Regulated Apportionment Arrangements
Hoover has just become the 27th company to use a regulated apportionment arrangement (RAA) as part of their restructuring process as The Pensions Regulator (TPR) and Pension Protection Fund (PPF) approved the proposal on 30th April 2017. The Hoover (1987) Pension Scheme will now pass into the PPF (unlike the British Steel Pension Scheme which, although awaiting official sign off as at the time of writing, is offering an alternative scheme to just entering the PPF).
A RAA is an arrangement which allows a financially troubled employer to separate itself from its liabilities in respect of a defined benefit pension scheme. These types of restructurings are difficult to achieve as employers are only able to proceed if they are facing insolvency within the next 12 months. For further details on the Hoover case please refer to the ‘Does Hoover’s deal with the Pensions Regulator and the Pension Protection Fund suck?‘ article.
Pensions dashboard
For regular readers of Quantum News, you’ll know that the government wants a working pensions dashboard to be launched by 2019. Whilst Phase One has been completed (the prototype was unveiled this April), there are going to be many challenges ahead if the timescales are to be met.
It surprises someone of my age, but the average number of jobs in a working life now stands at 11, which will only increase as the traditional way of working disappears. If you factor in corporate activity, it will make it difficult for many employees to keep tabs on all their pension provision.
You would have thought that the production of a pensions dashboard should be relatively simple, given that the Netherlands, various Nordic countries and Australia already have such systems. However, those countries have smaller populations than the UK and a much less fragmented market. The UK has something like 46,000 schemes to contend with.
The Association of British Insurers is overseeing the project on behalf of the government and is working with major master trusts, insurance companies, third-party administrators and employee benefit consultancies to complete the task.
Work undertaken so far has raised a few issues, least not the multitude of IT systems and data standards, the latter being addressed in the next phase as the ABI push the industry to adopt a common standard. This seems easy in principal but there is no incentive (or regulation currently) for schemes to submit this data for the dashboard’s use which makes it more difficult, particularly as the older schemes may not have a complete set of digital data.
Success can only be measured in terms of ease of use and coverage. There have been comments that a 90% coverage should be the target to aim for. Members should be able to use the dashboard to easily assist them flesh out a retirement plan – this can only come about with the use of the right set of tools which provide unbiased information for the end user. This will restrict the companies that have been pivotal in its construction from using it as a sales outlet for its services.
To make it a great success, once the above obstacles have been overcome, it will require encouragement from the government (which has been slow thus far) and regulatory oversight and the foresight to keep the model updated to reflect the future needs.
Consolidating scheme rules and deeds
You will be aware that the Pension Regulator’s (TPR) guidance recommends that it should be good practice for schemes to consolidate all changes to a scheme’s rules at least every five years. You will also be aware, perhaps from personal experience, that schemes are not following this guidance despite it being in existence for more than a decade.
It has long been normal practice to make any changes through separate amending deeds and (hopefully) store them in one easy to find place.
The industry has raised concerns with this stance as it is difficult to keep track of changes which could result in inaccurate information or paying/buying out the wrong benefits and has suggested that some form of regulation should be imposed upon schemes to ensure that they conform.
This will mean extra costs at a time when money may be tight for sponsoring employers.
This is never going to be an easy decision, given that all schemes would naturally choose to consolidate if the exercise was free. A half-way house could be to create an electronic working copy of the deed and rules that consolidates all the amendments online via a member portal for all to see, with any changes being made each time there are changes.
This isn’t a new concept although there are few legal advisers who are currently offering this facility. We do work with one or two though and would be delighted to broker a meeting between interested parties to see if this is attractive for schemes.
The “triple lock”
Following their deal with the Democratic Unionist Party, the Tories have agreed to retain the triple lock on the state pension. The protection, which guarantees annual increases in line with the higher of the Consumer Prices Index, average earnings and 2.5%.
The deal was part of a number that ensured the support of the DUP on votes on the Queen’s Speech, the Budget, finance bills, national security policy and Brexit.
Whilst many in the industry had called on the government to drop the triple lock, stating that it is financially unsustainable, with both inflation and average earnings expected to increase over the next few years, maintaining the triple lock is not expected to cost the government any money in the short term. The Office for National Statistics estimated that the Consumer Prices Index was 2.9% in May 2017, its highest level in four years, above the 2.5% “floor”.
David Deidun
david.deidun@quantumadvisory.co.uk