supportive training and development environment which was very helpful whilst studying forthe exams.

The DC examination proved useful in expanding my subject knowledge, especially in areas such as DCinvestment and governance, the aspects of risk management and member communication and engagement. Iwould definitely recommend studying for the qualifications with the PMI.

Marcin BalawenderAssociate ConsultantCapita

The Reward and Retirement Provision prize

I began my career in 2000 at the CIS working on the Pensions Review, which gave me a taste for the industry.I have been an administrator at Mitchell Consulting since 2005, and have found the PMI exams to be aninvaluable way of improving my overall pensions knowledge and confidence when dealing with members,trustees and other pensions professionals.

It has been difficult to fit studying for the exams around the demands of working for a successful, growingcompany in an ever-evolving industry and looking after a young family. Although I have found the courses tobe very challenging, Mitchell Consulting's progressive attitude to supporting employees through theirstudies, as well as the patience of my wife and kids, has been instrumental in me successfully passingmy exams to date.

I am proud and delighted to have been awarded the Reward and Retirement Provision prize and my advicefor exam success would be:n ensure you cover the entire manual; it may be tempting to skim parts, but literally anything could come up

in the examn studying little and often is better than last-minute crammingn download as many Examiner’s Reports as you can find, and familiarise yourself with the various

answer formats. They are the best guide to avoiding common mistakes, making sure you include the keyelements the assessors are looking for – and with marks being awarded for formatting, making sure youdon't throw marks away unnecessarily

n if you can, use your local library. Locking yourself away from distractions and getting stuck into themanual, assignments and past papers has been the thing that has helped me the most

David SloanPensions AdministratorMitchell Consulting

The Retail Advice and Regulation prize

I have worked at Willis Towers Watson as a DC consultant for two years, and have been studying towards myAdvanced Diploma for the past 18 months. The exams have been great at building up my knowledge of thepensions industry, giving background detail to explain how the industry operates. They have also allowed meto gain understanding in areas I may not encounter on a daily basis, but that are still important to my widerrole.

Oliver HollandDC ConsultantWillis Towers Watson

SPONSORED BY

SPONSORED BY

SPONSORED BY


The International 2 prize

I have a Franco-German diploma in Intercultural Communication, and an MBA in International Management. Ihave been working in the field of Employee Benefits for about eight years. Currently, I am employed as SeniorConsultant for Employee Benefits by DVA, the in-house Broker of Deutsche Bahn AG.

I signed up for the two modules of International Employee Benefits proposed by the PMI in conjunctionwith IEBA, as I had been recommended by a former Danish colleague that it would provide me with addedvalue for my everyday work.

What I consider most challenging was the fact that all the material covered is in English. I have a goodcommand of the English language, but it still can be hard to learn and remember technical aspects in alanguage which is not one’s native tongue. Furthermore, you have to be very self-disciplined, as you attend noclasses in person, and have to study while working. The good thing is that you have voluntary exercises perchapter, and one mock examination per module. You can do these exercises and submit them electronically tobe marked by a tutor who will provide feedback. I did use this feedback tool, which helped me improve myoverall performance in the exams.

It is very enriching to learn about the different social security systems and occupational benefit schemes inthe most developed countries and emerging markets. You realise that there are so many differences – even inEurope. All countries are facing severe problems with their social security systems and the demographicchallenge. In addition, it is interesting to learn more about the many different stakeholders involved in theprocess of International Employee Benefits and the setting up and benefits of a global benefits policy, amongstother topics covered. Bottom line, it was a positive experience and I recommend embarking on it to those whowish to enhance their professional International Employee Benefits knowledge and their personal horizon. Inthe end, I believe that hard work, perseverance and motivation are the keys to success, and pay off.

Muriel PetersilieSenior Consultant (Employee Benefits)Willis GmbH & Co KG

The Professionalism and Governance prize

I currently work at Willis Towers Watson as a DC Consultant, having worked in the pensions industry for nearlysix years since graduating with a degree in Business Management and Economics. My role includes workingwith both trust-based and contract-based clients, on an ongoing basis and on more bespoke projects.

I initially started my career working in pensions administration, which I believe gave me a solid foundationfor understanding how pensions work in general (having pretty much no knowledge before I started mycareer). I then decided to transition to consultancy (both DB and DC) and started my ADRP qualification. Ifound the ADRP increased my broader knowledge base, and touched upon the many facets of pensions,which definitely helped in progressing my career.

I found the ability to choose certain modules extremely helpful, as it enabled me to focus on topics whichinterested me and were relevant to my career. Making use of all the past papers and online assessments wasdefinitely a must; without them I don’t believe I would have finished all the exams as quickly as I did.

This module was my last exam in the ADRP so I am delighted not only in passing it, but for achieving theProfessionalism and Governance prize.

Natasha MarkandayConsultantWillis Towers Watson

SPONSORED BY

SPONSORED BY


a month inpensionsSharon PiertManaging AssociateNabarro LLP

LEGALUpdated PPF restructuring guidance Following several high profile restructuring cases, thePension Protection Fund (PPF) says it thinks "it isimportant that people have a better understanding of [its]approach to [restructurings]" and consequently issuedupdated guidance. The guidance lists the PPF's sevenprinciples used to make all decisions on restructuringproposals. If these principles are met, the PPF says it canparticipate in negotiations about the potentialrestructuring or rescue of an insolvent business.

The PPF's seven principles are: n employer insolvency must be inevitablen the pension scheme must receive significantly bettermoney or assets following the restructuring than ifthe employer had entered insolvency. The proposalmust also be realistic compared to the section 75 debtin the scheme

n the pension scheme must receive a fair offer,compared to other creditors and stakeholders;

n there must be an anti-embarrassment stake for thePPF. This is a minimum of 10% of the equity if theshareholders are new and at least 33% if the sameparties are involved in the old and the new,restructured, business

n the PPF is satisfied that a contribution notice or FSDwould not result in a better outcome for the scheme

n the PPF considers that the banks' fees for anyrefinancing are reasonable; and

n the party seeking the restructuring pays the trustees'and the PPF's costs relating to the restructuring

Maximum fines for no Chair'sannual statementThe Pensions Regulator imposed the maximum fine of£2,000 on the professional trustee of three separateoccupational pension schemes for failing to prepare theChair's annual statement on defined contribution (DC)governance. The mandatory fine is between £500 and£2,000. The regulator has discretion as to the preciselevel of the fine.

The regulator published its compliance andenforcement policy for occupational pension schemesproviding money purchase benefits in June 2016 and asection 89 regulatory intervention report in respect ofthese fines. The compliance and enforcement policystates that the fine is calculated as follows:n the minimum fine is £500n this is then increased by 10p per member with moneypurchase benefits, up to £2,000, maximum

n previous failures to prepare the Chair's statementwithin the last three years means the 10p per member element of the fine is doubled, up to £2,000,maximum; and

n schemes with a professional will generally be finedthe maximum of £2,000

The regulator may decide to reduce the fine but notbelow £500 if there are extenuating circumstances,which it will consider on a case by case basis.

The section 89 report states that the regulatorimposed the maximum fine on the professional trusteebecause there were no mitigating factors and it expectsprofessional trustee to meet a higher standard of care.

Ombudsman dismisses membercomplaint about top uparrangement A company provided a top up arrangement when itclosed a defined benefit (DB) pension scheme to futureaccrual in 1998 and provided future service benefits in aDC arrangement. The details were set out in anannouncement and it stated that if the employee retiredat 60 or later, he would be entitled to the better of theDB or DC benefits, calculated at retirement. Theannouncement also stated that the company would makeup the shortfall and set out three possible methods.

The member retired in 2013 and asked the companyto use the method that was most tax efficient for him,i.e. the company paying the extra pension from itspayroll. The company decided to transfer the member'saccumulated DC benefits to another company schemewhere his benefits were augmented. This method wasincluded in the announcement but the membercomplained because this method triggered an annualallowance tax charge.

The company suggested an arrangement that wouldhave reduced the tax charge by £44,000 but themember declined. The scheme permitted the member tomeet the tax charge through a scheme pays mechanismwith deductions from his pension instalments.

The company's advisors said the member's preferredroute would mean that the member would receive lesstax free cash, be an unsecured creditor of the companyand it might impact on the company's future ability torestructure or enter other commercial transactions. Thetransfer and augmentation option was the method usedpreviously for other members with this specialarrangement.

The Ombudsman determined that the company hadgiven effect to its promise and it had no obligation topay benefits in the most tax efficient manner for themember. The announcement made it clear that thecompany could choose how to implement the toppension and it made a considered choice after takingprofessional advice.


Hamish WilsonManaging Director HamishWilson Ltd

ACTUARIAL AND INVESTMENT

I sometimes wonder who is really running pensionschemes. Sponsors and trustees of big schemes and theirconsultants and other providers get big ideas. Inevitablythese ideas are promoted to little schemes which tend tofollow suit driven by herd instinct. The net result isoften that smaller schemes do things for no good reason.Cases in point may be the current clamour for riskreduction, e.g. buying back pension increases, the rushaway from risk in investment portfolios, etc.

But are these decisions taken on the back of agreedobjectives and a sensible strategy for achieving them?Do the trustees or their sponsor really understand whythey are doing what they are doing? Is it consistent with what the sponsor wants to achieve? How do theyknow this?

We are increasingly working with our clients to gethigh level objectives and associated strategies aligned sothat, as far as possible, trustees and sponsors are workingfrom the same page and know:n why they are doing what they are doing and n that this is consistent with an approach which bothtrustees and sponsor have bought in to

Some risk reduction actions may be inconsistent with asponsor looking to make its assets work and able to takerisk to do so, e.g.

n what if the sponsor is a financial institution alreadyover-invested in bonds? Is it really necessary to buy more?

n what if the sponsor makes money from an ageingpopulation (e.g. because it builds retirement homes or is a pharmaceutical company which benefits fromincreasing longevity)? Do they really need to hedgeagainst increasing longevity?

So let’s have more strategic direction. And let’s get itjoined up. An approach we use is to facilitate discussionsbetween the sponsor and the trustees. Get them talkingto each other. Make them aware of the legal and marketconstraints they have to work within, and also of theopportunities available to help them achieve theirobjectives. But first get them to agree those objectivesand the strategy for achieving them. Diagrammatically the process is shown in Figure 1.

This does not need to be a long drawn out process.Sponsors and trustees can come to meetings informed oftheir own objectives at least. At the end of the meetingsthey will ensure the business plan for the scheme isconsistent with what both trustees and sponsor aregenerally trying to achieve.

Taking back control can save serious money both nowand in the future and could give the covenant a real boost.

Take back control

Figure 1


Arepensions cursed orblessed?


The short-term

outlook does

not appear rosy

for the majority

of DB schemes,

and it is not

unreasonable

for trustees

and sponsoring

employers to

have concerns

There is some debate as to whether the saying“may you live in interesting times” is a curseor a blessing. Whichever side you fall on that

debate, there can be no doubting that the monthsbefore and since the European Union (EU)referendum have been interesting. It also seemsinevitable that there will be more interesting timeson the horizon.

However, even before the referendum result wasannounced it was well known that defined benefit(DB) occupational pension schemes have been underpressure for some time.

Are these cases just an unhappy coincidence, oran indication of the direction of travel for DBoccupational schemes?

Impact of the EU referendumThe uncertainty before the referendum and theultimate result led to market volatility, with manycommentators predicting that continued volatility islikely to be the situation as the Brexit negotiationsbegin in earnest.

Immediately following the vote, there werereports that the combined deficit of UK DB pensionschemes had reached record highs. Historic levels ofgilt yields act to place a higher value on pensionschemes liabilities and could result in many schemesseeing a rise in their deficits.

As a result, the short-term outlook does notappear rosy for the majority of DB schemes, and it isnot unreasonable for trustees and sponsoringemployers to have concerns. In the short to mediumterm, trustees should monitor the situation and themarkets carefully, and take appropriate advice oninvestment strategy. In the longer term, a lot willdepend on the terms of the departure from the EU,and the agreements put in place with countries inand outside of the EU.

However, it is equally important to put the currentenvironment into perspective and remember that,fundamentally, pension schemes are long-terminvestment vehicles. As a result, investment strategyand investment principles should already bedesigned to cope with short-term fluctuations andvolatility in investment markets.

What has always been the case, but may now bemore significant, is that the key to the sustainabilityof DB schemes is the ability and willingness of anemployer to financially support the scheme.

The consequence of the vote to leave the EU onthe sponsoring employer’s covenant will be differentfrom scheme to scheme. For some employers, Brexitwill have little impact, or even a beneficial one.However, for others there will be a negative impact.This could directly affect the employers’ ability tofund their schemes.

Clear and present dangerIt is widely agreed that the full impact on pensionschemes will not be known for some time.However, recent high-profile events, involving theBritish Steel Pension Scheme and BHS, havehighlighted dangers that are already present tooccupational pension schemes and the benefitsmembers may expect to receive.

In particular, the collapse of BHS once againbrought into sharp focus the costs of providing a DBscheme, and the possible consequences if employersare unwilling or unable to support it. Alongside thisis the potential impact on the scheme should therebe a sale of the company.

The funding position of the BHS scheme haddeclined significantly. Some have suggested that thisshould have been a clear signal to the PensionsRegulator that there was a fundamental problem,and that they should have been more pro-active andacted before it got to the stage where entry into thePension Protection Fund (PPF) was inevitable.

In defence of the regulator, the BHS pensionschemes were not the only pension schemes to seedeclining fortunes over the same period. However,the appropriateness of a 23-year recovery periodfollowing the 2012 valuation should have set offalarm bells a lot sooner than it did.

But could more be done to protect schemeswhere they are supported by a strong employer? In the case of BHS, dividends totalling £414 millionwere paid by BHS Ltd in the 2002-2004 period. Isthe next logical step to give more power to trusteesor the regulator to require employers to increasecontributions to a scheme in deficit when dividendsare paid?

Further criticism of the regulator (some would sayunfairly so) surrounded their role, or lack of role, inthe March 2015 sale of BHS to Retail AcquisitionLimited, which was described in the Work andPension Committee inquiry as a ‘manifestlyunsuitable purchaser’. t

Mark BeckTechnical ServicesManagerRPMI


Under current law, the regulator has no formalrole in the sale of a business, although it does havevarious anti-avoidance powers it can use post-sale.The regulator would rightly expect to be keptinformed of developments and potential proposalsmaterialising in the case of BHS. However, to preventsuch situations happening, the regulator needs to beadaptable and have adequate resources to enable itto be more pro-active in the current fast-moving anduncertain environment.

But is it time to give the regulator greater powersand resources to fulfil their role of protecting thebenefits of scheme members? There are a number ofpossible ways of strengthening the role of theregulator, including making the voluntary process ofobtaining a clearance statement compulsory, ormaking it a requirement of any acquisition or mergerthat a clearance statement is obtained. Of course,this would need to be considered in conjunctionwith the regulator’s other objectives, which includeminimising any adverse impact on the sustainablegrowth of an employer.

Cutting back on DB protectionsAn important protection for DB members is inSection 67 of the Pension Act 1995, which placesrestrictions on detrimental changes to members’accrued rights. However, the situation with BHS andthe British Steel Pension Scheme highlights thatthere is clearly a risk that benefits promised in DBschemes will not get delivered, albeit withcompensation being provided by the PPF.

There are two common themes with the BHS andBritish Steel pension schemes, as well as the recentrestructuring of the Halcrow pension scheme:

1. The sponsoring employers behind each ofthese schemes were not strong enough tomeet their pension obligations, and

2. A reduction in accrued benefits has beenconsidered

The difficult question to answer is, are theseproposals to reduce benefits a way of allowing anemployer to shirk their responsibilities, or a genuineattempt to make DB pension provision sustainable inthe long term?

Are we living in a particularly turbulent time, or isthis a clear indicator that more radical proposals arerequired to preserve DB provision in the UK?

As Frank Field MP has recently stated: “Pensionlaw and regulation must urgently adapt to the issuesof the future, rather than the problems of the past.The whole savings edifice is in danger.”

There may be some reluctance to removeguaranteed rights already given to date. However,there could be merit in discussing whether to reducethe amount of benefits that are fully guaranteed. Thismay make DB schemes sustainable, and perhapslessen the impact from factors such as accountingstandards.

For example, it may be worth exploring theviability of only guaranteeing benefits that would becovered by PPF compensation in line with Section 67.A lower level of protection could then apply for theremainder of these benefits.

If any changes could be structured in a way thatallows a relaxation in how DB liabilities are dealt withfor accounting and scheme funding purposes, thiscould give further merit to such an approach.

Although this would not address issues that DBschemes may have for benefits built up to date, itmay increase the sustainability for those schemesthat continue to offer DB accrual, albeit with a lowerlevel of security. However, as Section 67 only reallygives full protection to members of pension schemeswhile their sponsoring employer remains solvent, thisarea would seem to warrant further exploration.

ConclusionThe last few months have shown that we are livingin turbulent times, and the future is far frompredictable. As a result, the Government, theregulator, trustees, employers and members need tobe flexible and adaptable to change in order to makepensions sustainable now and in the future.

Whatever happens, there can be no doubt we areliving in interesting times, and it is only going to getmore interesting.

Are we

living in a

particularly

turbulent

time, or is this

a clear

indicator that

more radical

proposals are

required to

preserve DB

provision in

the UK?

KEY MESSAGESn How will the decision to leave the EU impact

trustees and their pension schemes in theshort and long term?

n Are recent high profile cases involving theBritish Steel Pension Scheme and BHS a signof things to come?

n Is it time to reconsider Section 67 protections?

[ ]n

What 2016 has

shown is that

this market is

alive to

opportunity;

financial

conditions are

only one facet

of a transaction

and insurers

have proved

both innovative

and responsive

in their

dealings with

DB pension

schemes


I t is safe to say that 2016, so far, has been aturbulent time for defined benefit (DB) pensionschemes. We have seen the political and economic

fallout from the Brexit vote, the reduction in the baserate of interest to a historic low of 0.25%, andexpansion of the quantitative easing policy (includingthe purchase of corporate bonds as well as gilts).

Schemes are also increasingly having to contendwith a negative cashflow profile, whereby benefitand expense outgo exceeds contribution andinvestment income. The impact of all of this hasbeen felt in scheme asset and liability values.

Despite the above, a number of such schemeshave been quietly going about the business of riskmanagement; and choosing to transact bulk annuitydeals. This article looks at how such schemes aresuccessfully transacting with insurance companies.

Preparation, preparation,preparationA misquote of Tony Blair, but a neat summary ofhow well managed schemes are going about theirde-risking. Looking at it in more detail, there are anumber of factors at play:

Hedging means that schemes are immunisedagainst the impact of changes in interest rates andinflation on their liabilities. This means that theycould be more able to use movements in the valuesof their assets to exploit sometimes temporaryopportunities to de-risk.

This can occur when scheme assets responddifferently to changing economic conditionscompared to insurer pricing, as insurer pricing is alsoimpacted by other non-bond illiquid assets thatinsurers choose to back annuities.

Furthermore, for overseas parents of UKcompanies with DB pension schemes, the exchangerate impact on Sterling post Brexit has madetransacting a bulk annuity more achievable.

For such schemes volatility is not something to befeared, rather it represents a great opportunity, astheir hedging activity makes their funding less‘elastic’ to changes in interest rates and inflation.

Data cleansing is always important, because itsignals an appreciation of how insurers think and

helps demonstrate a real intent to transact. Givingthe insurers greater confidence in the data meansthey can more accurately price, and have less needto make any pricing allowance for data quality. Keyareas to focus on are spouses’ existence and data,accurate spouses’ pension data, addressing any datagaps and guaranteed minimum pension (GMP)reconciliation.

Well advised schemes are better placed to transactwithin short timescales, because the adviserinstinctively knows what does and does not needdoing to get the deal done. The ‘must have’ list willhave been almost completed, and the final touchescan be added in a matter of days. The adviser willthus ensure that appropriate schemes are in a stateof deal readiness.

A clear timeline and clear communication aremusic to the ears of insurers.

For example, they want to know that that boththe trustees and employer are working in harmonytowards a transaction and that (where required)funding is readily available. In some cases adelegated sub-committee dedicated to the bulkannuity deal is useful. Insurers also want to know thedates of trustee and employer meetings and the keytriggers to spark a deal into life. Detail like this isincredibly useful information for an insurer facingcompeting calls on their scarce resources and canhelp get schemes towards the front of the ‘queue’.

Of course some bulk annuity deals will alwaysproceed irrespective of current financial conditions, forinstance when corporate activity makes it a necessityand sufficient funding is supplied to make it happen.

What 2016 has shown is that this market is aliveto opportunity; financial conditions are only onefacet of a transaction and insurers have proved bothinnovative and responsive in their dealings with DBpension schemes.

Looking forward, as we approach the traditionallybusy fourth quarter of the year, it looks like pensionscheme demand will again outstrip insurer supply forbulk annuities, and it is schemes that exhibit thequalities covered in this article that are most likely toget the deal they want and move forward in theirde-risking plans.

BULK ANNUITY

Andy MorleyHead of Bulk AnnuityOriginationPartnership

Bulk annuities in 2016 – a resilient market

[ ]n

insightInvestment


Local authorityoutsourcing – LGPS: New Fair Dealprovisions unveiled


The Department for Communities and LocalGovernment (DCLG) has recently revealed long-awaited draft provisions which are intended to

give effect, within the local government sector, to theprinciples set out for central government bodies inHM Treasury’s ‘New Fair Deal’ guidance, which wasintroduced in October 2013. A consultation paperwas also published which proposes various otherchanges to the regulations governing the localgovernment pension schemes (LGPS), most of whichare aimed at tidying up drafting problems which havebecome apparent since those regulations came intoforce on 1 April 2014, but also to give LGPS memberswith additional voluntary contribution savings accessto some of the new pensions flexibilities introducedfrom 6 April 2015.

For contractors involved with local authorityoutsourcing contracts (whether providing servicesunder an existing contract or bidding for a contract)these provisions will be of interest and, at the time ofwriting, we await the outcome of the consultation.Consultation ended on 20 August 2016.

BackgroundThe original Fair Deal guidance was first introducedin 1999 in order to ensure a minimum level ofpension protection for staff transferring from centralgovernment to private sector contractors as a resultof outsourcing of services. A similar (but notidentical) set of provisions was then applied to localauthorities and other ‘best value’ authorities in theBest Value Authorities Staff Transfers (Pensions)Direction 2007, which has statutory force.

The approach adopted under both the originalFair Deal guidance and the Best Value Directionrequired the private sector contractor to provide abroadly comparable pension scheme for transferringstaff. However, under the 2013 New Fair Dealguidance, HM Treasury opted for a model underwhich transferring staff should normally be givencontinued access to their public service pensionscheme after the transfer of their employment.Likewise, staff who have already transferred out to abroadly comparable scheme under the old Fair Dealprovisions should be returned to their former public

service scheme (or nearest equivalent) when anexisting contract is retendered.

All the main central government schemes,including the NHS Pension Scheme, the Teachers’Pension Scheme and the Principal Civil ServicePension Scheme, have now been amended to reflectNew Fair Deal principles. However, in the localgovernment sector the LGPS Regulations have yet tobe updated, and therefore the Best Value Directioncurrently continues to apply.

The proposals – New Fair DealAs anticipated, DCLG is proposing to use the existingadmission agreement mechanism in order toimplement New Fair Deal, and the Best ValueDirection will, in due course, be revoked.

The proposals define a new category ofemployee, known as a ‘protected transferee’. WhereNew Fair Deal applies on a first transfer of protectedtransferees from local government employment, thenew employer will in most cases be required to enterinto an admission agreement (rather than this being,as at present, just one of the possible routes whichcould be used to satisfy the Best Value Directionrequirements).

There are two exceptions to this, one of which isrelevant to contractors: where the new employerparticipates in another public service pensionscheme. In this case, DCLG presumably expects thatthe protected transferees will instead be offeredmembership of that other scheme. An example ofthis might be if an employee currently participatingin LGPS were to be transferred to a NHS body.

Conversely, on a re-tender which involves staffwho have already transferred out to a broadlycomparable scheme, the proposal is that neither theincumbent contractor (if bidding for the re-tenderedcontract) nor any other bidder should be required toobtain admission to LGPS for the purposes of thenew contract, though they will be able to opt to doso. It seems that the primary concern lying behindthis deviation from the New Fair Deal requirements isthe difficulty of legislating for a ‘forced’ bulk transferof accrued rights from the broadly comparablescheme into LGPS.

Gavin PaulPrincipal AssociateEversheds LLP

The original

Fair Deal

guidance

was first

introduced in

1999 in order

to ensure a

minimum

level of

pension

protection

for staff

transferring

from central

government

to private

sector

contractors

as a result of

outsourcing

of services

t


It is also noteworthy that a ‘protected transferee’will include not just employees of core LGPSemployers, such as local authorities, but alsoemployees of the majority of other LGPS employers,including existing admission bodies (which are notnecessarily covered either by New Fair Deal or theBest Value Direction). Similarly, any sub-contractingby the employer of a protected transferee will triggerthe new provisions. Employees of certain LGPSemployers which are outside the scope of New FairDeal (including higher and further educationinstitutions and Police and Crime Commissioners)will not be covered by the new provisions.

In addition, the proposal does not address the keyrisks associated with a contractor’s participation inthe LGPS, particularly investment and funding whichare outside of their control. It is likely thatcontractors in their response to the consultationwould have raised this as an issue and will beinterested in the Government’s response.

As mentioned above, the consultation ended on20 August 2016, and we await the outcome. Wewould not expect amending regulations to comeinto force any earlier than 2017.

The proposal

does not

address the

key risks

associated

with a

contractor’s

participation

in the LGPS,

particularly

investment

and funding

which are

outside of

their control

CommentThere are a number of respects in which thedraft provisions do not align fully with the NewFair Deal guidance. In particular, the draftprovisions significantly extend protection to coveremployers not currently covered by either NewFair Deal or the Best Value Direction.

New Fair Deal views the possibility of staff notbeing kept in (or returned to) their relevantpublic service pension scheme as being verymuch an exceptional case, whereas it isforeseeable under these new provisions that onfirst generation transfers, protected transfereescould join another public service pensionscheme. Also, re-tenders involving staff who arecurrently in a broadly comparable scheme arenot specifically addressed by the draft provisions,which potentially leaves it open to all bidders tooffer broadly comparable schemes rather thanaccess to LGPS.

It will be interesting to see whether thesekinds of issues survive the consultation process.In the meantime, existing and prospectivecontractors involved in public sector outsourcingwould do well to review the details of theproposals, with a view to understanding theirimpact, and then to await any changes arisingfrom the consultation. In particular, with theexception of the tweaks which will allow therefund of a surplus on termination, the risks of acontractor participating in the LGPS under anadmission agreement were not addressed in theconsultation, and therefore the proposalsuggests that the position would remainunchanged.

[ ]n


All schemes with a defined contribution (DC)element, other than additional voluntarycontributions (AVCs), must include a

governance statement from the Chair in their Reportsand Accounts for periods ending after 5 July 2015.

With the most common accounting date beingthe 6 April, the vast majority of schemes should nowbe in the process of producing their first ChairStatement.

The Pensions Regulator has already proven that itwill punish non-compliers with compulsory finesbetween £500 and £2,000. Trustees must be awareof the need to produce such statements, whatshould be included, and most importantly that it istheir responsibility to comply. Whilst advisers shouldbe able to provide compliant drafts, and I wouldthink it reasonable to expect them to firmly promptany forgetful trustees, it is the trustees’ responsibilityto ensure that a compliant draft is produced andincluded in the Report and Accounts; it is thetrustees who will be fined.

Do I Qualify?The first step is for trustees to identify if their schemequalifies, and although in most cases it should beobvious, this is not always the case:n if your scheme provides only DC benefits then you

need a statement (subject to an extremely smallnumber of exceptions)

n if your scheme provides only defined benefits (DB)then you do not need a statement

n if your scheme provides only DB benefits but has aDC AVC vehicle, you do not need a statement

n if your scheme provides both DB and DC benefitsthen you need a statement e.g.:n DB and DC sectionsn not sectionalised but DB and DC membersn members with DB and DC benefits

(e.g. DC top-ups)n members with transfers-in on a DC basis

n if your scheme provides benefits that are both DB and DC, then it’s a little more complicated (see below)

Underpin benefitsThere was a time when investment returns and yieldswere high, joint contribution rates were around15%, and some thought that DB schemes could be

poor value and that a better return could beachieved in DC. Thus DB schemes emerged with DCunderpins, i.e. contributions were notionallyearmarked, and on retirement/transfer/death a checkis carried out; if the accumulated notional DC fundwould provide a better benefit, the member wastreated as DC.

Then there was a time when some schemes tookbaby steps away from DB, and provided DC benefitswith a minimum guarantee of some type (e.g.capital guarantee, minimum pension, contracted outon a DB basis, etc.). Again, on retirement/transfer/death a check is carried out and themember gets the higher benefit.

For the purposes of the Chair’s statement it is notimportant whether the underpin is DB or DC, whatmatters is whether it bites. If all benefits were settledin the period on a DB basis, and the actuary is usingDB benefits for all in his valuation, you do not need astatement.

If, at any point in the accounting period, benefitswere provided on a DC basis, or in the most recentvaluation the actuary valued any members on a DCbasis, you need a statement. It should beremembered that this position could change year onyear, and must be monitored.

Further details on exemptions and what to includein the Chair’s statement can be found in Section 6 ofthe regulator's guide to the DC Code. Whereschemes are exempt from the legal requirement butstill provide DC benefits of some description, it maystill be good practice to include a statement coveringkey points.

Governance requirements of DC trust-basedschemes have increased dramatically in recent years,and are not set to slow down any time soon.Sponsors should be considering in all but the biggestof schemes whether the standalone trust model iscost-effective. The disparity in the quality of DCvehicles has increased substantially, the requirementsare not a tick box exercise, and trustees should bestriving to run quality schemes.

Trustees have to know and understand therequirements, how they relate to their scheme andthe associated risks – you cannot rely on advisers,they are not legally responsible.

INDEPENDENT TRUSTEE

Greig McGuinessTrusteeRepresentativeDalriada

For the

purposes of

the Chair’s

statement it

is not

important

whether the

underpin is

DB or DC,

what

matters is

whether it

bites

Trustees are responsible

[ ]n

insightexpert


DIVERSIFIED INVESTMENT OPPORTUNITIESinsightinvestment

Mike BrooksHead of DiversifiedMulti-Asset StrategiesAberdeen AssetManagement

First came talk of Grexit, and then came Brexit.Political risk has certainly risen in Europe, but thesame sentiment that prompted the Brexit vote canbe felt across much of the world. The policies beingfollowed by established political parties have led tofeelings of greater inequality in a number ofcountries. A large section of the populace feelsdisenfranchised and is desperately seeking change.

This feeling has fuelled the rise of populistpoliticians such as Donald Trump, the Republicancandidate for the US presidency, and Marine Le Pen,leader of France’s National Front, who are promotingattractive narratives for a more prosperous future.These politicians typically support trade barriers as abulwark against foreign competition; and portrayimmigration as a key problem.

This anti-globalisation agenda has hugeimplications for financial markets. Immigration hasboosted corporate earnings in many countries byproviding an ample supply of labour. The advance offree trade has accelerated global economic growth,which is good for stocks too. We can expect volatilityin stocks and many other asset classes with everyadvance and setback to the electoral prospects ofpopulist politicians, and with every policyprescription they devise if they gain power. Thisraises the risks for equity markets and potentiallyreduces prospective returns.

At the same time the prospective returns fromgovernment bonds are extremely low. Brexit haspushed down yields on 10-year gilts to record lowsunder 1%. This is largely because of the easingpolicy stance from the Bank of England given thatthe post-Brexit mood of uncertainty is likely to hiteconomic growth.

But the implications of Brexit spread far beyondthe UK markets. Janet Yellen, Chair of the FederalReserve, warned before the referendum result thatBrexit could “negatively affect financial conditionsand the US economic outlook” – keeping Treasuryyields down. More generally, if populism reducesglobal growth, bond yields across the world willremain lower for longer. This is evidenced byGermany joining Japan in having negative bondyields. These low government bond yields also dragdown the prospective returns from investment gradecorporate bonds as well.

So, if the risk-return trade-off from equities has deteriorated and government bonds offer verylow returns then where do investors go forconsistent growth?

One answer is diversification.There is an increasing array of investment

opportunities away from traditional asset classes thatoffer the potential for attractive returns but withdifferent return drivers. This approach is perfect for aturbulent era because it has an impressive record ofproducing good returns but with lower volatility thanother strategies – improving the risk-reward outlookonce more.

These diversifying asset classes includeinfrastructure, offering relatively stable long-runcashflows with little economic exposure. It alsoincludes various forms of higher returning creditopportunities including high-yield bonds, asset-backed securities, loans and peer-to-peer lending,subject to careful due diligence. Emerging marketbonds have also regained favour this year as aprolonged lower interest rate environment favoursemerging economies.

However, Brexit might also make someinvestments more attractive especially off the back ofthe fall in sterling. For example, high-end studentaccommodation targeting international students maywell receive a boost as Britain may see more ratherthan fewer foreign students in the wake of Brexit.Their cost of living in the country will be lowerbecause of the fall in sterling; the UK governmentmay welcome them with redoubled enthusiasm ifimmigration policy becomes more focused on skills,as many Conservative politicians who voted for Brexitwant. This would increase the demand for relativelyscarce high quality student accommodation,supporting rental growth in the sector.

We do not yet know whether 2016 marks thebeginning of the end of the long period of economicneo-liberalism that began in the 1980s; until we doknow this for sure one way or the other, we shouldexpect volatility. When markets are volatile, the casefor a diversified approach is all the greater.

Diversification in a post-Brexit world

So, if the

risk-return

trade-off

from equities

has

deteriorated

and

government

bonds offer

very low

returns then

where do

investors go

for consistent

growth?

[ ]n


PMI Expert PartnersOur dedicated Expert Partners offer you fast track access to the most up-to-date information available in the pensions industry today. Visit our website for the latest White Papers, research, articles and news from acknowledged pensions industry leaders in their respective fields:

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Kempen, PMI’s Fiduciary ManagementExpert Partner

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State Street Global Advisors,PMI’s Managing Volatility Expert Partner

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Need fortransparencygreater thanever

54% 73%


Transparency is important – not just withinpension schemes but in all areas of businessand the professional world. Only when there is

full transparency can trust be built. And this is keywhen selecting suppliers/providers for your businessand for your pension scheme. It is particularlyimportant when looking to appoint a provider topartner with you for the long term, such as is thecase with fiduciary management.

Transparency is an area that is talked about a lotwithin the context of fiduciary management. Butwhat do we mean by transparency? We believe thisis more than just being open and honest inconversations. There are a number of differentelements to transparency. In this article wesummarise some of the key areas where trustees andsponsors should make sure they get full transparencywhen selecting and monitoring a fiduciary provider.These can equally be applied when selecting alladvisers or providers.

What is fiduciary management?The delegation by trustees of the day-to-dayinvestment decision-making, and implementation ofthe investment solution, to an expert third party.

Fees and chargesThis is one of the most important areas when itcomes to transparency. What fee structure (bundledor unbundled) and fee approach is being offered(base fee or base and variable element)? Are youable to see clearly a full breakdown of each feeelement; the fiduciary provider’s fee, investmentconsultancy fees, underlying manager fees, anyadmin or custody or fund expenses?

Critically, who is being paid for each element andwhat is included? How is the fiduciary providerbeing remunerated? For example, is it just thefiduciary fee itself or do they earn money from in-house funds being offered, or using preferentialinvestment managers? Are there any additional feesnot being shown, such as investment charges ordisinvestment penalties?

Fees are an extremely important aspect offiduciary management to understand and to becomfortable with. Clearly, there are a number ofdifferent aspects that need to be discussed andquestions asked until trustees have the full picture.

We strongly believe that full transparency on allaspects of fees is a must, and encourage all providersto offer this up front as part of any initial proposals.

Performance – more than aheadline numberHow to measure the performance of your fiduciarysolution/provider is one of the more topical areas offiduciary management. In the context oftransparency, the important thing is to have a clearbenchmark and investment objective that is linked toyour unique end-goals. In our recent Survey, 87%said they’d prefer to measure the success of theirfiduciary solution versus their unique investmentobjective. A fiduciary provider should thereforeclearly show performance of your solution versus the agreed benchmark and objective(s).

Full transparency means not just showing theheadline number but also a breakdown of what isbehind that performance. For example, what hasdetracted from or contributed to performance?What level of risk has been taken to achieve thoseresults? How have the underlying funds or managers performed? How closely are they beingmonitored by the fiduciary provider, and are theyadding ‘alpha’ on a net of fees basis?

This level of transparency will help the trustees to assess whether or not the fiduciary provider isdelivering what they promised, and in the way theysaid they would do it.

Reporting Performance can only truly be transparent ifreporting is clear and comprehensive.

All trustees should make sure that the reportsthey receive from any investment manager orfiduciary provider are clear and easy to understand.As well as containing the full breakdown ofinformation (such as that described above), theyneed to be well written and structured. Key aspectssuch as performance versus the agreed objectivesand benchmark should be up front, along withanything else that the trustees have identified asimportant.

If you are unsure about any aspect of yourreports, then ask for it to be explained and/orchanged. In order to feel confident in any of yourproviders, it is important to make sure you arecomfortable with what you are receiving, the clarityof messages and the frequency.

Sion ColePartner and Head of EuropeanDistribution forDelegated Consulting ServicesAon Hewitt

We strongly

believe that full

transparency

on all aspects

of fees is a

must, and

encourage all

providers to

offer this up

front as part

of any initial

proposals

prefer an unbundledapproach whereby all fees are chargedseparately

of large schemes prefer this approach

47%prefer combination of basis point fee andperformance-related fee

t


Underlying investmentsFiduciary providers differ in their approach toinvesting assets on behalf of the trustees. Some willinvest in in-house/internally managed funds, othersin externally managed funds, and some will do acombination of these approaches.

How is the fiduciary provider deciding whichmanagers/funds to invest in? Are there any potentialconflicts of interest and, if so, how are they beingmanaged or minimised? Does the fiduciary providerhave full transparency on the portfolios of the fundsthey are investing in? This type of transparency helpsthe provider to see what is right and wrong so thatsituations like fraud can be avoided. It also allowsthem to see where value is being added orsubtracted so that sensible decisions can be madearound investments.

We believe it is important that the trustees notonly have transparency of what their provider isinvesting in on their behalf, but that the provideralso demands full transparency from the underlyingfunds/managers themselves. This will make sure thatdecision-making is more informed, and trustees canhave greater confidence in both their provider andtheir individual solution.

Other key areasOther areas to consider concern the operations andsolution itself. Do you understand how your schemeis being managed and are you comfortable it is insafe hands? Have there been any errors, and if therewere any in the future, would you be told? Are yourinvestment guidelines being adhered to?

The credentials and experience of any provider oradviser is equally important so that trust can beestablished and grow over time. What experiencedoes the provider have with schemes like yours (interms of the proposed solution, size and objectives)?How big is the team behind the solution, and whatare the backgrounds of the key individuals? Is theprovider winning or losing business, and is theiroffering to you a high focus area?

Building a full picture by delving into these areaswill help to build confidence and a strongpartnership. A ‘hands on’ approach to selecting aprovider will help to make sure that the rightprovider is chosen, and will maximise the chances ofsuccess over the long term.

Transparency and success go hand in handDelegating the day-to-day management of yourpension scheme assets to a fiduciary providerrequires trust. Clear and accurate information withfull disclosures facilitates this and is crucial tobuilding a successful long-term partnership betweenthe scheme and the provider.

We believe in full transparency, and thatimproving this across the industry, both withinfiduciary management and more widely, can only bea benefit. So please do challenge all your providersand advisers, make sure nothing is hidden from you,and that you are seeing the full picture.

Our seventh annual Fiduciary Management survey isnow available. Read the latest trends and insights inthe industry’s largest and longest-running survey ofits kind at aonhewitt.co.uk/delegatedconsulting

Do you

understand

how your

scheme is

being

managed

and are you

comfortable

it is in safe

hands? Have

there been

any errors,

and if there

were any in

the future,

would you

be told?

Are your

investment

guidelines

being

adhered to?

73%stated a preference for the use of externally managed funds, or a combination of in-house and external funds

67%98%

take a face-to-face approach when selecting a fiduciaryprovider (beauty paradeand/or site visit)

rate their fiduciary solution overall as excellent, good or satisfactory

[ ]n


regionsnews from the

MIDLANDS REGIONThe PMI Midlands Annual Dinner, sponsored byPKF Cooper Parry, will be held on Wednesday12 October at the impressive Banqueting Suitewithin Birmingham’s Council House. Our guestspeaker is the author Gaynor Arnold who hasbeen nominated for both the Man Booker prizeand Orange prize.

The Midlands Region committee isconsidering the provision of financial support forstudy material and exam entry for StudentMembers whose current employer does not coverthese costs.

Any Student Member who wants to take aPMI exam and is not supported by their employerto meet the costs is invited to make contact inthe first instance with the committee via theEducation Secretary [email protected]

The committee will review applications anduse their discretion as necessary.

SOUTHERN REGIONOur first business meeting will take place on Thursday 27 October (a week later than advertised last month).This will be hosted by Equiniti in Crawley and we are pleased to welcome Hamish Wilson to consider 'Brexitand what it could mean for the future of UK pensions'. Hamish will share his views and I’m sure promptdiscussion amongst the audience.

The event starts at 6pm. Places can be booked by contacting Clair Hood at [email protected] next business meeting follows shortly afterwards on Tuesday 29 November, again at 6pm. For this

event we will be at the offices of Fidelity in Tadworth where Richard Parkin will enlighten us on 'DC investment post April 2015'. Full details will be provided in October.

EASTERN REGIONOur next event is our Autumn afternoon seminaron Wednesday 2 November at Aviva inNorwich. The line up to date is:n Karen Bolan from AHC speaking on a

communications topicn Martin Kellaway from OPDU speaking about

the personal risks taken by trustees and theeffectiveness of the protections available

n Laura Sayer from Mills & Reeve speaking onthe legal implications resulting from the voteto leave the EU

We are still sourcing our fourth speaker. We willhopefully also be joined by Gareth Tancred, Chief Executive at the PMI.

Full details will be emailed to members byearly October. If you wish to be added to ourdistribution list, please contact Susan Eldridge [email protected]

LONDON REGION MANY THANKSOur Summer social event was once again held atthe Ice Bar, once again on a very hot day in the city,so we are obviously good forecasters of theweather. Thanks to Taylor Wessing for once moresponsoring the evening, and good to hear thateveryone had a good time. If you have anythoughts on other possible events we can holdplease contact the head of the social committeeDamon Lacey at [email protected] aswe are always keen to hear more from themembership.

FORTHCOMING EVENTS

BUSINESS MEETING: ANNUAL LEGAL UPDATE Date: Wednesday 26 OctoberTime: 6.00pmVenue: Hogan Lovells, Atlantic House, 50 Holborn Viaduct, London

PMI London Group is once again teaming up withthe Association of Pension Lawyers for an overviewof some of the most significant legal developmentsin the pension world. It may well seem that politicalturmoil and Brexit dominate the headlines, butgiven recent challenges involving BHS and TataSteel, the effects of insolvency and restructuring onpension schemes has never been more important.

We will therefore be focusing on a review ofthe Kodak solution and what it might mean today.We are delighted to be joined by Katie Banks ofHogan Lovells, who led the team of over 300Hogan Lovells lawyers advising the Trustees of theKodak Pension Plan on their groundbreaking debt

for equity swap, and by Ben Harris of Aon Hewitt,the scheme administrator. Many thanks to HoganLovells for hosting this event, and should you wishto attend please contact Rosalind Connor [email protected]

BUSINESS MEETING : THE VIABILITY OFMASTER TRUSTS Date: Tuesday 29 November Time: 6.00pmVenue: Crowe Clark Whitehill. 10 Salisbury Square, London

Master Trusts are continuing to make the headlinesfor a variety of reasons, and we will hear from twospeakers who will be looking at the impact ofrecent legislation, how these trusts can meet theneeds of growing numbers of members andemployers, and exploring why they are attractingso much regulatory attention. Full details will beissued nearer the time.

PMI LONDON PUB QUIZDate: Thursday 17 NovemberTime: 6.30pmVenue: Walrus and Carpenter pub, near Monument

You know that Autumn is on the way when ourpub quiz returns. This is very heavily subscribed, somake sure you don’t miss out, and give your teama chance to show off their wealth of generalknowledge; even if it is all about famousmathematicians, Disney characters or 1960s popgroups. This quiz has space for all.

To secure a place for yourself or your teamcontact Damon Lacey at the address above.

Hinton Heralds Horton

– creditors hurt,bankruptsheartened,trustees helped



Andrew Kerrin BLBarrister and Actuarial AssistantSpence and Partners

1 [2016] EWHC 621

(Ch) (19 May 2016)

2 [2014] EWHC 4209

(Ch)

3 Section 11(1) of the

Welfare Reform and

Pensions Act 1999

4 Quote from Re X

(Application for an

Income Payments

Order)[2014] BPIR

1081

5 [2012] EWHC 909

(Ch)

6 Paragraph 34, ibid.

7 Paragraph 36, ibid.

8 [2014] EWHC 4209

(Ch), paragraphs 32

and 34

Good news for bankrupts. Bad news forcreditors. Important news for trustees in bankruptcy and pension scheme

trustees alike.The High Court, in the case of Hinton v

Wotherspoon1, delivered a welcome judgment inMay that provided real clarity on how the pensionincome of a bankrupt can be subjected to an Income Payments Order (IPO).

Now, it has to be said at the outset that a case on the same issue (Horton v Henry 2) – which Hintonproclaimed as ‘plainly correct’ – was heard by theCourt of Appeal in April. The Lord Justices are yet torelease their judgment, but when they do it will becrucial. Unlike Hinton and Horton, which were bothfirst instance decisions in the High Court, the Hortonjudgment from the Court of Appeal will represent abinding decision from a higher court, which will set a firm precedent on the IPO question…unless it isappealed to the Supreme Court, of course.

Bearing that caveat in mind (with my legal hat/wigon) and making the assumption (with my actuarial haton) that the Court of Appeal doesn’t flip the IPOlandscape again, let us begin with a little pensionsand bankruptcy 101, to explain why these cases areimportant and why you need to keep reading.

Under legislation3, a bankrupt's rights in anapproved pension arrangement do not vest in theTrustee in Bankruptcy (TiB). Nice and clear, you maysay, but there was a small problem. The legislationwas supposed to make it clear that where abankrupt was in receipt of income from theirpension, the TIB could seek an IPO over that income.However, the legislation was silent about whether aTiB might seek an IPO where the member hadreached the age at which they could requireimmediate payment (or otherwise elect to take theirbenefits) but had chosen not to do so (i.e. anundrawn pension). That silence from the legislationled to the inevitable question: Could a TiB make anelection for the bankrupt in order to make thepension income available for the creditors? Wherethere is a lacuna in legislation, there is case law.

Prior to Hinton, the ‘controversial’ 4 case ofRaithatha v Williamson 5 in 2012 made it clear thatan undrawn pension could be subject to an IPO.Albeit, the District Judge in Raithatha did make acomment in passing that, “The submission that thereis no entitlement to a payment because there hasbeen no express election appeared initially to me tobe an attractive argument”6. Perhaps if the District

Judge had gone with their initial gut feeling, theuncertainty may not have hung over this particularissue for quite so long.

Yet, the Court in Raithatha was persuadedotherwise, placing emphasis on the conclusion thatParliament would not have intended a bankrupt to“enjoy the full fruits of [their] pension to thedetriment of [their] creditors”7 by simply choosingnot to elect to draw down until after the bankruptcyis discharged. Despite the controversy surroundingthe decision, the District Judge’s reasoning herecouldn’t be said to be without logic, especially froma creditor’s perspective.

The fallout from Raithatha was that all undrawnpensions were to be fair game for an IPO. Thebankrupt may not have received a penny of theirpension in their pocket, but a court could tie thepension to an IPO, or even force the bankrupt tomake an election to draw down. Three years on,with the subsequent Pension Freedoms removing any restriction on the amount that can be drawndown, Raithatha became more powerful. Thebankrupt’s entire pension fund value was now at themercy of a judge with an IPO.

The first hearing of Horton at the High Court in2014 – again, prior to the Pensions Freedoms –provided a strong critique of Raithatha. Despiteconcluding that the issues at hand in the two caseswere indistinguishable, District Judge Engelhart QCdeclined to follow the Raithatha ruling.

That said, the decision of Horton has beenportrayed in commentary as rubbishing the Raithatharuling, and that Justice Engelhart QC found theprevious High Court decision to be wrongly decided.Having read the judgment, I disagree with suchappraisals. In my opinion, the Court in Horton clearlystruggled with the decision to depart from Raithatha,stating “I have most anxiously considered thedecision in Raithatha, but I have, albeit withconsiderable reluctance, come to a differentconclusion…it is hoped that the Court of Appeal willsoon have the opportunity of considering which ofthese two first instance decisions is correct”8. Yes,the election to not follow the decision of anotherjudge at first instance is significant, but to claim thatJustice Engelhart QC came to the conclusion that hiscolleague was wrong is excessive.

In any event, pending the Court of Appeal’sdecision in Horton, the case of Hinton has alsodeparted with Raithatha and backed the Hortonapproach. In obiter the judge dealt with the specific

Under

legislation,

a bankrupt's

rights in an

approved

pension

arrangement

do not vest in

the Trustee in

Bankruptcy

t


interpretation of whether a bankrupt was ‘entitled’to the undrawn pension, under section 310(7) of theInsolvency Act 1986. In short, the Court confirmedthat if entitlement exists, an IPO can be attached tothe pension – the TiB and the creditors are happy.

The High Court in Raithatha simply felt that abankrupt was entitled to the pension once they hit55, on the reasoning mentioned earlier. Not so,according to Hinton – a ‘sense of entitlement’ isn’tenough. Only once the bankrupt has elected to drawdown, and how they are to receive the pension (i.e.lump sum, annuity, payments), can they be said tohave an entitlement. Hinton basically said that therehas to be an identifiable value of pension that hasbecome ‘contractually payable’ for entitlement toexist. This chimes with the similar decision ofNeuberger J in Barclays Bank Plc v Holmes 9 where it was said: “when using the word ‘entitlement’…the legislature had in mind… a pension in payment”.

Where does that leave bankrupts with pensions?Well, if they are like Mr Wotherspoon (the bankrupt inHinton) and have already given instructions for drawdown, including how and how much they are to bepaid, the TiB can ask a court for an IPO. However, if abankrupt elects for drawdown but leaves the methodand amount of payment undecided, the pensionremains uncrystallised, the bankrupt is not entitled toit, and the IPO cannot be attached.

So Hinton has offered bankrupts hope of keepingtheir pension safe, by moving funds to drawdownand then intentionally providing no furtherinstructions on how they want to receive the funds.In filling a loophole in the legislation, has the Courtjust created another loophole? Lawyers will certainlyhope so, it’s good for business. However, it must bequestioned how likely it is in practice for anindividual to withhold full instructions in this way.Perhaps the advice of savvy independent financialadvisors will be the key in that respect.

Creditors will no doubt look at this decision andbe frustrated – indeed, the various judges haverecognised this frustration throughout their verdicts.Yet it seems that Hinton and Horton (as well asBarclays) have concluded that Parliament’s intentioncould not have been for IPOs to attach touncrystallised pensions. This may be of no solace tocreditors, but it could be argued that this decisionmay at least be better for the public finances in thelong term, with former bankrupts using theirpensions in retirement, as opposed to drawing on

the state quite so much as they might have if IPOshad raided their pension pots.

How does Hinton affect trustees? Well, fortrustees of the ‘in bankruptcy’ variety, they can nowbe clear on what elements of a pension they can aska Court to include in an IPO. As for trustees of the‘pension scheme’ variety, Hinton provides muchneeded clarity on what they (and theiradministrators) need to do if they receive an IPO inrespect of a scheme member.

Admittedly, for pension scheme trustees, thelikelihood of an IPO coming across their desk is fairlyunlikely. In 2014, out of over 20,000 individualbankruptcies, only 37 ended in the Court issuing anIPO 10. Although it should be noted that close to3,500 of those bankruptcies were settled out ofcourt with an Income Payment Agreement (IPA),which may well include pension income. Thedecision of Hinton has not altered the approachtrustees should take to IPAs.

The real impact of Hinton (assuming the Hortonappeal follows suit) could come with theinterpretation of ‘entitlement’ in the context of thePension Freedoms and the drawdown process. Weare still in the early days of the Pension Freedoms,with many more legal arguments to be made, ofwhich the question of when a member is or isn’tentitled to their pension income is bound to be one.

It would be incredibly surprising for this observerif the Court of Appeal were to reverse the firstinstance decision in Horton, especially in light of thePensions Freedoms putting the entirety of thebankrupt’s pension on the ‘entitlement choppingblock’. Also, the Finance Bill 2016 is currentlymaking its way through Parliament, with aconfirmation in Clause 45 that, for the purpose ofinheritance tax, unused drawdown funds will not fallunder the definition of ‘entitled’. Although notdirectly applicable to IPOs, this at least indicates thatParliament’s intentions in regard to entitlement anduncrystallised pensions hasn’t changed since Hintonand Horton.

With that, I am off now to sort the delivery of anew ‘H’ button for my keyboard. ‘opefully it will ‘avearrived in time for the Court of Appeal’s judgment in ‘orton!

In short,

the Court

confirmed that

if entitlement

exists, an IPO

can be attached

to the pension

– the TiB and

the creditors

are happy

9 [2000] Pensions L.R. 339

at paragraph 129

10 The Insolvency Service,

‘Insolvency Statistics

January to March 2016

tables’, Table 8b

[ ]n


pmi accredited adviser programme

Neil ScottPMI Head ofProfessional Standards

FCA UpdateFinancial Conduct Authority (FCA) publications whichmay be of relevance to members include:

n 6 September 2016 – Pension Wise standards –changes for secondary annuity market guidance:CP16/22. The FCA is consulting on proposedchanges to the standards applied to Pension Wisedesignated guidance providers. These changes arerequired as a result of the Government’s decision toextend access to Pension Wise to individualsconsidering selling their annuity income, and tocontingent beneficiaries with an interest in theseannuities.

New FCA WebsiteFCA’s new website went live on 2 September. Amongstthe changes the News and Publications sections havebeen redesigned to better showcase latestannouncements and documents. They have an improvedfilter and search tool to enable users to more easily findthe information needed.

FCA Enforcement ActionOn 1 September the FCA announced that it had finedand prohibited a financial adviser for failing to act withintegrity, and for failing to be open and honest with theregulator. The FCA banned the adviser from performingany function in relation to any regulated financialactivity, and imposed a fine of £109,400 for lyingrepeatedly to the regulator when asked aboutqualification status.

Code of Professional ConductPMI AAP members are reminded that as members of thePMI they must adhere to the PMI’s Code of ProfessionalConduct. A copy of the code can be downloaded fromour website.

Online CPD contentIn addition to the PMI’s events and the CPD portal,there are several online options for obtaining relevantCPD content:n The Learning Gateway – is a service made

available via Standard Life, and contains considerableinvestment-related content that will be relevant. Thiscan be accessed via our website.

n PMI TV also includes content that will be relevantfor PMI AAP purposes.

There is no charge for access to either of these optionsfor PMI AAP members.

Diploma in Regulated RetirementAdvicePMI’s fully RDR-compliant qualification the Diplomain Regulated Retirement Advice (DRRA) has beenrevised for 2016. It will now comprise two (instead ofthree) units covering the entire syllabus. The range ofcontent remains unchanged, and both of the new studymanuals have been updated to cover the most recentdevelopments. These study manuals can also bepurchased for reference purposes. As well as being fullyRDR-compliant it is also an appropriate qualification forthe regulated activity ‘acting as a pension transferspecialist’.

It is possible to obtain copies of the study manualsfor this qualification, and a single user licence that coversboth study manuals in a PDF version. The cost is £400.For further information, contact Neil Scott [email protected]

CPD WorkshopsThe next Workshop is planned for Wednesday 7December.

The day will comprise a morning session, which willinclude a regulatory update and guidance on CPDrequirements. The outline agenda is as follows:n update on regulatory requirements/latest

developmentsn FCA feedbackn guidance on CPD, and in particular CPD for the

PMI AAPn lessons learned from PMI verifications/SPS renewals

The Workshop will include lunch. It will be relevant forCPD purposes (four hours in total). It is hoped thesession will provide an opportunity for activeparticipation from delegates to help us develop theongoing CPD programme. The booking form can befound on our website.

For further information, contact Neil Scott [email protected]

PMI AAP FeesThe fees for 2016-17 will be as follows:

There is a fee of £45 for Affiliate Members to renewan SPS. There is no renewal fee for Student Members,Trustee Group Members, Certificate Members, DiplomaMembers, Associates or Fellows. Membershipsubscription fees will depend on membership grade, andwill be required when they fall due. For AffiliateMembers the subscription will be £75. [ ]n


As we approach the fourth anniversary ofautomatic enrolment, it's a good time toreflect on how far we've come and where

we need to go next. It certainly feels like automatic enrolment is

picking up speed. NEST recently passed 160,000employer sign ups and we’re now looking after overa £1 billion on behalf of our members. Whilst we’regrowing quickly, we can’t forget there are stillaround 1.2 million employers yet to meet theirautomatic enrolment duties. NEST needs to ensurethat we continue being ready for the ever largernumbers of employers who turn up at our (virtual)door. At the moment, during peak times, we’resigning up 1,000 employers per day and thatnumber is likely to ramp up considerably as we enterthe next stage of automatic enrolment.

Beyond the simple increase volumes, the type ofemployers we serve is also changing. Ever greaternumbers of smaller employers are signing up toNEST, joining the larger household names we’realready working with.

Though there’s no one ‘right answer’ toautomatic enrolment, I think everyone involved inproviding automatic enrolment schemes is facing asimilar set of challenges so it might be helpful to talkabout NEST’s approach. These might not be acomprehensive set of ‘build your own’ instructions,think ‘golden rules’ rather than ‘silver bullets’, butI’ve certainly found them helpful.

Keeping your schemestraightforward, flexible and beready to learn from your customersMy first rule is that services had to be flexible tomeet the needs of all employers, whatever their size.I’d say this is a good priority for almost any schemesto ensure your services can cater for the widestpossible range of potential clients. Obviously thiswas a huge priority at NEST, as we have a publicservice obligation to accept any employer seeking tomeet their duties. Given the number of employerswe’re dealing with, being flexible goes hand in handwith scaling up our services. We conduct regularperformance testing, assessing things like contactcentre capacity alongside how our services are beingused, to ensure we can cope with future demandand continue meeting employer needs.

My second rule is that we need to continually

work to make automatic enrolment asstraightforward as possible. You don’t know if theperson using your services is an experienced pensionsintermediary, a pensions specialist or someone who’senrolling their nanny for the first time. The easieryour services are to use, then the less likely a highvolume of employers will need time consumingindividualised support. But it’s not just about servicesbeing easy to use, ‘straightforward’ also meansgiving users the tools to do the job quickly. We’vejust finished updating the NEST phrasebook forexample, a document that aims to support employersin providing clear, straightforward communicationson automatic enrolment. It focuses on providingalternatives to unnecessary jargon as we’ve foundcutting down on confusion saves a lot of time.

My third rule is remembering you can never learntoo much about how your customers will use yourservices. For example, our research showed thatsome employers had low levels of experience andtherefore confidence in delivering pensions (just23%) but were much more practised in deliveringpayroll (64%). Knowing this, we developed webservices, which integrated NEST with payrollsolutions and greatly simplified the process ofsecurely submitting pension data. I know NEST isn’talone in driving this type of innovation, there’s ahuge range of work taking place in the sector that’sreally embedding automatic enrolment intobusinesses’ working practices.

Thinking about the future Though the increase in volumes can cause us to think about the here and now, as a responsiblescheme we can’t ignore the long term trends inpensions. Recently NEST Insight, our research unit,identified some striking findings about people’sexpectations for their retirement. We found that 60% of people expect to require an annual income of at least 50%, sometimes much more, of theircurrent income. But many are simply not savingenough to match their expectations. In fact, thecurrent pension replacement rate in the UK is just29%, that’s quite a gap. Increasing pension savingrates is just one challenge facing the pensions sector.That said, I think the last four years for automaticenrolment have shown the sector can rise to manychallenges, which is good news as the next four areset to be just as significant.

Gavin Perera-BettsExecutive director ofproduct andmarketingNEST

MIND THE GENDER GAP updateNEST

We found

that 60% of

people expect

to require an

annual

income of at

least 50%,

sometimes

much more,

of their

current

income. But

many are

simply not

saving

enough to

match their

expectations

AUTOMATIC ENROLMENT AT FOUR

[ ]n

What have we learned and how will this shape our next steps?


t

updateregulator

AUTOMATIC ENROLMENT REMAINS ON TRACK BUT CHALLENGES REMAIN

[ ]n

We take an

educate and

enable approach

so that small

employers are

alerted to what

they need to do

and when to act

Around 206,000 employers have now mettheir workplace pensions duties and 6.5million staff are now saving for their

retirement thanks to automatic enrolment. More than three times as many small and micro

employers have now complied compared to all thelarge and medium employers together.

The milestone figures highlight the successful rollout of automatic enrolment so far, but we knowthere are challenges ahead.

We have always expected an increase in the useof statutory powers because of the growing numberof employers as well as changes to the employertype. The vast majority of small employers comply ontime, but some leave things to the last minute andreceive a compliance notice. This warning nudge isusually enough to get them back on track.

We take an educate and enable approach so thatsmall employers are alerted to what they need to doand when to act.

Changing DC behavioursWe also take an educate and enable approach tochanging behaviours amongst defined contribution(DC) scheme trustees in areas such as scheme returncompliance, but we have warned we will use ourpowers when duties are not met.

Trustees of schemes providing DC benefits are nowrequired to provide information in their scheme returnabout how they comply with certain requirements ofthe 2015 legislation, including identifying the chair oftrustees and confirming they have prepared agovernance statement signed by the chair.

We are advising trustees about a number ofchanges to the scheme return so they can plan inadvance. Scheme return notices requiring the revisedscheme return to be provided to us were sent outfrom July this year.

But we are clear that trustees are required to notifyus of breaches via the scheme return and we will takeaction if the scheme return is not completed.

Earlier this Summer, Pitmans Trustees Limited, aprofessional trustee firm, was ordered to pay three£2,000 fines. The firm failed to meet the newstatutory requirement to prepare an annualgovernance statement signed by the chair of trusteesfor three separate schemes.

The maximum fine of £2,000 was imposedbecause the scheme had a professional trustee in

place and there were no mitigating factors. We issueda regulatory intervention report about the case.

Professional trustees are expected to meet ahigher standard of care and to demonstrate agreater level of knowledge and understanding thanother trustees.

Pensions dashboardWe fully support the Treasury’s plans to develop apensions dashboard, announced last month by theTreasury. A prototype of the dashboard – the first ofits kind in the UK - is expected by March 2017,according to Economic Secretary to the Treasury,Simon Kirby. New technology and the success ofautomatic enrolment are changing the pensionslandscape - from operational design andadministration to the way schemes communicatewith their members.

Providing trusted sources of information canboost engagement with pension saving.

Helping savers make informed decisionsLast month our CEO Lesley Titcomb spoke at thelaunch of the Retirement Quality Mark (RQM).

The RQM, launched by the Pension Quality Mark,represents another important step in helping pensionsavers make informed decisions.

Freedom and choice is a significant change to thepensions market and to savings in general. And it’s achallenge to the way that people think aboutretirement – on the savings side and the supply side.

People are still acclimatising to the changes, andmeasures like this can help savers and trustees aliketo make more informed retirement decisions.

The RQM and other initiatives like it can act as afurther line of defence to help prevent savers eithergetting a bad deal or being the victim of a scam.

We hope the RQM will further encourageretirement products to exceed the minimumregulatory standards. We know that the best trusteesaren’t satisfied with just being compliant – they wantto actively ensure they are helping members achievethe best possible retirement.

We also know that good governance and clearcommunication builds confidence. That’s why wefocus on educating and enabling trustees to improvethe governance of their schemes throughout thesavings lifetime of a member.

services directory

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To advertise, please contact [email protected] or call 020 8405 6412

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You can find all these jobs and many more at:www.pensioncareers.co.uk

Copy deadline: Friday 14 October forNovember’s issue.

To advertise your jobs in PMI News or onPensionCareers.co.uk, please [email protected] or call 020 8405 6412


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