PS in the press
'News in brief' Punter Southall are quoted:
Actuaries have calculated the liabilities of an average pension scheme would fall in value by around a third if real yields hit 2.8% a year, returning most schemes to surplus says Punter Southall. Pensions Week, 19 July 2010
'Analysis - Whisky, property and brands to help save pensions' Lorant Porkolab comments:
"A shop in Oxford Street is much easier to value than a cask of maturing whisky," said a tax lawyer with experience of contingent asset deals.
"Valuation of assets, in particular intangibles, is more of an art than a science. It can be supported with sophisticated modelling but ultimately the trustees and the sponsoring employer need to negotiate and agree, just as it happens in M&A transactions," said Lorant Porkolab, of Punter Southall Transaction Services. Reuters, 15 July 2010
'Pensions switch to CPI sees staff lose out' John Prior is quoted:
The CPI, which unlike the RPI excludes most housing costs, tends to be slower-growing, with John Prior, principal at Punter Southall, among those anticipating that the new index will produce a lower rate.
On average, Prior predicts CPI will produce around 0.5% less than RPI in future, saying that it will reduce members' accrued rights but offer a respite for firms battling with large pension liabilities.
"This change appears to be good news for employers who operate defined benefit or final salary pension schemes, but correspondingly bad news for the employees and ex-employees who are members of these schemes," he explained.
While the reduction is likely to impact on pension payments, it could also enable more firms to keep their final salary schemes open, meaning it may not all be bad news for British employees.
Ultimately, Prior believes the "devil will be in the detail", with different firms adopting different approaches in how they respond to the change and he urged the government to publish full guidance on exactly how they should tackle what he termed a "fundamental change". Institute of Leadership and Management, 14 July 2010
'Punter Southall: government has hard task to impose CPI pensions link' John Prior is quoted:
But John Prior, principal at Punter Southall, said without drastic government action, a large number of schemes whose rules explicitly link them to the retail price index (RPI) would not be required to make the switch automatically. ‘The problem for the government is if the scheme’s rules refer explicitly to RPI to a maximum of 5% or 2.5%,’ said Prior.
‘Unless they do something radical to override these rules, the process of deciding whether schemes should change their indexation could be long and drawn out.’
Prior said the government may try to argue that even schemes explicitly linked to the RPI should automatically switch to the CPI. Citywire, 12 July 2010
'Critics queue up to condemn surprise pensions 'stealth tax' John Prior comments:
"It is not just current pensioners who will see their future increases cut back, but millions of current and ex employees will find that when they come to retire their pension is much less than it would otherwise have been. A difference of 0.5 per cent a year in future increases might not sound like much but it could be equivalent to a 20 per cent reduction in value for someone now aged 30" The Times, 10 July 2010
'EC proposes solvency II-style regime for pensions' Jane Beverley is quoted:
The Commission sees Solvency II as potentially a good starting point for developing a pensions solvency regime, said Jane Beverley, principal and head of research at Punter Southall. The paper asks simply what an equivalent solvency regime for pension funds would look like, and does not ask the question which surely should come first whether a solvency regime is required at all for pensions. Beverley said Punter Southall has previously expressed concerns about the adoption of a Solvency II style regime for pensions in the EU, since pensions and insurance are fundamentally different. Pensions Age Online, 9 July 2010
'Private Pensions are hit for £100bn'John Prior is quoted:
But John Prior, from actuaries Punter Southall said: "The only people who will benefit are employers, and the people who will pay the bill are their employees. It could be devastating for some of them" Daily Mail (print and online), 9 July 2010.
'Solvency rules for pension funds could lead to 'dead money', expert warns' Jane Beverley is quoted:
Forcing a solvency regime on pension funds could result in "dead money" for companies without benefiting scheme members, a leading member of Punter Southall has warned.
Responding to the European Commission's Green Paper on pensions, which mooted the possibility of a "sui generis solvency regime", Jane Beverley, head of research at actuarial consultancy Punter Southall, warned that forcing sponsor companies to put aside additional funds could cause problems.
"Tying up their money in this way doesn't actually benefit pension scheme members, but it does harm their company," Beverley said.
"If you have solvency capital, that's money the employer can't spend in his business, but is not actually going to provide the members with any additional benefit.
"It will simply be sitting there as dead money."
Beverley said the difference between insurers and sponsors to bear in mind was that the employer was actually trying to run a business.
Solvency II, set to come into effect in late 2012, will regulate all European insurers and require them to alert authorities if their funding level falls beneath a certain point.
She added that people opposed to solvency regulation for pensions were not opposed to protection for member benefits, but merely saw other ways of safeguarding them.
She said that if no solvency regime were introduced, it would nevertheless be important for each country to have a strong regulator, citing the UK Pension Regulator's recent contribution notice ordering Michel Van De Wiele Group to pay an additional £5m (€6.2m) into its scheme as an example.
Beverley also expressed concern at the wording of the Green Paper, saying it implied a wide-ranging discussion on the introduction of solvency regulations had already taken place.
She said talks had focused on two specific points, namely whether Solvency II applied to regulatory own funds and cross-border schemes.
"My concern is, this is pretty much saying 'How do we go about applying a solvency regime to pensions?'" she said.
"We seem to have lost the question 'Should we apply a solvency regime to pensions?'" IPE.com, 8 July 2010.
'EU Green Paper paves the way for cross-border pensions' Jane Beverley is quoted:
Jane Beverley, principal and head of research at Punter Southall, added: We are pleased to see that the paper contains a broad discussion of the issues facing pensions provision across the EU, and we welcome the EUs acknowledgement that there is no one-size-fits-all pension scheme design. There are also reassuring words about the need for ensuring regulation is proportionate and does not push employers into insolvency or into abandoning pension schemes.
However, the consultant said it is concerned that the Paper sends out mixed messages in the context of solvency. In particular, the Commission sees Solvency II as potentially a good starting point for developing a pensions solvency regime. The paper asks simply what an equivalent solvency regime for pension funds would look like, and does not ask the question which surely should come first whether a solvency regime is required at all for pensions.
Beverley said Punter Southall has previously expressed concerns about the adoption of a Solvency II style regime for pensions in the EU, since pensions and insurance are fundamentally different. European Pensions, 7 July 2010.
'Why FDs should not resist the updated IAS 19' Peter Black is quoted:
Peter Black, partner with Punter Southall, points out that things could have been worse. “At one point there was a move to say that all the gains and losses in the fund had to go through the company’s P&L immediately. That would have had a hugely volatile impact on the P&L and since many of those gains and losses would be theoretical – because the company, or rather the scheme, was not about to crystalise the losses – the P&L would have been catapulted quite a long way from reality,” he explains. “Not exactly the outcome that a standard-setting body should be seeking.”
Black points out that the additional disclosure demanded in the draft will be particularly annoying to many companies. “There is already a huge amount of disclosure required with respect to company pension schemes, and most finance directors will feel that adding still more disclosure will further increase costs without necessarily increasing comprehension,” he says. Financial Director (print and online), 5 July 2010.
'Industry welcomes Budget higher rate tax relief rethink' Jane Beverley is quoted:
A spokesman for Punter Southall says: “It is rare for the pensions industry to be so unanimously critical as it was of the Government’s proposals to restrict pensions tax relief for high earners.
“This Budget will therefore come as a welcome relief to many of those involved in UK pension schemes.
“Whilst pensions tax relief will still be restricted for some individuals, the Chancellor has announced a change in the mechanism for achieving this, saying that he has listened to the concerns of employers and the pensions industry about the complexity of the ’high income excess relief charge’ proposed by the previous Government.” Money Marketing Online, 4 July 2010.
'Pension regulators guidance welcomed' Lorant Porkolab is quoted:
A common pitfall has been for trustees to sit back following a covenant assessment and assume no more needs to be done until the next actuarial valuation, added senior consultant Lorant Porkolab, leader of the covenant advisory practice at Punter Southall Transaction Services. However, it is clear that the Regulator expects trustees to keep the covenant under regulator review.
"We have seen lately how quickly the trading performance and financial positions can deteriorate" he said.
"Covenant monitoring and triggers recommended by the Regulator will allow trustees to take appropriate action before the covenant weakens too far"
Porkalab said he was also expecting to see more trustees considering the impact of the covenant's strength on the scheme's investment strategy.
"The stronger the covenant, the more risk the trustees can take, since the employer can underwrite the risk to support the scheme in case of adverse outcomes." The Treasurer, 1 July 2010.
'Talking Points: Regulator issues guidance on employer covenant' Lorant Porkolab is quoted:
Perhaps the most significant new element outlined by the Regulator in this consultation document is its recommendation for trustees not only to put a covenant monitoring framework in place but also to include appropriate contingency plans that could be triggered depending on changes in the relevant covenant metrics. These agreed contingency plans are likely to reduce the passive nature of covenant monitoring. Pensions Insight (print and online), 1 July 2010.
'Talking Points: Government proposals to cut public sector pensions' Stuart Southall is quoted:
Yes, it is unfair, to some, that private sector workers see their pension prospects often deteriorating whilst also paying taxes seemingly to preserve better public sector pensions. But, equally, it could be both unwise and provocative to respond by simply increasing employee contributions and by beating down public sector pension benefits rather than looking at the pension problem. Pensions Insight (print and online), 1 July 2010.
'Industry welcomes Budget higher rate tax relief rethink' Jane Beverley is quoted:
A spokesman for Punter Southall says: “It is rare for the pensions industry to be so unanimously critical as it was of the Government’s proposals to restrict pensions tax relief for high earners.
“This Budget will therefore come as a welcome relief to many of those involved in UK pension schemes.
“Whilst pensions tax relief will still be restricted for some individuals, the Chancellor has announced a change in the mechanism for achieving this, saying that he has listened to the concerns of employers and the pensions industry about the complexity of the ’high income excess relief charge’ proposed by the previous Government.” Corporate Adviser (print and online), 1 July 2010.
'Punter Southall predicts five changes to DB pension rules FTSE 100' Mike Richardson is quoted:
Mike Richardson, senior consultant at Punter Southall, said the DB was currently not efficient and needed to be reformed before any more tax changes were made.
'The emergency Budget was game-changing. It's good news for defined contribution (DC) schemes and hopefully DB too. However the consultation after will look at how DB pension accrual will be valued,' he said.
He believes the following reforms are necessary:
- Calculating the value of retirement income by annual allowance is taken from dividing annual salary by an accrual rate and multiplying by a factor of 10. In the future the factor will vary according to age;
- Charges on accruals would be deferred for all members and not just those who have left the scheme;
- Legislation to require annual allowance calculations to be done on behalf of scheme members;
- A lowering of the scheme pays threshold - above which the pension scheme pays the tax charge on pension contributions in return for a reduction of benefits – from £15,000 to £5,000;
- Tax exemption given one year before retirement removed.
Richardson said the system would still carry almost impossible administrative impracticalities in the transfer of information from the scheme to trustees, members and their advisers and HM Revenue & Customs.
‘You must take advice at an early stage. It is so important for businesses to get a strong process in place, otherwise it will be a mess. Administration has got to be a high priority,’ said Richardson. Citywire, 1 July 2010.
Punter Southall Pensions Bulletin - July 2010