Category Archives: Pensions

Finance and Banking, News, Pensions

Housing sector learns how markets affect pension schemes

Leading independent pensions and employee benefit advisors Quantum Advisory has addressed corporate members of Community Housing Cymru, highlighting the impact of market trends and global events on the major pension schemes used by the housing sector.

Stuart Price (pictured above) and Adam Cottrell, corporate pension actuaries at Quantum, spoke during the webinar on Thursday 19 May, focussing on issues surrounding Defined Contribution (DC) schemes, the Local Government Pension Scheme (LGPS) and the Social Housing Pension Scheme (SHPS).

Speaking about the potential outcomes of defined benefit (DB) pension liabilities on Association’s balance sheets as at 31 March 2022, Adam Cottrell said: “Global equities rose between April 2021 and March 2022 with a generous growth of around 9%. While DB schemes such as LGPS and SHPS aren’t wholly invested in global equities as they have diverse investment portfolios, it is a good proxy to understand asset performance.

“A combination of really strong asset performance and reduced liabilities due to the increase in corporate bond yields means that, in relation to their pension liabilities, we have seen Association balance sheets improve by the year end of 31 March 2022 compared to the previous year. LGPS’ more aggressive investment strategy means that the improvement in the balance sheet of those Associations who participate in LGPS is likely to be greater than with SHPS where any improvements may have been more modest.”

Adam Cottrell

Adam also talked about the LGPS’ triennial funding valuation which is currently underway and full results are likely to be made available to employers in Autumn 2022.

Providing his thoughts on the likely outcome, Adam said: “It will depend on each LGPS Fund as they are valued differently. High level indications are that the past service position would be better than three years ago but the cost of providing benefits for future service is likely to increase, so the results will be a bit of a mixed bag and will vary between different Associations.”

Stuart Price provided an update on the latest funding information from SHPS.

Stuart Price said: “Even though short-term inflation is going up, we have seen that this has been factored into investment markets’ expectations and long-term inflation prospects, which are so important for DB schemes such as SHPS, remain relatively flat. However, the impact of short-term inflation increases, as well as the war in Ukraine, is more obvious in the recent performance of global equity markets which have been quite volatile over recent months.

“As a consequence, the funding position of SHPS DB hasn’t broadly changed since September 2021. The silver lining is in relation to future service rates as we expect at the current time contribution requirements for future accrual to reduce by something like 20%. This will likely mean a reduction in employer and employee contributions to SHPS DB.

“Although these figures will need to be confirmed when the next full funding valuation is carried out in September 2023 (and we still have some way to go until we reach that date), and any potential reductions in contributions would not come into effect for housing associations until September 2024 at the earliest, I think we are finally seeing good news for Associations that participate in SHPS DB.”

Stuart finished by touching on the impact changes to national insurance rates and thresholds will have on those Associations who have a salary sacrifice arrangement in place for employee pension contributions and emphasising the value to Associations of providing pension education and engaging with their employees.

Accountancy & Accounts, Accounts and Accountancy, News, Pensions

‘Pensions are a long-term investment and have time to recover’ Quantum Advisory addresses ICAEW members after global financial markets react to Russian invasion of Ukraine

Experts from pension and investment specialists Quantum Advisory addressed members of the Institute of Chartered Accountants in England and Wales (ICAEW) on the turbulent global investment market and the knock-on effects on UK pensions schemes.

Partner and Actuary, Stuart Price and Senior Investment Consultant and Actuary, Kara Newcombe headlined the free hour-long virtual session which saw Kara focus on how the global financial markets reacted to the Russian invasion of Ukraine and views as to what could happen in the coming months with the ongoing conflict, soaring inflation, and continuing Covid-19 infections. The surge in commodity prices, supply chain disruption and the increase in inflation and gilt yields were also discussed. Stuart covered the increase in gilt yields and the positive impact this is having on defined benefit (DB) pension schemes, and highlighted the advantages of companies implementing salary sacrifice schemes following the rise in National Insurance contributions.

Speaking about the impact of financial markets on UK pensions over the 12 months to 30 April, Stuart said: “Government gilt yields and corporate bond yields are steadily increasing and in the long term, which we are interested in for determining pensions, this looks set to continue. For DB scheme employers, this is very good news as funding levels should improve along with pension obligations on company balance sheets and there’s the possibility of a reduction of employer contributions in the future too.

“For defined contribution (DC) schemes, as pensions are generally a long-term investment, the volatile global markets shouldn’t have too much impact on those in their 20s, 30s, 40s or even 50s, as we often see peaks and troughs and there is time for markets to recover. The current situation could even be a good time to put more money into your DC pension as there may be investment opportunities to take advantage of. The time for concern is when nearing retirement, but for many in this situation there are mechanisms in place to protect them against falls in investment markets.

“With government and corporate bond yields increasing, annuity rates are improving so we could see more people selecting the annuity route at retirement to provide them with an income from their DC pension going forward.

“The key to everything, is employers communicating what is going on to their employees. They need to keep communications simple and provide reassurance and signpost helpful places to get more information. One thing I would say, especially with the recent National Insurance increase, if not already done so, employers should seriously consider a salary sacrifice arrangement for employee pension contributions which means employees and employers make savings on the amount of national insurance that they pay.”

Kara Newcombe

Speaking about current world events and the repercussions of these, Kara said: “The events in Ukraine have had a dramatic impact with far reaching economic consequences and the situation is currently showing no signs of improvement.

“Inflation reached 7% in March and is set to hit 10% by end of this year which has seen the Bank of England (BoE) tighten its monetary policy and shift its focus from supporting growth to controlling inflation. Subsequently, it has begun a new gradual program of quantitative tightening where it will no longer reinvest the proceeds of government bonds when they mature. The BoE will only start selling its remaining gilts when the base rate rises further, depending on economic conditions at the time. Markets are expecting the BoE to be more aggressive with rate rises and there are suggestions of a possible interest rate increase to at least 2% by the end of the year.

“There are some positive points to report with nationwide Covid restrictions lifted and the economy fully opening up which should provide further support to consumer spending and economic growth. The employment rate has also shown signs of recovery. Concerns over the reliability of Russian energy supplies will put further pressure on European governments to transition away from imported fossil fuels and towards domestically-generated renewables over the longer-term.

“Looking ahead, we remain positive on developed equities, as company balance sheets and earnings remain strong and this asset class will be the most sensitive to any form of long-term economic recovery. We also see opportunities in emerging market equities, however, they have tremendous exposure to the ongoing war in Ukraine. The long-term outlook is difficult to assess given the unprecedented situation, so unfortunately, for now, it is a case of watch and wait.”

Quantum Advisory is an independent financial services consultancy that provides solution-based pension and employee benefit services to employers, scheme trustees and members with a focus on tailored and practical advice and support from experienced professionals. For more information, visit www.quantumadvisory.co.uk

News, Pensions

Triple lock won’t save the ‘Golden Years’, Warns Kinesis

Brits must look for alternative assets as retirement wealth comes under threat

Financial security is the bedrock of a happy retirement – referred to as the ‘Golden Years’ – but the changing economic landscape is currently threatening people’s retirement wealth.

Although the government recently increased the state pension by 3.1%, it is actually a fall in real terms and will not provide pensioners with what they need. Following this increase, the full basic state pension is £185.15 per week which is a fraction of the Living Wage at £380 per week*. With the UK already on the cusp of a pension poverty crisis, and energy prices rising by an average of 54%, a state pension simply isn’t enough to make retirement as golden as it should be.

Most of the UK now rely on a private pension to set them up for the golden years, but these come with their own challenges, and the outlook is extremely uncertain. Not only are they not protected by the triple lock, but pension funds are struggling to counterbalance key inflation levels. Between 2020 and 2022, UK pension funds grew an average of 7.2%, barely beating UK inflation which currently sits at 7%.** Pension funds have had a poor start to 2022 as the war in Ukraine has sent shares and bonds plummeting. This means that private pensions are no longer the safe option they once were to bolster state contributions.

Many are looking for alternatives, with almost 60% of investors wanting digital assets in their retirement plans.*** While this is a step in the right direction, the same survey highlighted that some digital assets, particularly cryptocurrencies, are too volatile to play a long-term role in people’s pension plans.

Kinesis is highlighting that there is a safer, more stable alternative – gold. New technologies are enabling gold to be part of retirement plans, meaning that retirees can not only benefit from a historically stable asset which has been proven to maintain its value over time, but Kinesis’ industry-first fee-sharing yield on gold means they can also see their wealth grow in real terms.

 

Jai Bifulco, Chief Commercial Officer of Kinesis Money, says: “People’s hard-earned wealth is currently under threat, but retirement savings especially. Many are currently sticking to the status quo and do not realise the impact this could have on their wealth in later life.

“It’s great to see some people seeking alternatives, like digital assets. But cryptocurrencies are not conventionally known to be a source of stability and may not provide the steady interest needed to build a retirement nest egg.

“There are, however, other paths people can take to protect their wealth in preparation for later life. As a starting point, individuals can limit the amount of money they store as cash savings, and begin to explore assets that are recognised for their price stability. Gold offers a proven capacity to store value over time and is now more accessible than it has ever been, through its digitalisation. Gold has shown resilience during notable economic crashes, more so than stocks and bonds, and brings with it a track record for value appreciation, seen over the past 50 years. Better yet, you can now also earn a yield on gold, providing a steady and stable return for those sacred golden years.”

 

—

* https://inews.co.uk/inews-lifestyle/money/pensions-and-retirement/state-pension-how-much-what-2022-increase-means-how-check-explained-1568395

** https://moneyfactsgroup.co.uk/media-centre/consumer/pension-funds-and-annuity-income-returns-growth/#:~:text=The%20volatility%20of%20pension%20funds,will%20vary%20by%20individual%20fund.

*** https://www.planadviser.com/nearly-60-investors-surveyed-want-digital-assets-retirement-plans/

News, Pensions

Complexity must be taken out of pensions to encourage savers to engage warns Punter Southall Aspire

Alan Morahan, Chief Commercial Officer at Punter Southall Aspire, welcomes the news that the Pensions and Lifetime Savings Association (PLSA) and the Association of British Insurers (ABI)[i][i] have joined forces to launch a pensions awareness campaign, but warns more must be done to make pensions easier for savers to understand.

Alan said: “The Association of British Insurers (ABI) and the Pensions and Lifetime Savings Association (PLSA) have recognised that more needs to be done to raise the public’s awareness and understanding of all things pension related and are launching a campaign to do something about it.

“Well, when I say ‘all things’ I don’t really mean it because, even though I’ve worked in the industry for more years than I care to remember, I know far from everything about pensions and that’s partly due to the fact that the pension arena has been made ridiculously complicated. Pensions are not inherently complicated but successive governments have made them so.

“In 2006, the great misnomer of Pension Simplification was introduced. The then pension rulebook was a mish mash of legislation, which had built up over many years and there was a strong industry and government view that it was acting as a barrier to people properly engaging in retirement planning.

“The Sandler Report from July 2002 stated, ‘Pensions taxation is extremely complex, and this has a number of effects. For instance, the fact that there are eight tax regimes for pensions, each of which is complicated, leads to confusion both for the public and professionals; this is a disincentive for saving, especially amongst the more modest income groups. Simplification of the pensions taxation regime is therefore a high priority.’

“So, the Labour government of the time set about major reform, which occurred in April 2006 to much fanfare (well, in the pensions industry at least). But the trouble with governments is that they can’t leave well alone, and they keep changing the rules. As a result, we’re now back in a situation where the public don’t understand pensions and when they try to understand them, they find they’re shrouded in jargon, complexity and rules and we wonder why they’re not engaged.

“I absolutely applaud this joint PLSA/ABI initiative and it completely aligns with initiatives like Aspire to Retire and National Pension Tracing Day that we’ve instigated in Punter Southall Aspire, but I am concerned that unless some complexity is taken out of the system, we’ll still end up with a population that don’t understand and engage with their pensions.

Alan added: “Maybe it’s time for a new Pensions Commission with a remit of revisiting simplification. A Commission can bring about change if the right people are involved and if it gets the right level of support – the last one resulted in automatic enrolment with default contributions; the re-linking of the state pension to average earnings; increases in the state pension age designed to keep the proportion of life spent in retirement constant and a reduction in the number of NI qualifying years to get the full state pension.”

Finance and Banking, News, Pensions

New report reveals how Trustees feel smaller DB pension schemes are disadvantaged

Stoneport recently launched a research report ‘Paths to the end goal – the case for consolidation in smaller DB and hybrid schemes’  looking at the end game challenges for DB schemes.

Over 100 trustees from large and small DB pension schemes (86% DB and 23% hybrid) were surveyed about their ideal end game scenario, their decision-making challenges and potential solutions.

One key areas was that most trustees said smaller schemes feel most disadvantaged.

The trustees surveyed identified that smaller schemes are disadvantaged in many ways – including a lack of economy of scale, restricted investment opportunities and compliance challenges – and two areas where the disadvantages are less clear – member outcome risk and member communications.

Most trustees (91%) said economies of scale is their number one challenge running smaller schemes. With many fixed costs spread across a smaller number of people, smaller schemes tend to incur higher overall costs per member.

Secondly, most perceived smaller schemes as being at something of a disadvantage compared to larger schemes in terms of accessing investment options.

While most trustees said they had the flexibility they needed in terms of access to investment options and asset classes, some remarked that disadvantages mainly related to investment costs and the lack of buying power.

Thirdly, scale is also a major factor when it comes to the significant regulatory requirements on DB schemes, and 69% of trustees felt smaller schemes were ‘significantly’ or ‘somewhat’ disadvantaged in this area.

Many compliance costs have a fixed cost element, and because of the limited resources available to smaller schemes the growing workload cannot be easily spread across individuals. 31% scored the challenge of managing their scheme’s compliance workload at 7 out of 10, or higher, which we felt indicated significant levels of stress.

Commenting on the overall compliance burden, one leading Independent Professional Trustee said “It’s crippling, it’s a nightmare for FTSE 100 companies; it can literally be a killer for a small business.”

Achieving value for money through third-party services is also difficult for smaller schemes. Many trustees mentioned the greater buying power enjoyed by larger schemes, though others thought the services market was relatively competitive if smaller schemes targeted the right providers.

Turning to the less clear areas of disadvantage, these include member outcome risk and the ability to deliver quality member communications.

Some trustees commented that outcome risk – the risk of an employer not being able to fulfil its obligations to the scheme – was not related to the size of the scheme, as it is driven by the strength of the employer covenant and its profitability or cashflow. That said, the size of the scheme relative to the size of the employer was seen by some as a risk driver, as it could influence the attention the scheme received from its sponsor.

Finally, some trustees had concerns about their ability to deliver quality member communications. Some said smaller schemes lacked the scale to employ communications experts or set up relevant infrastructure such as a dedicated website. However, others felt smaller schemes were better able to tailor communications to member needs.

Joining a pooled structure like Stoneport can mitigate many of these disadvantages and lead to greater economies of scale, reduced compliance and administration, better member outcomes along with many other benefits. We recommend that trustees explore for themselves the benefits that consolidation can bring their smaller DB scheme.

 

To read the Paths to the End Goals report in full click here.

HR, HR News, Pensions

Supporting staff during the cost of living crisis

Why is the 10 year anniversary of Auto Enrolment and RDR* relevant to the cost of living crisis facing your staff – and what should business owners and managers be doing to help?

This article looks at the fundamental changes that have taken place over the last decade in the pensions landscape and what effect they have had on the employer and the workforce and offers some pointers to demonstrate what you can do today – given that wholescale large salary rises are not always feasible – to minimise the fallout from the cost of living crisis facing everyone. 

Written by Rachel Meadows, Head of Proposition Pensions and Savings at Broadstone

Most of the talk around the 10 year anniversary of Auto Enrolment legislation centres, quite rightly, around heralding the success of driving pension saving participation rates upwards but balancing that triumph against a persistent challenge of under-saving. Far less mainstream attention though has been paid to another decade milestone; one which arguably impacts employers and their staff just as much. Ten years have now passed since the Retail Distribution Review (RDR), a set of changes that increased minimum qualification standards for the delivery of financial advice and also scrapped the ability to be able to take commission payments from pension products.

Why did this have a big impact on employers? Prior to RDR, many employers providing pension savings to their staff did so supported by specialist advisers, often paid for by commissions, who not only provided employer advice but also helped staff to engage with their savings and understand the often unfathomable world of pensions with all its technical language and alienating acronyms. Post RDR, this support and guidance needed to be paid for by employers through direct fees. Inevitably, this led to challenges for employers, balancing the support and advice that they and their staff needed against the costs of providing that. In many cases, employers and their advisers did a lot of the groundwork for Auto Enrolment, including scheme selection, in the run-up to RDR.

This decade double anniversary therefore means that for a lot of businesses, their workplace pension schemes may not have been reviewed in detail for over ten years – ten years which have seen a gargantuan amount of change for pensions and for businesses. In the current climate of abundant cost of living challenges, some of those changes provide employers with some opportunities to help their workforce mitigate the impacts, especially given that wholescale large salary rises aren’t always feasible.

The first big change is that the last ten years have seen average annual management charges on workplace pension schemes decrease quite significantly. This is down to a number of factors but, notably, RDR and Auto Enrolment played a big part. Reviewing the workplace pension product you are offering to staff could result in significant cost reductions for staff in terms of charge levels. Whilst this might not help improve their spending power now, it will in the future. (All things being equal, the less charges taken out of your workers’ pots, the more left is in their savings pot for their retirement).

 

Pensions Freedoms and Choice

The second big change was Pension Freedoms – the introduction of much more choice in terms of retirement options for savers. Whilst it is true that not all pensions set up more than a decade ago will automatically provide access to the full range of options, the bigger impact of the freedoms is actually a big change in ‘typical’ default investment strategies. Prior to the freedoms, most default funds gradually de-risked as savers approached retirement, with the ultimate goal of being invested around 75% in gilts and bonds and 25% in cash – ideally placed to risk-match against the purchase of an annuity. Given that drawdown has become far more popular than annuity purchase, in recent years de-risking strategies have evolved to take account of this. If you haven’t reviewed the default fund in place for your workforce, it is entirely possible that they are reducing in risk too fast, too soon, and are losing out on valuable years of potential investment growth before they retire. This mismatch can mean lower savings pots to last through retirement – which isn’t a well-understood threat to the cost of living of your staff in later life.

Progress has also been made on the front of flexibility more generally, with many employers who have reviewed and overhauled their workplace pension provision in recent years providing access to workplace ISA savings alongside the longer term tax efficient pension pot. Even NEST has trialled a sidecar savings scheme. Providing access to shorter term savings pots, and encouraging your staff to engage with these, can not only help build financial wellbeing and resilience generally, but can provide an invaluable financial cushion for straitened times.

Tax limits and allowances have also been cut (both obviously and by fiscal stealth in freezing thresholds) for a number of years and pensions are no exception to this. Higher earners face stringent limits around what they can save tax-efficiently into a pension as well as your mid life workers who may have accessed pension savings during the pandemic to tide them through but, in so doing, may have triggered a strict limit around their future pension saving – the Money Purchase Annual Allowance. Ensuring that your staff have access to the information and guidance they need to navigate the plethora of tax rules is not only good practice but can also be an effective defence against an unexpected and unwelcome tax bill landing on their doormat (and their subsequent knock on payroll and HR doors).

For employers who may have been largely unaware of the 10 year anniversary of RDR and AE, this birthday marks an opportune time to make sure that their workplace pension provision is abreast of the changes that have taken place. Whilst some of the opportunities to aid your employees’ costs of living challenges are helpful in themselves, the biggest opportunity is perhaps the ability to demonstrate to your staff that you are actively trying to help and trying to provide the best quality benefit through the pension that you can. When retention and recruitment are just as challenging as cost of living, engendering positive engagement with your staff can carry a big dividend.

 

(*The Retail Distribution Review or how the financial services sector should be professionalised and its advisers renumerated)

Pensions

New research highlights consolidation could address key end game challenges for smaller DB pension schemes

Smaller Defined Benefit Pension schemes, which make up 80% of the market, are at a major disadvantage in planning their end game strategies as they lack the time and resources to explore all their options, according to new research, ‘Paths to the End Goals’ from Stoneport.

Over 100 trustees from large and small DB pension schemes (86% DB and 23% hybrid) were surveyed about their ideal end game scenario, their decision-making challenges and how they might be eased.

The majority highlighted that smaller DB schemes with fewer than 1,000 members have many size-related disadvantages.

Nine out of ten trustees said smaller schemes cannot achieve economies of scale, as they have many fixed costs spread across a smaller number of people, resulting in a higher cost per member. Achieving value for money from service providers and meeting the costs of investment are other challenges.

Smaller schemes also struggle to make the right investment decisions at the right cost and, the growing compliance and regulatory workload is a major source of stress for boards. Despite these issues, 90% felt that they were confident their schemes offer value for money to members, although an industry standard measure of value for money for DB schemes is yet to exist.

Richard Jones, Managing Director of Stoneport says, “The Pensions Regulator has said that achieving economies of scale and value for money is a key goal for trustees and those who can’t demonstrate this should consider consolidation. Trustees have to seriously weigh up the pros and cons of consolidation. They need to decide whether to continuing to operate as a smaller scheme, with the challenges this might entail or whether they need to consider their end goals again and include different consolidation options, such as master trusts and pooled structures.”

To download the full report please visit: Stoneport PP1 (cvtr.io)

News, Pensions

Storm clouds remain for over 50s caught between work and retirement

Written by Steve Butler, CEO, Punter Southall Aspire

 

One of the most severe storms in decades has blasted its way across the UK. No, I’m not talking about Eunice (or Dudley) but about the continuing fall-out over the rights and wrongs of pension freedoms and the ever-present fear of scams.

We’ve read that the pandemic saw a rise in the number of older employees bringing forward, delaying or considering retirement as the working world was convulsed by the impact of the coronavirus.

Indeed, of the 600,000 who left the workforce during this time, most are 50 and above. They have also taken with them a lifetime’s skills and experience, qualities which are now in even shorter supply, given the record number of vacancies in the UK.

I have long made the case for the inter-generational business and how we should embrace and blend the assets of both youthful enthusiasm and seasoned know how. Regular readers may even consider it a manifesto for enlightened 21st century commercial practice and they’d be right.

Managers and HR colleagues who can shape their organisation as an environment to enable people of all ages, outlook and experience to combine effectively are the key to making this happen. With hybrid working and more flexible, individualised approaches which focus on outputs rather than input processes, I believe we are seeing more evidence of this welcome change taking place.

So, has this particular storm blown through this older age group? Leaving sunshine and tranquillity in its wake?

Not quite. The flipside of the removal, forced or otherwise, of a cohort approaching retirement is how they organise their financial affairs to prepare for life after work.

Being able to take your pension at 55 is now pretty well known. How to do so is a different matter entirely.

When pension freedoms came into being seven years ago, they explicitly gave people more say over what they wanted to do with their retirement savings.

But then came pension transfer advice mis-selling with some people giving up guaranteed valuable occupational pension benefits in favour of less certain or, in the case of British Steel workers, an inferior proposition.

Where has this left us? Pension freedoms were a response to an era of more individual choice, a loosening of: we know what’s best and will decide for you. In my view, that’s progress, if it comes with the right level of informed support.

But it’s that lack of available advice which is now being blamed on the rising number of members in this age bracket being “red flagged” by trustees because their inquiries about transferring their pension are thought to put them at risk of being scammed.

No responsible player in the industry wants this to happen but the unintended consequence of blanket action taken to protect people from questionable advice is that it has made it far harder for those who want help to navigate this process to find any suitable guidance at all in this area.

I should say for balance that there is a wealth of information to guard against scams both online, on the phone and from any legitimate advisor but is it enough?

There will always be those who need protecting from themselves but if the goal of the freedoms was to hand more autonomy to people to play a greater part in planning their retirement, can it be judged a success on this test alone?

The jury is out, especially when we read that those who have been forced into, or have chosen, retirement – that same group of over-50s – are those responsible for raising the current crop of flags.

They have savings and the time may be right to assess their options. Do they have the help at hand to enable them to do so, confident in the knowledge that they can chart a safe course, avoiding scams along the way? On the basis of this evidence, the answer appears to be: not yet.

News, Pensions

The consolidation of small DB pension schemes could lead to millions being retained to invest in business says Stoneport

Consolidation promises many benefits for the 4000 plus smaller defined benefit pension schemes in the UK with fewer than 1000 members that are responsible for providing the retirement benefits for almost one million members. The benefits include the opportunity to be run more efficiently, improve governance, enjoy better economies of scale and achieve more secure outcomes for members.

But according to Stoneport, one of the often overlooked arguments in favour of consolidation for smaller schemes, is the fact it could create £100m of investment by UK businesses over the next 20 years. The reason for this is many scheme sponsors are currently paying over the odds – far higher running costs than any of the new consolidator options available would require.

On average, a small scheme sponsor could be paying running costs of £1,200 per member per year, with most of these members no longer being employed by the sponsor. If a scheme has 50 members, this could add up to running costs of around £1.2m over a 20-year period.  Through consolidation, this cost could be brought down to as little as £200 per member per year – the level currently enjoyed by larger schemes. Over 20 years, the running costs per member could reduce to just £200k, creating a saving of £1m that could be invested within the sponsoring company’s business.

Richard Jones, Managing Director, Stoneport says, “If just 100 of the 4,000+ small schemes in the UK reduced their costs, we could see around £100m retained and invested in the sponsoring companies, instead of being used to pay for the costs of running the pension.  If more schemes choose to consolidate, then the impact could be significantly bigger.”

Jones says that if companies achieve savings of £1m on their pension costs, this would potentially create a multiplier effect because this money could be used for investment purposes outside the pension scheme, and the actual money generated for the business could be far higher.

At a time when companies are grappling with the many new realities arising from the pandemic, Brexit and inflationary pressures, by focusing on controlling long-term costs, this money could result in more stable businesses better positioned to thrive and grow.

Jones adds, “We only have capacity for around 100 schemes to join our consolidator scheme, Stoneport, but for those that join we can really help reduce their pension scheme running costs significantly. Through being smart and focusing on reducing defined benefit pensions costs, businesses will realise knock on benefits that reach further than just the pension scheme itself, and could benefit more than just the individuals in the old defined benefit scheme.”

For more information visit: www.stoneport.co.uk

News, Pensions

Pension Protection Fund announces much healthier position than last year: Quantum’s thoughts

In it’s latest overview of the UK’s defined benefit (DB) pension scheme sector, The Pension Protection Fund (PPF) has reported a 12% increase in the probability of it being able to pay all benefits due with the assets it holds, plus future returns. The reassuring ‘probability of success’ figure now stands at 95%, up from 83% in 2020.

The announcement was part of the PPF’s annual ‘Purple Book’, which uses data collected over the year to 31 March and identifies trends and developments and forecasts possible implications going forward.

Speaking about the latest report, Simon Hubbard, Senior Consultant and Actuary at Cardiff-based Quantum Advisory, said: “A probability of success of 95% means the PPF is now very close to what we might consider to be ‘fully funded’ for a normal pension scheme. This will be good news for levy-payers because it could mean the PPF has scope to limit levy increases in future years.”

The Purple Book also highlighted the improvement in funding levels due to strong performance of investment markets, with increases of around 8% following last year’s fall. Simon said: “The pandemic and its impact on markets caused a widening gap between schemes with the strongest and weakest funding positions. This was likely driven by the ability of well-funded schemes to protect against market movements through a low-risk investment strategy, meaning that weaker schemes suffered more as markets moved against them. However, strong asset performance has helped more recently for schemes reliant on equities to generate returns.”

The PPF mentioned the escalating practice of moving schemes into lower risk assets, with the average proportion of assets being held in equities now standing at less than 20%, as well as a boost in gilts and complex assets such liability-driven investment strategies.

Simon said: “Most defined benefit pension schemes are maturing as members age and no new members join. This is accompanied by a move into lower risk assets, but the supply of gilts in the market is limited which pushes prices up and makes the aim of moving into gilts more expensive. Some schemes are now removing the link between scheme funding and gilts, instead basing their funding on inflation or expected asset returns.”

The PPF is the statutory fund designed to protect members if their DB pension fund sponsoring employer becomes insolvent and the pension fund does not have enough assets to pay the benefits promised.

Quantum Advisory specialises in pension and employee benefits services to employers, scheme trustees and members. For more information about your pensions, visit www.quantumadvisory.co.uk.