Headed for the Future

After a break from regular blogs, I am starting the New Year with a few posts on non-pensions matters, reflecting on some non-pensions events I attended in Autumn 2013, which may be of interest.  As usual, I am trying to cram quite a lot into relatively short posts. 

This post looks at some points on diversity, and the next will reflect on some recent discussions about the legal profession.

Diversity has been on my mind for a while, since the Law Society of Scotland (the “Society”) launched the results of one of the biggest ever surveys of the legal profession in Scotland in Autumn 2013[1] looking at the profile of the profession overall. 

My interest was caught again when the New Year honours list made headlines this year for containing slightly more women than men (51% women).  This is the very first time women have outnumbered men on the list.[2]

A couple of other news stories from December are worth mentioning here, too.  In the USA Janet Yellen has been confirmed as head of the US Federal Reserve[3], and closer to home, Inga Beale has been appointed as Chief Executive of Lloyds of London[4].

So what does this have to do with business, law, or pensions? 

Back to the Society’s survey.  The president, Bruce Beveridge, reminded us in his opening remarks at the launch that the Society’s key strategy is to lead and support a successful and respected Scottish legal profession.  Underpinning this is the need to be in touch with and reflect the wider society in which we operate and it goes almost without saying that equality and diversity are integral to that.

My overall impression of the survey results is that the legal profession in Scotland are doing better on equality and diversity than the last major surveys (e.g. 2006 and 2009), but there’s still quite a long way to go, e.g. men tend to get paid more and are promoted faster than women and although over half the entrants to the profession are women, only around a quarter of partners are women.  Although a key focus of the results and discussion was around gender equality, in relation to other diversity the message was more or less the same, i.e. that the profession is doing better, but there’s still a way to go.

Something that really stuck with me was a comment made at the Society’s launch that promoting greater equality and diversity, whether in the workplace or wider society, is often seen as a “women’s issue” when, in reality, it is a business issue. 

There is evidence that those business which have women on their boards do better in their markets.  This is a statement that appears quite a lot, and it turns out there has been quite a bit of research done which tends to support this claim (a couple of links are provided in the footnote here[5]). 

A possible reason why these businesses perform well is that by having a wider range of skills, experience and views in the board, the business is better able to appreciate and service the needs of its clients or consumers that it serves and better deliver a service or product which is needed and wanted.  In our very competitive world, using every possible advantage seems like a good idea.

So diversity isn’t really about women, or minorities, at all; it’s really about making business stronger.  And that seems like a good thing to me.

 

Comments welcome.

 

Vanessa Ingram

Director

January 2014

 

Disclaimer: the views expressed in this blog are my own, and this blog should not be taken as legal advice for any particular situation.

 

 

 




[1]For those seeking more information, the Society’s press release, which contains the headline facts and a link to additional information, can be found here: http://www.lawscot.org.uk/news/press-releases/2013/october/solicitors-bend-towards-flexible-working.

[5] For additional information about this, please see the World Economic Forum press release here: http://www.weforum.org/news/slow-progress-closing-global-economic-gender-gap-new-major-study-finds;  the main report here: http://www.weforum.org/reports/global-gender-gap-report-2012; and a useful summary courtesy of Women On Boards here: http://womenonboards.co.uk/resource-centre/selected-reading/why-women-are-good-for-business.htm

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Celebrate!

The Law Awards Scotland 2013 awards ceremony took place on Thursday 12 September in Glasgow.  There was smoke, fireworks and lots of laughter, as well as some awards!

V I Pensions Law was nominated as a finalist in three categories – Up and Coming Firm of the Year, Firm of the Year under 40 fee earners, and Sole Practitioner of the Year.  I was delighted to be awarded Sole Practitioner of the Year 2013. 

It’s hard to believe that the business is still less than 18 months old, having started in March 2012.  It has been a brilliant start, and the award tops it off well. 

Of course, despite being a sole practitioner, a lot of people have helped contribute to the firm’s success behind the scenes, whether at the development and planning of the business or in ongoing “back office” support.  These include very talented people who contributed to the branding, website design and business planning at the development stage and very patient accountants!

Since the doors opened, a lot of people have generously shared their time and experience, frequently over a cup of coffee, of running their own business and what’s worked for them.  A number of professionals in other fields – actuarial, consultancy, financial advice, accounting and law to name but a few – have referred work to the business.

Most importantly of all, a number of individuals, businesses, organisations and trustee boards have become clients, providing the firm with an impressively diverse range of work.  Particularly pleasing is that many clients come back for additional advice or recommend the firm to others.  It is all greatly appreciated.

So while I am celebrating, I wish to record a huge thank you to everyone who has shared their time, expertise, experience, referral and work with the firm and me over the past nearly 18 months. 

Thank you!

 

Vanessa Ingram

Director

 

September 2013

 

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High Hopes

Two recent news items caught my eye – one with a practical tip and one with a wish.

The practical tip came from research from the deVere Group and indicates that a 30 year old should save £824 a month in order to retire comfortably at age 65.  This is based on the UK average salary of £26,500 a year. (See more at: http://www.professionalpensions.com/professional-pensions/news/2283303/young-workers-must-save-gbp800-per-month-devere).

The amount required to save goes up with quite a bump for every year after 30 that pensions saving is delayed.   It should be noted that the deVere Group’s assumption of a “comfortable” retirement is replacing pre-retirement income with a pension of 75%.  Sounds good to me – but the warning is, of course, that very, very few people are saving enough for their retirement.  And this is before we consider whether a 30 year old actually has over £800 to save per month – by my rough calculations that is about 40% of the average salary which seems unrealistic.    

By contrast, recent research by Aegon suggests that under-25s still expect to retire at age 65 (see further: http://www.telegraph.co.uk/finance/personalfinance/pensions/10199379/Under-25s-still-expect-to-retire-at-65.html?fb). 

I think that should be “wish to retire at age 65”.  This goes against the current trend for later retirement ages and, based on the current low take up of pensions saving, it’s unlikely that many under-25s will be in a position to retire at age 65.  Even the state pension age is also going up, and might well go up further depending on state finances and how long people are living.

The good news for the under-25s is that auto enrolment will apply for the majority of their working lives, so if they stay in the scheme, they will have some pensions savings at retirement, over and above whatever state pension is around.

The bad news is that they will actually have to save – amid all the other demands on their cash. 

My prediction is that the current under 25s will find themselves working beyond 65, if they wish to have a comfortable retirement and, for many of us, a “comfortable retirement” is going to fall far short of the ratio proposed by the deVere Group. 

Comments welcome.

 

Vanessa Ingram

Director

 

August 2013

 

Disclaimer: the views expressed in this blog are my own, and this blog should not be taken as legal advice for any particular situation.

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The Long Run

We have had a truly splendid period of sport – tennis, rugby, cycling and golf and even, I believe, some cricket.  The British might not have won absolutely everything, but it has been a really good time to support British sport and achievements.

I found myself following the Tour de France with far more interest than in previous years, perhaps prompted by the British win last year and certainly having had my interest piqued by the London Olympics (where, in case anyone wasn’t aware, the British cycling team did rather well).

The Tour de France was fascinating for all sorts of reasons.  There was the sheer physical effort required; a three week long physically gruelling bike race, taking the riders up some very large mountains and also requiring them to go very fast on flatter stages.  Not only that, but there were more strategies and tactics at play than I had thought possible in what was, essentially, a race to see who could get to the finish line first.  It was brilliantly absorbing.  The winner, Chris Froome, backed by the “men in black” of Team Sky and the team’s scientific approach to bike racing, was extremely understated and almost modest off his bike, but determined and absolutely focused where it mattered during the racing.

All of which, curiously enough, got me thinking about pensions.  There is a passing similarity to managing a defined benefit pension scheme and winning the Tour de France.  Both require a supporting cast of professionals, considerable effort, not a little bit of pain, and a constant eye on the main goal of getting to the finish line.  Of course the “finishing line” for a defined benefit pension scheme (when all the benefits are bought out or otherwise settled) is perhaps a decade or two, or even further, away, requiring quite a lot of stamina and determination to get there.  But on the way there will be deficit mountains to climb, periods of stable investment returns and growth (we hope) and the odd technical adjustment to the valuation assumptions, or refining member data. 

At the end of the pensions journey there’s no yellow jersey or fireworks display on the Champs Elysees, but there should be some kind of celebration, and we’ve got a long time to plan for it.

I am already looking forward to next year’s Tour, and (dare we think it?) the possibility of another British winner.

Meantime, it’s back to pensions for me.

 

Comments welcome.

 

Vanessa Ingram

Director

July 2013

Disclaimer: the views expressed in this blog are my own, and this blog should not be taken as legal advice for any particular situation.

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Bright Side of the Road

One of the key challenges for pension provision is that we are all living longer.  This has been a generally accepted fact of any valuation-related discussion for the past several years (if not decades).  So it was with some surprise that I noted a recent article suggesting that we might not, in fact, be living as long as we thought we were.  This was swiftly followed by a BBC Horizon programme with some tips for living longer.

The article (see link here: http://www.bbc.co.uk/news/magazine-23126814) followed the 2011 Census which found that there were fewer people in their 90s than had been expected – of an expected population of 457,000, the Census found only 429,000 (roughly 30,000 fewer people).  According to my calculations that’s a difference of less than 10%, but it does go against the general and expected trend. 

So it seems we might not all be living as long as we’d thought.  It should make for some interesting discussions around the table at the next actuarial valuations, when employers might well resist the idea of adding a bit on to the mortality assumption (and therefore adding to the scheme’s liabilities and costs for the employer).

Contrast that with the Horizon programme (summarised in an article here: http://www.bbc.co.uk/news/magazine-23229014) which included, amongst a lot of other very interesting items, a piece on a long term study in America where researchers had found that positive thinking, or being more optimistic than pessimistic, could actually increase life expectancy by an average of 7.5 years.  Note: that’s an average, not a maximum.  One of the interviewees on the programme was one of the original participants in the study; a very laid back, positive man and one of the most spry 90 year olds I’ve seen for a while. 

I suspect that most of us in the pensions industry are probably pessimistic by nature; it’s been a tale of increased regulation and increased liability for decades now, with little to smile about.  Pensions is one of those few, odd, areas where people living longer isn’t necessarily good news.

Perhaps we can find solutions in positive thinking?  The benefits seem great.  If we can harness our inner optimist (we must have one somewhere), positive thinking and imagination to develop solutions to the current difficulties of swathes of red tape and huge pensions shortfalls, we can then reap the benefits of our labour with longer, more financially secure retirements for more people. 

Sounds like a great ambition, even if only a true optimist might believe in it at the moment!  Any ideas where we start?

Do let me know what you think.

 

Vanessa Ingram

Director

 

July 2013

Disclaimer: the views expressed in this blog are my own, and this blog should not be taken as legal advice for any particular situation.

 

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Keep Yourself Alive

Another high-profile pensions deal hit the presses this week although this one is unlikely to come as a surprise.  UK Coal’s pension scheme will be taken over by the Pension Protection Fund, allowing the business to continue.  See more here: http://www.bbc.co.uk/news/business-23243633.

This is the latest in a long line of high profile businesses and pension schemes in difficulty and I can only imagine the level of work that’s been putting into getting this deal agreed – they are not easy.  Although there will be some redundancies, most jobs have been saved and in a similar vein, although some members will see a reduction in their benefits, for pensioners it seems that they will not see any change.

The new business, which is described as an employee trust, will not have any pension liability attached to it, and as a price of that, it will be required to continue contributing to the Pension Protection Fund, in support of the pension liabilities  it’s leaving behind.

Deals like this are a delicate balancing act. 

On the one hand, there is a strong interest in keeping the business and scheme together in the long term in the hopes that the deficit will be paid off over time and members will get their full pensions, and the business will make profits.  The Pension Protection Fund is after all funded by businesses and the more liabilities it accepts, the greater strain is put on its own funding position.  So the Pension Protection Fund will be resisting taking on new liabilities unless it’s absolutely convinced it should.  In addition, depending on the make up of the pension scheme, members might lose out on benefits under the Pension Protection Fund.

On the other hand, the economic reality is that businesses are struggling.  For some businesses it’s not really a question of not wanting to fund their pension scheme, but an absolute struggle for survival.  Many of these businesses believe that, if it weren’t for the pension scheme liabilities, they would survive, and perhaps even thrive.

Only time will tell how the new UK Coal business will do.  Sadly, history has shown that even without their pension liabilities, some businesses still fall – which is another harsh economic reality.

Meantime, I’m sure that there is quite a lot of celebration for the people behind the UK Coal deal, and quite a few company directors looking closely at the deal.

Comments welcome.

 

Vanessa Ingram

Director

July 2013

Disclaimer: the views expressed in this blog are my own, and this blog should not be taken as legal advice for any particular situation.

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It’s All Too Much …?

I recently found myself discussing the Scottish independence debate with a fellow pensions professional.  There are a lot of unanswered questions about what pensions provision might look like post-independence.  As we were talking I remembered that the actual referendum is still over twelve months away.  From the energy that both sides of the debate are displaying, a bystander might be forgiven for thinking the vote was in the next few months.

Following the news and pensions press, I have increasingly been drawing a comparison between the Scottish independence debate and auto enrolment.    

Take the less-controversial subject of auto-enrolment.  We all know it’s here, it’s really important and many of us support the principles behind it.  But we in the pensions world have been discussing, debating, learning, dissecting and generally poring over auto-enrolment for what feels like a very, very long time indeed.  And despite the amount of time we’ve been doing this, there are still more changes on the way (e.g. recent consultation in respect of people with tax protection). 

The really big employers have already gone through their staging dates and the focus of the pensions world is turning to the smaller employers.  Based on the clients that I speak to, they are all aware of auto-enrolment, but quite frankly they really don’t want to hear any more about it, thank you. 

There is real danger, it seems to me, that employers may miss their auto-enrolment requirements partly through confusion at the very prescriptive requirements, but also partly through information overload.  There has been so much discussion about auto-enrolment, it must feel to some employers that they have actually done what they need to do.

There is a danger that the same might happen with the independence referendum.  It feels like we’ve been in the middle of a vigorous debate for quite some time.  However, I can’t help but worry that by September 2014 voter fatigue will have set in and a lot of us might miss the actual opportunity to vote.  One thing I do believe, very strongly, is that those of us who have a voice in this matter should express our views, whatever they are, where it really matters: at the ballot box. 

As for auto-enrolment, only time will tell if the information overload actually impacts compliance by employers.

 

Comments welcome!

 

Vanessa Ingram

Director

 

July 2013

Disclaimer: the views expressed in this blog are my own, and this blog should not be taken as legal advice for any particular situation.

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I Can See For Miles …

A few weeks ago Bruce Rigby, formerly of Mercer and now undertaking a number of roles including a non-executive director of the Pensions Regulator, gave the annual key note speech to the Association of Pension Lawyers Scottish Group.  The subject was, in essence, Bruce’s personal reflections on changes in pensions over his career.

Pensions in the UK have become incredibly complicated (I’m sure I’ve mentioned this before!).  We have dozens of principal pieces of legislation (Pensions Acts 1995, 2004 and 2008 to name but a few), hundreds of pieces of secondary legislation (statutory instruments) which often cross-refer, numerous codes of practice and guidance from the Pensions Regulator, not to mention publications produced by HM Revenue & Customs.  And that’s before you get to the trust deeds and case law … And those are just the cogs and wheels of the system that spring immediately to mind.  It’s a minefield.

So complex is the system that, inevitably, I find myself getting caught up in the detail.  I suspect a lot of other professionals in the field do, too.  

With all that in mind, the talk was very welcome, not only for the interest of Bruce’s personal views, but also for a rare gift; an opportunity to reflect on the huge changes that have occurred in UK pensions over the past 30 years. 

It reminded me that, as important as the detail is, it’s vital now and again to look up from the fine print and take a look at the bigger picture.  It matters for us, our clients and the wider pensions landscape.

Now I just need to schedule some thinking time in my diary …

 

Comments welcome.

 

Vanessa Ingram

Director

June 2013

 

Disclaimer: the views expressed in this blog are my own, and this blog should not be taken as legal advice for any particular situation.

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Hey Hey What Can I Do?

 

In the last two posts I’ve look at a somewhat bleak picture of UK pensions then the Dutch defined benefit (“DB”) pension system.  In this final post in this short series I’m going to consider whether the Dutch DB system, or an alternate “defined ambition” (“DA”) might work in the UK, or indeed if we already have the structures we need to provide decent pensions without huge cost.

The short answer to whether the Dutch system would work in the UK is: no.  This may be cynical of me, but I think for legal and political reasons, this won’t be possible.

On the legal side, it seems to me that the protections in place for member benefits in the DB environment are firmly entrenched in our legal system.  We have vast amounts of legislation on protecting existing benefits whether through guaranteed increases, revaluation of deferred benefits or the statutory prohibition on watering down existing benefits when making future changes (e.g. section 67).  And that’s before you consider the common law issues about protections built into quite a lot of pension scheme deeds.

On the political side, whilst it might be possible to re-write legislation and take away some of the member protections, I simply cannot see this being done on a wholesale basis. 

So if we can’t touch the existing benefits, would a form of DA (with targeted benefits) work in the UK?  Personally, again perhaps cynically, I think not.  The main reason for that is that I think, at the moment, UK businesses are struggling and anything which would be an additional cost is not going to be popular.  Any form of DA would also be over and above the current legal minimum requirements of auto enrolment and for many businesses, they will not want to be providing additional, more expensive, benefits than their competitors.

So with those negative answers, can the existing structures work for us?  If DB is too expensive, and DA is a non-starter for wary employers, we’re really left with defined contribution (“DC”).

One thing that’s recently caught my eye is the increasing focus on looking at member outcomes in DC schemes.  This is where the employer, or a trustee or governance board, really takes the DC arrangement in hand, taking a long, hard look at what the desired outcome is, i.e. what level of benefit members might need on retirement, breaking the membership into different groups with different treatment if necessary.  This approach looks at what investments are offered, what the default funds are, and how to keep members informed about their expected level of benefits.  Importantly, it seems to me, this approach doesn’t rely on the member being a financial wizard.

Whilst there are detractors from this approach, it seems to me an interesting and positive approach to managing DC benefits.  I’m sure it’s been in development for some time and that there will be employers who have been managing their DC arrangements well, but for the most part very little attention is paid to DC. 

The approach requires management time, and possibly adviser costs as well.  That will be unwelcome for the traditionally low or nil cost DC arrangement, but does compare favourably with the high costs of running a DB scheme, and should also ensure that members are not only better informed, but get better pensions at the end.

I realise it’s not perfect, and go back to an earlier comment which is that there are no easy answers to the difficult issue of providing decent pensions for members.  However, with more and more employees across the UK going into DC pensions, having stronger governance in place for those DC arrangements seems to me to be a good thing.

Comments welcome.

 

Vanessa Ingram

Director

June 2013

 

Disclaimer: the views expressed in this blog are my own, and this blog should not be taken as legal advice for any particular situation.

 

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Us and Them

 

The last post was a bit depressing; heavy defined benefit (“DB”) liabilities are pushing many employers to offer defined contribution (“DC”) benefits to their staff with serious concerns that DC won’t deliver sufficient benefits for members.  There’s a difficult balancing act between member protection and allowing business to flourish.

Against that background, with an ageing population, and a country very heavily in debt, there is a real will by policy makers to look at alternative pension structures, to try and encourage private pension saving.  In particular Steve Webb MP has been talking about “defined ambition” with great energy and enthusiasm for quite some time.

We don’t know what defined ambition (“DA”) might look like in the UK yet, but I was fascinated to get a glimpse into the world of Dutch pensions at a recent Barnett Waddingham seminar.  Roel Nass of LNBB in the Netherlands gave an overview of how the Dutch pension system works at the moment, and proposals for change. 

The Dutch system is of interest on its own merit, and also as it is being looked at (along with others) as the UK considers what DA might look like.

The Dutch DB system has some very significant differences from the UK system.  I should at this point make it clear that, of course, this reflects my understanding and any errors are entirely my own.

The key differences seem to be in relation to increases and funding.

Under the Dutch DB system there are no guaranteed increases to pensions in payment, or revaluation (increasing) of pensions between date of leaving employment and date of retirement (i.e. period of deferment).  Instead, the trustees of the DB scheme will grant discretionary increases if the scheme’s funding allows.

In relation to funding, there is a requirement to be funded at a certain, minimum level – from memory, 105% of a notional funding level although the schemes should ideally be funded higher – and if the scheme is not funded to this level, a short-term recovery plan has to be put in place to restore the funding.  If funding is still not up to scratch, benefits can be cut back.  In April 2013 a number of Dutch pension funds had to cut back their benefits; this was apparently a reasonably small proportion of the overall number of pension schemes and DB members.  The average cut back was just under 2% of benefits.  Cut backs affected all members – from pensioners to deferreds to actives.

This is wildly different to the position in the UK where increases in payment and revaluation in deferment are mandatory after a certain point, and existing benefits are protected.

Despite their greater flexibility, the message from the Netherlands is that businesses over there are facing funding difficulties and the policy makers there are considering a move to DA. 

As far as I can tell, in essence, the DA arrangements proposed in the Netherlands could be described as DC with a target benefit.  So employers would pay a fixed amount of contributions, and members would be kept up to date of the performance of the fund against the target, but if the funding wasn’t enough, the employer wouldn’t be faced with a bill to meet the shortfall.

Personally I thought that there seemed to be a lot of common sense built into the Dutch DB model; even though there is a reduction in member protection, it didn’t seem to place as high a burden on employers which, to my mind, should increase the chances of employers continuing, and benefits being paid.  I did wonder, though, if in the UK we’re thinking of the current Dutch system as DA.  Mr Nass was careful to point out that the current Dutch system is DB, and their version of DA isn’t in place yet, but is being discussed.

So would the Dutch DB system work in the UK and do we have any other options in our existing structures?  I will look at these questions in the next post.

Comments welcome.

 

Vanessa Ingram

Director

May 2013

 

Disclaimer: the views expressed in this blog are my own, and this blog should not be taken as legal advice for any particular situation.

 

 

 

 

 

 

 

 

 

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