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Pensions
Pension age could be 66 within five yearsPensions experts are predicting a swifter rise in the state retirement age following shock figures from the Office for National Statistics that showed the ratio of working adults for every pensioner will fall from four to three within a decade. It could plummet to just two workers per retired individual by 2040.
Iain Duncan Smith, the Work and Pensions Secretary, said: ‘The current plan to raise it [the pension age] to 68 we think could be accelerated. It seems silly to wait.’
For boys born in 2010, the average life expectancy is 89, while for girls it is 90. This compares with life expectancy of around 70 in the 1940s, when the state pension age was set.
The previous Labour Government approved plans to increase the state pension age for women to 65 by 2020 and to 66 for both sexes by 2026. It was due to rise in stages, reaching 68 for men and women in 2046 under the terms of the Turner Review.
But the most recent projections indicate these measures will be insufficient. Pensions Minister Steve Webb said: ‘We cannot ignore our ageing society.’
In June, ministers began public consultation to determine the new date. The findings are expected soon.
An ageing society and generous pension promises represent a challenge for all European countries, where birth rates are low and budget deficits are growing.
02/09/10NAPF puts faith in reformsPension changes to be introduced in 2012 could end the decline of private sector employees saving in workplace pensions, according to the National Association of Pension Funds (NAPF).
The changes will include the introduction of private pension accounts, which employees can transfer when they change jobs and require employers to contribute 4%.
An NAPF spokesman said: ‘The 2012 reforms will mean a step change in pension provision in the UK in the private sector, including extra support for the existing good-quality workplace pension provision.’
The newly released Annual Survey of Hours and Earnings (ASHE) revealed that only 35% of private sector employees were active members of workplace pension schemes in 2009, compared with 45% a decade earlier.
The ASHE survey also found that defined benefit schemes are in sharp decline, an issue the NAPF urged the Government to address.
The NAPF spokesman added: ‘We want the next Budget to include a provision for more long-dated and index-linked gilts to reduce the strain of pension scheme volatility on balance sheets. This would help companies maintain current defined benefit provision.’Hitting the markSome 37 pension schemes covering more than 100,000 people hit the Pension Quality Mark, a qualitycontrol award launched by the National Association of Pension Funds. Electrical specialist Comet is the latest scheme to have received the award, which is designed to demonstrate the value of pensions to staff.Attractions grow for pension salary sacrifice schemesStephen Hempenstall, pensions adviser at Mercer Employee Benefits, made a strong case at the Payroll World Annuall UPdate Conference for the growing interest in pensions salary sacrifice. He said that of Mercer’s 400 clients about 25% are on pensions salary sacrifice schemes.
The scheme is becoming more popular because of growing awareness of its generous savings on National Insurance Contributions which enhances employees’ pension contributions.
The message from Mr Hempenstall is the importance of ensuring employees understand what they gain. Delegates understand that what it involves cannot be scribbled on the back of an envelope.
He commented: ‘We had a firm on to us the other day, it wanted a scheme implemented in three months from scratch, but that is just not possible. There needs to be extensive familiarisation of the workforce to get across the positive message of pensions salary sacrifice. It is complicated to set up - and complicated to get across,’ he added.
Salary sacrifice is a contractual change, in which employees accept a lower taxable salary in return for a benefit that can be provided free of National Insurance. As the company saves on the employer’s NI, its reduced costs can be considerable.
01/05/09Government tackles overpaid pensionsThe Government has explained how it overpaid pensions for teachers, NHS staff, the armed forces and the Judicial and Civil Service.
They are estimated to have received around £3.70 a month too much.
A statement by Liam Byrne, minister for the Cabinet Office says ‘to enable the correct pension increases to be applied, pension scheme administrators need accurate Guaranteed Pension (GMP) information derived from the individual’s National Insurance contribution record.
‘Our investigations have revealed that in 95% of cases this information is correctly recorded. But, in some cases it is not.
‘In those cases schemes have paid the annual increase on the full pension each year instead of on an amount adjusted to reflect the GMP entitlement’.
02/01/09Company forced to file early to gain 22% reliefA UK company was advised to send out its March pension contributions three weeks early so its employees can benefit from the 22% rate of tax relief before it drops to 20% on 6 April.
Electronics packaging solutions provider Schroff UK has made plans to pay its employee pension contributions several weeks ahead of the due date following advice from its financial adviser, which was supported by pensions provider Scottish Equitable.
But Paula Lord, Schroff’s management accountant, said that employees should have been entitled to the 22% relief regardless of when it was processed: ‘It’s not that big an issue to us, but for smaller companies with less cash flow I am wondering how that would work for them. At the end of the day, employees are paying 22% tax, and then we as the employer pay the net, so employees should be entitled to 22%, not 20%. That’s theft in my mind.’
Simon Parsons, director of payment benefits and compliance with payroll service provider Ceridian and a Payroll World columnist, said that Schroff was not alone in navigating this issue because the ‘answer is unclear’ he said.
But employers are ‘effectively acting as HMRC’s collection agent’ and so it is worth pursuing the issue with them, he said.
02/04/08New pensions 'will be mis-sold'Proposed Personal Accounts as the Government’s way of alleviating the pensions crisis ‘will definitely be mis-sold’, Dave Roberts, a senior consultant at Watson Wyatt, told the autumn Payroll World conference.
The issue dominated discussion at the Question and Answer session at the close of the morning session of the conference.
Personal Accounts will be a low-cost, defined contribution pension arrangement. Workers earning more than a minimum threshold and aged between 22 and the state pension age will be enrolled automatically, unless they are to be autoenrolled into an alternative employer-sponsored scheme meeting certain criteria. They are due to start in 2012.
Mr Roberts said: ‘There are issues around advice. Personal Accounts will definitely be mis-sold.’ Employers’ contributions will be 3% and employees’ 4%, with the Government adding 1% tax relief.
30/11/07MP's concern on pensions PAYEAt the 10 October Public Accounts Committee meeting, Richard Bacon MP picked up on the ending of the effective no-tax regime for small pensions, which are to be brought into the PAYE scheme from 2007/08. In total, around 420,000 pensions are affected.
He said to the HMRC officials: ‘What the Low Income Tax Reform Group is concerned about is ... people who do not yet know that they have a liability and who will not find out that they have a liability until 2008/09 or even 2009/10.’
He suggested writing to pensioners, via the pension providers, to give individuals advance warning of the liability.
HMRC chairman Paul Gray said that the department had considered the matter, but felt that complete coverage was not realistic.
His colleague Michael Shipp told the committee: ‘There is little we could do to force the pension providers to give us that data.’
But PAYE campaigner Matt Boyle said that HMRC receives this data from payroll professionals but loses it: ‘HMRC would have received details of the pensions paid via Forms P14 but these would have been put in the Residual File – the file where Forms P14 are placed when they cannot be traced to an individual.’
31/10/07Concern as small pensions go on PAYEConcern is growing over the administrative challenge for payroll providers as HMRC tries to bring small pension payrolls into the PAYE system. The Employers Bulletin admits that many individuals’ details are not on Revenue databases.
See Feature, page 24, September issue
30/08/2007'Champions' asked to ward off pensions crisisEmployees will receive education on financial planning and preparing for retirement
British workers are to be given guidance on financing their retirement and pensions following the launch of a new Government-backed initiative.
Endorsed by minister of state for pensions reform James Purnell and the Trade Union Congress (TUC) it hopes to arm businesses with tools which will enable trained colleagues to offer staff information and advice that they may otherwise not bother to seek.
This follows research which found that two thirds of UK workers would take a cut in their salary if it meant they were assured of having a workplace pension. The survey, carried out for the National Association for Pension Funds (NAPF) also revealed that 75% view workplace pensions as an important part of their professional arrangement.
Under the new initiative, organisations can nominate ‘champions’ from the workplace who will attend a one-day course teaching them to convey basic pension advice to their colleagues. The training will show them how to gather more specific information, such as forecasting pensions entitlement and providing information on how users can improve their pension’s position using an online support service, the ‘Pension Doctor’.
Natascha Engel, Labour MP and a member of the work and pensions select committee, told Payroll World: ‘The media continuously report that we are in the middle of a pensions crisis; it’s all terribly negative. It undermines the good work the Government is doing. This scheme will start to rebuild that trust.
‘Training a colleague who has at least basic knowledge is far better than expecting people to visit an independent adviser,’ she added.
During the launch, Mr Purnell explained why many people are put off getting advice: ‘They do not know where to go for advice and information about their pension, or are worried about finding it difficult or intimidating. Workplace initiatives are one way to overcome these barriers.’
For more information on the Pensions Champion Service see: www.pensionschampions.org.uk
03/07/07DC members lose out on £225m each yearDefined contribution (DC) members lose £225m a year because they fail to take advantage of pensions contribution matching offered by their employers. Younger members are least likely to gain maximum employer contributions, according to the research, published by Xafinity Consulting.
Andrew Dickson, corporate client development manager at Standard Life, said: ‘Too many employers do not take the opportunity to help staff understand the value of DC schemes.’
03/07/07Levy 'will rise fivefold'Some pension schemes will pay five times as much into the Pension Protection Fund as they did last year, according to actuarial consultancy Watson Wyatt. ‘In the first two years of the Fund it raised less than half the money it needed,’ said Stephen Yeo, senior consultant at Watson Wyatt. ‘Now it is attempting to claw back some of the deficit.’
01/06/2007Poor annuity returnsPoor annuity returns have given those on the verge of retirement little cause for celebration recently, with annuity rates halving in the last 10 years. But David Blake, director and founder of the Pensions Institute at Cass Business School, believes that better value annuities could be around the corner, once a market for longevity risk has been established.
01/06/2007Redundancy allowed in pensionsHer Majesty’s Revenue & Customs has changed its stance and will now allow redundancy payments to be invested into a pension fund.
HMRC has previously taken the position stating no part of a redundancy payment could count towards earnings, and therefore receive tax relief as a contribution into a pension scheme.
02/04/07Gurkhas’ pension reformGurkhas serving in the British Army will receive the same pensions as British soldiers, the Ministry of Defence announced.
Currently, they receive one sixth of the average army pension. The reforms will not apply to Nepalese soldiers who retired before July 1997.
02/04/07No pension haul for fishermenThousands of fishermen who worked on fleets around the UK in the 1960s and 1970s have not received the pensions they were entitled to, revealed Norwich Union.
The pensions provider launched a ‘Find the Fishermen’ scheme to track down 4,537 workers who have never claimed the money owed to them.
Education Secretary Alan Johnson, whose constituents in Hull exposed the unpaid pensions, said it was ‘simply unacceptable’ that neither Norwich Union nor the trawler owners had ensured the men’s National Insurance numbers were recorded under the pension scheme.
The insurer said that the trustees handed over insufficient information to Norwich Union in the mid-1980s when the scheme was wound up. ‘The only information Norwich Union holds on members are the surname, initials and date of birth. Without the NI number it has been very difficult,’ a Norwich Union spokesperson told Payroll World.
Karen Thomson, policy and research manager for the Institute of Payroll Professionals, said the process of applying for a NI number in the 1960s and 1970s was far less rigorous. ‘This of course, doesn’t excuse the actions of the pension providers and the employers of not keeping accurate employee records,’ she added.
01/02/2007Pensions may threaten employers, says reportImproving funding for pension schemes could threaten employers, according to the Pensions Regulator and the Pension Protection Fund.
Its survey of 5,772 defined benefit pension schemes, with 12.6m active, deferred and retired members, revealed 58% of schemes were closed to new members and 3% closed altogether.
01/02/2007BA pension solutionBritish Airways has accepted changes recommended by its four unions, represented by the BA Forum, to make changes to its New Airways Pension Scheme (NAPS), which has a £2.1bn deficit.
The company will make a one-off contribution of £800m, subject to the acceptance of benefit changes.
01/02/2007Changes to pensions welcomedThe Confederation of Business Industries (CBI) has welcomed the Government’s amended regulations on pensions and age discrimination but urged ministers to extend the consultation deadline.
John Cridland, deputy director-general of the CBI, said: ‘We are relieved the Government responded to our concerns about the previous set of regulations on pensions and age discrimination. But it is vital that ministers deliver on their intention to give employers more time to comply with the regulations.’
The deadline was due to pass shortly after Payroll World went to press. The previous draft regulations would have made a number of common pensions practices illegal, in particular they would have prevented companies from allowing existing members to continue to accrue rights in sections of schemes not available to all employees.
05/12/06Workplace pensions ‘could be cut’Two thirds of employers may cut pension payments to new staff when the Government-backed National Pensions Savings Scheme begins in 2012, a survey by Scottish Widows has implied.
The survey of 750 employers also said 23% of firms would cut pension contributions for existing staff. The Government’s system of Personal Accounts will compel employers to pay 3% of salary into workers’ pensions. Critics say this could lead to firms who at present pay a higher pension cutting contributions to the 3% level, dubbed ‘levelling down’ by pension experts.
Personal Accounts were first proposed by Lord Turner in a series of reports into the UK pensions system. Contributions would come from employers, staff and the Government through tax-relief.
05/12/06DWP hits backThe Department for Work & Pensions has defended Government policy after revelations that thousands of individuals may be paying National Insurance top-ups that are worthless. Planned pension reform reduces the compulsory period of additional NI contributions to qualify for a full state pension to 30 years, down from 44 years for men and 39 years for women.
But HM Revenue & Customs has continued to send out ‘deficiency notices’ for all those with contributions below the current period.
A DWP spokesman told Payroll World: ‘We cannot give advice on something that isn’t law yet. There is a flyer going out with the deficiency notices explaining the planned reforms.’
He added that some people, for example those likely to retire before the pensions reforms take hold, would still benefit from extra contributions. ‘The reason we are cutting contributions requirements is part of our overall policy of greater fairness for women and carers, who would be able to get a full state pension with 30 years’ contributions.’
Separately, the HMRC acknowledged that it had sent out some deficiency notices in error to those who have maximised their contributions. Phil Nilson of the employer programme at the HMRC apologised at the Payroll World autumn conference. See December edition for full conference coverage.
21/11/06Age law ‘will hit pensions’New age discrimination rules could result in employers either being forced to reduce pension benefits or go through the costly exercise of setting up a new pensions trust, warned Mercer Human Resource Consulting. As consultation on Government proposals closed late last month, Mercer published research which showed that, if the regulations are implemented in their current form, at least one third of pension schemes could be affected.
The draft regulations will severely restrict employers’ ability to have more than one ‘section’ in their pension scheme. It could be deemed indirectly discriminatory for members of the same scheme to receive different levels of benefits, since new employees are likely to be younger.
Dr Deborah Cooper, principal at Mercer, said: ‘The Government needs to come up with a set of proposals that schemes can work with and that will not damage pension provision.’ Mercer believes the Government should largely exempt pension schemes from the regulations.
31/10/06Pension deficit dipsThe FTSE 100 FRS17 deficits have fallen slightly to £49.9bn as of 30 September 2006, compared to £56bn as of 31 August 2006. The figures released by consulting firm Watson Wyatt also reveal that yields on corporate bonds rose towards the middle of the month, but fell again to roughly the same level.
This lack of change, coupled with a good performance from both domestic and overseas equities (0.9% over the month equating to an annual return of nearly 12%), appears to have led to the drop in the deficit.
31/10/06Standard Life sets aside £100mStandard Life has set aside over £100m to cope with expected policy lapses across its life and pensions business.
The group saw lower-than-expected with-profits lapse volumes in advance of demutualisation, with policyholders waiting for windfalls. To take account of this, it put in place a £23m pre-tax provision at the end of last year and has since increased this to £44m.
With the group listing in July, it said with-profits lapse volumes ran at a reduced level in the first half of the year, increasing immediately following demutualisation before dropping away in August.
On the pension side, Standard Life attributed the recent increase in policy lapses to customers consolidating arrangements in the light of A-Day, the pension tax simplification that came into effect in April.
31/10/06Rail pensions under scrutinyAn independent Railway Pensions Commission has been set up by the rail unions and railway employers to review the current rail industry pensions scheme. The railway pension fund faces rising costs and age-longevity challenges and the new commission will be asked to consider alternative means of long-term pension provision. The commission will be chaired by former Turner pensions commissioner Jeannie Drake.
‘The cost of pensions provision is rising and we need to find imaginative, affordable, equitable and sustainable solutions to maintaining long-term pension provision,’ she said.
The other two members are Bryn Davies, an actuary nominated by the trade unions (ASLEF, RMT, TSSA and the Confederation of Shipbuilding and Engineering Unions), and Peter Thompson, a consulting actuary, nominated by the railway employers.
The commission aims to report early next year.
31/10/06NPSS could lead to mis-sellingA National Pensions Saving Scheme (NPSS) could lead to a ‘huge mis-selling scandal’ because many unsuitable candidates will join as millions of workers are automatically enrolled, according to an insurer.
Adrian Boulding, pensions strategy director at Legal & General, said the proposed scheme, into which employees will be auto-enrolled from 2012 unless they opt out, would not be suitable for everyone. ‘We need to identify who the scheme is suited to, otherwise we’re going to have a huge mis-selling scandal on our hands,’ he said.
For some people, such as those with young families, life cover and income protection would be of greater importance, he claimed. Workers with large unsecured debts – such as credit card and loan balances – should repay those first before saving for retirement.
31/10/06Union fights pension proposalUsdaw will fight any proposal to force retail workers to wait a year before they can sign up to the proposed National Pensions Savings Scheme.
The retail union believes that a proposed one-year waiting period before employers automatically pay 3% of their employees’ salary into the scheme will deprive shop staff of a year’s contributions to their pension without any significant advantage to their employer. ‘The TUC reports some retailers are lobbying for this one-year waiting period, but we will fight this idea because it will discourage many of our members from beginning to make proper provision for their old age,’ says Usdaw general secretary John Hannett. ‘We would prefer for our members to be able to pay into the National Pensions Savings Scheme from day one.’
‘Pensions are the number one worry for our members and waiting a year will only discourage staff from signing up for a pension as well as reducing their contributions by a year, which will hit them in the pocket.’
06/10/06Pension top-up may prove worthlessA letter from HMRC urging workers to top-up their state pensions landed on three million doorsteps last month – but changes to pension laws could render the extra payments worthless.
The ‘deficiency letters’ are an annual occurrence. They are sent to people who have not made sufficient National Insurance contributions to receive a full basic state pension when they retire. Under current pension rules, women need to have made NI contributions for 39 of a possible 44 working years to get the full basic state pension. Men need to have contributed 44 of a possible 49 years. The deficiency letters warn these gaps will mean less money in retirement and recipients are urged to make voluntary ‘Class 3’ NICs to make up the shortfall.
But legislation currently making its way through parliament could mean these extra payments are, in effect, worthless. The Government’s White Paper on pensions reform – due to go before MPs when parliament resumes this month – will change the system so that just 30 years of NI contributions will be needed for both men and women to get the full state pension. Anyone who has made Class 3 contributions, on top of 30 years of NI contributions, will have thrown their money away. HMRC has said it will not refund contributions that are rendered worthless if and when the new regime comes in.
06/10/06The ASP and the GLB Pensions providers are considering radical alternatives to traditional pensions, in the wake of plummeting annuity rates.
Aegon Scottish Equitable International has introduced the idea of guaranteed living benefits (GLBs). The GLB promises a guaranteed income for life, but with continued income growth on the fund and the option to withdraw all the money. It overcomes the disincentive of a traditional pension scheme that surplus upon death stays with the provider, rather than goes to dependants. Aegon’s product ‘5 for Life’ was launched last month. It has been successfully launched in the USA and in Japan.
Meanwhile the Treasury is making plans for alternatively secured pensions (ASPs), aimed principally at people who object on religious grounds to the purchase of annuities.
06/10/06'Just two months’ to save pensionsOccupational pensions could be seriously damaged by the Government’s mishandling of the effect on pension schemes of its age discrimination laws, experts have warned.
Age discrimination regulations will become law this month, but the section that covers pensions will now be amended and will not come into force until December 2006, two months later than scheduled. Pensions minister James Purnell announced the delay last month.
Sam Mercer, Director of the Employers Forum on Age, told Payroll World: ‘The EFA warned Government three years ago that pensions were at risk under the age regulations, and the Government has failed to act until now,’ she told Payroll World.
‘The problems are a direct result of the Government’s failure to live up to its promise of giving employers two years to prepare for the regulations. The Government now has only two months to protect the UK’s occupational pension schemes,’ she added.
Full story in October’s Payroll World.
21/09/2006NHS moots pension shake-upNHS bosses and trade unions have unveiled plans to reform the health service’s pension schemes for both new and existing members, fixing the pension age of new employees to 65. Current NHS workers will still be able to claim their pension from the age of 60 under the proposals, with final salary pensions being created for all employees regardless of length of service, while survivor pensions will be extended to long-term partners as well as widows, widowers and those in civil partnerships. The plans have entered a three-month consultation period with workers. Among the recommended changes are new employer contribution systems, with lower paid workers paying proportionately less than their high-earning colleagues.
01/09/06Carter change will permit facsimilesAccountants will still be able to supply facsimile copies of returns to their clients after new advice from HMRC appears to clarify one of the recommendations in Lord Carter’s report. The latest advice to emerge from HMRC suggests a change to the original proposals of the report, and although the forms still cannot be used for submissions to HMRC, they will continue to be permitted within tax software in order for professionals to provide copies to their clients. This clarification means tax software will be able to continue to include the facility to produce facsimile forms.
01/09/06Irish people claim British pensionsRepublic of Ireland citizens are being encouraged to claim British pensions based on previous NI contributions. The Congress Centre for the Unemployed, based in Letterkenny, Donegal, ‘has become the base camp’ for processing enquiries about both unclaimed British pensions and the purchase of British Social Insurance Contributions, according to a report in Irish newspaper the Western People.
A considerable number of people standing to claim money, particularly in the west of Ireland, it adds.
The Congress Resource Centre dealt with 1,800 queries between December 2004 and July 2006, and the newspaper article printed the HMRC Newcastle office switchboard number.
Oliver Griffin of the Congress Resource Centre, told the newspaper: ‘A lot of Mayo pensioners are unaware that they are entitled to a pro-rata British pension even if they only worked in Britain for at least one year. They would get arrears if they applied when they were over pension age.'
Mr Griffin stated that there is a considerable amount to be gained from the scheme. ‘The highest amount of arrears that has come back is £112 per week and arrears of £5,700 with £7,000 to come.’
24/08/06Life expectancy rockets, raising pension costsNew mortality tables, published by the Continuous Mortality Investigation (CMI) in August, have revealed that life expectancy is rising further and faster than expected. As a result, actuaries have stated that they are unable to project how long people will live.
The new tables, called the 00 Series, look at mortality rates between 1999 and 2002, and register dramatic falls in mortality rates within a decade. The previous tables, the 92 Series, based on death rates for 1991 to 1994, showed that 18.12 men aged 65 would die that year. But in the 00 Series that rate had plummeted to just 12.85. It is unclear whether further sharp falls in mortality are likely over the next decade.
The new tables are likely to become a baseline standard for the valuation of pension scheme liabilities, both by insurance companies and by occupational pension schemes, but they cannot make allowance for how quickly life expectancy will increase in the future with reduced smoking and improved cancer care.
The good news on the nation’s health delivers a sobering warning to pension fund providers. Kevin Wesbroom, principal consultant at HR, payroll and pensions consultancy Hewitt, said: ‘If the FTSE 100 companies assumed that people will live two years longer, their pension deficits would increase by around £20bn and their profits would reduce by over £1bn a year.’
24/08/06Firms battling pension costsUK firms are struggling with the cost of providing their workers with pensions, claimed a survey from Mercer Human Resources.
On average, it costs businesses the equivalent of nearly a fifth of workers’ salaries to offer a final salary pension scheme.
Costs can rise to more than 40% of salary in some cases, Mercer added. Three-quarters of firms offering final salary pensions said scheme costs were having a ‘significant’ impact on profitability, Mercer said.
In 2004, the same survey suggested that about half of firms offering final salary pensions were seeing profits squeezed.
Employers group, the CBI, said high pension costs were damaging investment and jobs. ‘The added burden of spiralling pension contributions is threatening UK firms’ ability to invest in future jobs and growth,’ John Cridland, deputy director general of the CBI, said.
However, the vast majority of firms surveyed said they were committed to their staff reaching retirement with adequate pension provision. The survey found that 60% of companies planned to increase members’ contributions during the coming year. One in five companies said they were considering closing their scheme to existing members as well.
04/08/2006Job ads should include pensionsMore than two-thirds of UK workers are calling for compulsory inclusion of all employee benefits and pensions in job adverts, according to a study by AXA.
The survey of 1,357 British workers found that 67% would like it to be compulsory for employers to provide details of all employee benefits offered within job adverts, including pensions, health insurance, bonuses and other benefits offered on top of salary. And 42% of senior managers at UK firms also back the compulsory inclusion of this information in vacancy adverts, enabling job applicants and existing staff to compare benefits and basic salary between competing companies.
Steve Folkard, head of Pensions & Savings at AXA said: ‘Clearly there is broad recognition among employers and their staff that pensions and other benefits are as important as the salary.
So it makes sense that the complete remuneration package should be a key consideration for all job applicants.’
AXA’s call was backed by former pensions minister, the Rt Hon John Denham, who made a similar proposal in a Private Members Bill last year which received support from across the pensions industry.
04/08/2006Group ‘life-only’ schemes not enoughEmployers with pension schemes that provide ‘life-only’ cover will have to put in place a full pension scheme, according to guidance from the Pensions Regulator.
The Pensions Regulator has issued guidance on providing lump-sum death benefits. This outlines under what circumstances lump-sum death benefits can be provided for members of occupational pension schemes and where these benefits can be provided from such schemes in the absence of the provision of pension benefits.
It also clarifies that, following the recent amendment of the definition of ‘occupational pension schemes’ and section 255 of the Pensions Act 2004, group ‘life-only’ schemes are no longer considered to be occupational pension schemes under legislation or for the purpose of regulation by the Pensions Regulator.
Therefore, an employer that did not previously have to designate a stakeholder scheme because a group ‘life-only’ scheme was in place will now have to meet the stakeholder designation requirement.
04/08/2006Claim to recover lost pensionsFormer Allied Steel and Wire workers in Cardiff have lodged a claim with the European Court of Justice to reclaim pensions lost when the firm went bust.
In a two-hour hearing in Luxembourg before five judges, unions representing the men argued the UK Government failed to protect their savings.
More than 800 staff in Cardiff lost their jobs, and most of their pensions, when ASW folded in July 2002.
A decision on the case is not expected for several months. The case has implications for thousands of people across the UK who lost pensions in a firm’s bankruptcy. Last month, a fund to assist people in a similar position was increased to £2bn by the UK Government.
The delegation of Cardiff workers, Peter Jackson, 61, and Joe Monks, 48, and two colleagues from the ASW’s other plant in Kent, were led by Michael Leahy, general secretary of the union, Community.
The case was brought jointly by the unions Community and Amicus.
10/07/2006FRS17 changes proposedThe Accounting Standards Board has issued a draft report setting out proposals for changes to be made to pensions accounting standard FRS17.
Following the Financial Reporting Exposure Draft release, the ASB is seeking comment on the proposals. ’The ASB has been reviewing the disclosures for defined benefit schemes in the light of concerns expressed by commentators that financial statements do not contain sufficient information to allow their users to adequately assess the risks,’ it said.
The ASB said the draft proposals took into consideration the ‘significant changes that have been made to the UK regulatory regime for pensions since FRS17 was developed’.
10/07/2006Fat cats escape cutsCompany directors remain relatively unscathed by the decline in final salary pension provision, according to research by the pensions adviser Origen.
Despite a collapse in the number of final salary pension schemes open to new members over the past five years, just 5% fewer company directors have access to a final salary plan in 2006 than in 2001. It added that 45% of senior executives at larger companies remained members of a final salary pension scheme, where employers guarantee a set level of pension in old age. However, two-thirds of these schemes have been closed to new members.
Instead, most employers have switched to money-purchase pension plans, where staff have to accept the risk that their pensions will be hit by disappointing stock market returns. The average combined contribution of employers and employees to money purchase plans is now 11.7% compared to 13.5% in final salary schemes.
10/07/2006White Paper ‘must be upheld’The Government must stand by its pensions White Paper to support existing workplace pension provision and lighten the regulatory and cost burdens on schemes, urged the Chief Executive of the National Association of Pension Funds (NAPF).
‘With funded pension liabilities totalling around a trillion pounds and schemes significantly underfunded, legacy pensions schemes are now a major economic issue and pose a policy challenge for Government,’ said chief executive Christine Farnish at the annual NAPF conference last month. ‘For many companies, funding pension schemes now accounts for over 30% of their payroll costs. Both the Treasury Select Committee and the Bank of England has commented on the dampening effect this appears to be having on business investment and economic growth.’
10/07/2006Employers retain AVCsA Hewitt Associates’ survey has shown retention of Additional Voluntary Contributions (AVCs) by employers, despite removal of the requirement to make them. Average annual contribution levels to AVCs have doubled over the last year – reaching an all-time high of £1,800 per member, the survey found.
Some 97% of schemes indicated they plan to offer an AVC scheme to members. Three-quarters of schemes surveyed indicated they will not be imposing restrictions on the level of AVCs members can make in any one year.
The survey covered more than 130 schemes, providing benefits for more than 1.5 million active members.
31/05/06Occupational schemes face collapseUp to 300 occupational pension schemes are at risk of collapsing, according to the Pensions Regulator.
The watchdog announced plans to monitor at-risk schemes and intervene if necessary in order to protect the benefits of workers. It also wants to ease the potential burden on the Pension Protection Fund (PPF), set up to administer funds left in deficit by insolvent companies. A year after being set up, the PPF has taken on at least 40 insolvent schemes.
In a strategy report, the Pensions Regulator said it had serious concerns about the level of pension trustees’ ‘knowledge and understanding’, particularly those looking after funds with fewer than 1,000 members.
31/05/06Paymaster front-runner for NPSSPaymaster, the privatised arm of the Paymaster General’s Office, has emerged as a candidate to run the Government’s new National Pensions Savings Scheme, according to a report in The Times.
Stephen Timms, the Pensions Reform Minister, will meet Paymaster, which already administers the payment of one in every eight UK pensions, including payment of the NHS and Armed Forces’ retirement benefits and annuities for Norwich Union, Britain’s biggest insurer.
Paymaster is part of Xafinity, the benefits and consultancy company acquired by Duke Street Capital, the private equity firm, last July for about £120 million, including debt. Xafinity’s non-executive directors include Sir Nicholas Montagu, former chairman of the Inland Revenue.
The Pensions Commission proposed last November the creation of a National Pensions Savings Scheme (NPSS) to encourage people without occupational or private retirement plans to save. The go-ahead for the NPSS was expected to be confirmed by the Government as Payroll World went to press.
31/05/06Pensions-and-pay combination beginsEmployees are now able to draw pension and salary benefits from the same employer, at the same time. The reform came as part of the ‘A-Day’ pension simplification rules, effective since 6 April.
The move was welcomed by the Employers Forum on Age. ‘These changes are great news for employers and employees alike, and signify the success that leading UK employers have had in campaigning on this issue. ‘Combined with the introduction of age discrimination laws in October, employers will now be able to offer people the opportunity to ease into retirement both financially and in terms of lifestyle change,’ said Sam Mercer, director of the Employers Forum on Age.
Many employers have resented the fact they lost valuable employees to competitors at the end of their working lives, she said.
‘If we’re going to have to work for more, and work more flexibly, then it is often going to be part-time,’ she told Payroll World. ‘I think a lot of people would need to supplement their part-time salary with pension benefits.’
The Turner Commission on retirement recommended higher state pension combined with a higher retirement and a National Pensions Savings Scheme. A Government White Paper is expected in the next few weeks.
03/05/06Diageo to shore up schemeDrinks giant Diageo, is to pump £100m into its UK company pension scheme as the first part of a seven-year plan to pay off the £653m pensions deficit.
The repayment plan, agreed with the trustees of the UK company pension scheme, will begin in the 2007 financial year.
Diageo will calculate the value of the deficit using the trustee’s actuarial valuation scheme as of 31 March 2006.
Paul Walsh, chief executive of Diageo, commented: ‘This funding framework, together with changes we have made to the pension scheme, demonstrate Diageo’s commitment to provide a high standard of employment benefits. It follows the sale of our shares in General Mills and our full exit from Burger King and provides further clarity in relation to Diageo’s balance sheet.’
03/05/06Pension Protection Funds doubleApplications to the Pension Protection Fund (PPF) – the Government’s pensions safety net for struggling pensions funds – have leapt by more than 50% in the first quarter of 2006.
According to reports in the Financial Times, the PPF is at present assessing 63 retirement schemes to decide whether they have sufficient assets to pay more than the minimum entitlement offered by the safety net. This is in contrast to about 30 schemes reported before Christmas 2005.
The fund has reported that the first scheme to pass its trial and enter the safety net will do so by the end of 2006.
03/05/06Boost to Parliamentary Pension Fund The Parliamentary pension fund is to get a boost from the taxpayer, the Government actuary has decided.
Contributions to MPs’ pensions from the public purse will go up from 24% to 26.8% from April to cover an increase in the fund’s deficit. But the Cabinet Office said MPs would not have bigger pensions as a result of the rise, equal to £1.2m a year.
The government actuary reviews the fund every three years. The level of taxpayer contributions to the Parliamentary fund is already well above the average of most schemes, but in common with other private and public pensions, the MPs’ scheme has been hit by lower-than-expected investment returns and its members living longer.
The fund’s deficit has risen from £25.2m in 2002 to £49.5m.
03/05/06BA proposes to raise retirement age British Airways is proposing to increase its retirement age for some of its workers in a bid to close a £1bn black hole in its pension scheme.
Under the proposals, the compulsory retirement age for pilots and cabin crew will rise to 60 from 55. The airline also pledged to pay an extra £500m into the pension scheme once the changes have come into force.
The Transport and General Workers Union (T&G), the largest trade union at BA with more than 20,000 members, said the plans would mean more pain for a workforce who had already delivered changes and massive savings to the airline.
03/05/06
Payroll World
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