Avid readers of Professional Pensions may have seen an ariticle in the 6th September edition regarding the case of Waddy v Foster Wheeler (yes, THAT Foster Wheeler – just can’t seem to keep out of the pension press can it??). I was asked to comment on the case just as I was rising from a Magistrates’ court sitting so I’m not sure my thoughts were fully cogent at the time!!

The significance of this case is that it concerns the rights of gay couples in a Civil Partnership to the same pension rights as heterosexual spouses. Now you may have thought that all this was sorted some time ago with the passing of legislation back in 2005 and it’s reenactment under the Equality Act 2010. But the more techically minded amongst you will also remember that there was an option available to schemes to only “equalise” benefits which accrued post December 2005. And that’s what many schemes did of course – largely to control costs for which funding had not been provided prior to then.

It seems (although in fact aspects of this case have settled outside of court so there is no formal trancript of events) that Foster Wheeler did not provide full benefits for Civil Partners. Mr Waddy and his partner Mr Skipp had been together for 40 years and entered a CP in 2006. The scheme having taken advantage of the exception has now agreed to provide full benefits in this case but maintain that the scheme rules were entirely lawful.

Liberty who took the case on Mr Waddy’s behalf continue to maintain that the Equality Act exception is unlawful both in respect of EU law and under the European Convention of Human Rights. The point will be argued further in an Employment Tribunal in January 2012 and we await the outcome with interest.

I have to admit that even when the legislation was first passed, I did just wonder whether the temporal limitation would ever be challenged. Now it seems that it is, I suspect that if Liberty lose at the ET, that won’t be the end of the matter. It is amazing that in the second decade of the 21st Century we should still be in doubt as to the intent and validity of equal rights. But that’s pensions for you. Why make things simple when it’s so much fun to make it complicated…

Slightly hidden away in the bowels of the Daily Telegraph comment section is a piece about Wedgwood Potteries. Sadly this wonderful British institution has faced financial difficulties in recent years and as a result, the pension scheme has had to go into the Pension Protection Fund in order to be rescued. So far so sadly usual.

But the Wedgwood Scheme was a multi employer scheme and one of the employers was the Wedgwood Museum in Stoke on Trent – completely independent of the pottery company itself but with 5 employees who were members of the main scheme. So the Museum became a participating employer as it was required to be. And this is where the whole things becomes a bit unfortunate.

The scheme is what is called a ‘last man standing’ scheme. So any solvent employer who happens to be the last employer in the scheme stands to pick up the whole of the deficit of the scheme – the Section 75 debt. In Wedgwoods case, this is some £134 million apparently. Unsurprisingly this lovely Museum doesn’t have that sort of cash – or rather it does have some of it, but only if it sold off the precious artifacts it holds. And this is what the Pension Protection Fund is seeking an order from the High Court to do.

Needless to say, the locals are up in arms and the PPF is being accused of cultural vandalism by MPs and commentators which is in a sense quite true. It would be a terrible blow to a superb heritage were this to happen. I have no idea what way the Courts will turn in deciding this issue. But it would be wholly wrong to blame the PPF for taking this action. The PPF has a statutory remit to recover as much of the debt as it legally can from the companies or organisations liable to pay it.

If there is any villain in this piece it is the dreadful Section 75 Pensions Act 1995 which has never worked properly since it first hit the statute books and through several attempts to put it right. Those attempts have only led to further complexity and confusion and have acted as a break on genuine corporate activity. Oh yes, and in this case, it is simply unfair.

Now we all know that pensions are difficult. That’s why my clients pay me very reasonable fees to sort it out for them. The National Employment Savings Trust (NEST) have just published their research paper showing that its target audiences don’t understand many of the terms and phrases used by the pension industry and have produced a ‘phrasebook’ to help raise levels of understanding. I don’t know how much they paid for that piece of research but I (and any one else involved in pensions) could have told them that for free!!

On the whole I’d give it a B for effort. As others have already pointed out (thanks Mike Jones of My Company Pension) here’s just one example of the old and the new. A Pension Commencement Lump Sum becomes A Cash lump sum taken when you purchase a retirement income. Why use 4 words when 11 are so much better…not!! But maybe I’m nit picking here. If this begins to improve member and employer engagement (ooh wait, not sure I’m allowed to say that… just a mo while I check…no that’s fine) then hats off to them. If you want to participate in their Plain English Forum just go onto the NEST website where you can also play their version of Angry Birds…don’t think it will be appearing on an Iphone near you soon though!!

Meanwhile, the Government has confirmed that the Default Retirement Age is to be phased out by October. On the one hand I can see that at 65 many people are more than capable of continuing to work and indeed may economically have to do so. On the other hand, there are also the younger generations to consider and they must be able to access the job market too. (Hold on…may not be able to say ‘access’ – nope, it’s on the banned list…er..) they must be able to get a job too. And for many who might have had hard physical jobs, they may not be able to work beyond 65.

From the pension perspective, most schemes will of course have a Normal Retirement Age at which members of the scheme can take their pension. This gives the scheme some certainty in its funding plans – I’m talking mainly here about DB schemes of course, but equally for DC arrangements, the Employer will have to continue fund contributions on an open ended basis. Arbitrarilly stopping pension contributions at a given age could now perhaps be challenged and scheme rules will have to be carefully analysed to see just what the position is and just what Employers can realistically afford.

I suspect the Law of Unintended Consequences may just have one more clause up it’s sleeve to bite us.

Last year dear readers you will recall that I made a few not very serious pension predictions for the year to come. As this will be my last blog for 2010, I thought why not do it again so here goes:

1 The Parliamentary pension scheme for MPs will be scrapped in favour of auto enrolment into NEST.

2. NEST will be abolished 6 months later after MPs suddenly decide that it is really not that great an idea after all and can we please have our nice DB scheme back again.

3.  The Index is to be revised again after the Government decides that CPI is no longer suitable on the basis that not only do pensioners not need housing costs to be factored in but also at that age they really don’t eat very much do they and a few more layers of clothes will sort out the heating problem. The new index will be called ‘the Zero Index’

4. The Euro reaches parity with the East Caribbean dollar. MEPs all decamp to Anguilla for the Winter.

5. The Pension Act 2011 comes into law and contains only 3 clauses and covers a mere 2 pages (this is obviously a complete fantasy so I apologise for teasing my readers this way!!)

6.  DWP simplifies the Auto Enrolment staging date regime from 24 dates to a far more manageable 53! Someone told them that Orwellian NewSpeak was a guidance manual.

If you’ve got any other predictions,why not share them here. A Happy Christmas and a Happy and Healthy New Year to you all.

Now that the dust has settled a bit on the excitement of the Auto Enrolment announcements of last week, I thought I might just sit down and try to understand a little bit more about what the proposals might actually mean in practice, particularly for small to medium sized businesses. I’m not addressing the really small employers here – those with just a few employees and who previously provided no pension provision. Yes, it’s true that they will for the first time have to look at this, but generally, they will probably just auto enrol into NEST and be done with it.

No, I wanted to think about the employer who might in fact already have a pension scheme for its workers and what AE might mean for them. And while doing so, my euphoria at the good intention behind the policy of forcing people to save for a pension slowly turned to despair as I began to realise that once again, we have probably managed to make it the most complicated, expensive process that we could possibly have come up with. ‘ Why?’  I hear you ask. Well, here’s just a sample.

Let’s assume you are an employer with an existing DC scheme and you have perhaps 250 employees, 100 of whom are actually in the scheme because the other 150 either didn’t wish to join or opted out of joining. Along comes your AE staging date. You now have to:

1) work out if your scheme falls within the definition of Qualifying arrangement which will require you deciding which of the 3 definitions based on contributions and pensionable pay your scheme falls into.

2) work out whom of your workers fall within the jobholder definition who require to be auto enrolled ie, are they between 22 and state pension age – itself a movable feast – are they earning at least £7425 per annum etc

3) write to all those eligible (including those already in your eligible scheme even though you don’t have to do anything about them but especially also to those who aren’t in the scheme based on a strict regulatory process as to the information to be provided and woe betide if you get it wrong

4 )auto enrol any eligbile jobholder who isn’t currently a member and make sure that they ’suffer’ the pain of seeing a pension deduction before they can opt out.

Ah, opting out, now there’s a topic. Let’s just look at this shall we? Individuals can of course opt out – but first they must be ‘opted in’! An employer must ensure that jobholders are told all about auto enrolment including the right to opt out (see 3 above)  but they cannot do anything that would encourage jobholder to actually opt out nor can they provide a form to make life easier for them should they wish to do so. The Scheme can provide a form but then the jobholder must return this confusingly not to the scheme but to the employer who must also make the necessary returns to the Pension Regulator. Still with me? And the employer must do NOTHING that requires any action on the part of the jobholder. So, he can’t ask them to fill in a form with their basic information in order to facilitate membership administration (though a third party administrator can and perhaps if the scheme admin is done in house but that’s not really clear) and the jobholders must not be asked to select any options – although of course they can be given options but only as long as its after they’ve been put into the default position first. I think it was at this point that I started to lose the will to live.

But I shouldn’t complain I suppose – there is no way that even sophisticated employers of this size will work their way though the mire without professional help. No one said it would be easy but did it have to be this bloomin’ difficult?  Hello, can I be of any assistance…?

Well, the Gods have spoken and we have a slightly better idea (but not by much) on how the Spending Review will impact on pensions. The main point to arise so far concerns the not totally unexpected rise in State Pension Age to 66 by 2020.

This will have a far greater impact on women than men, in that female SPA will rise steeply from 60 to 65 from 2016 to 2018 and then both male and female SPA will rise to 66 by 2020. By the way, there is a highly amusing typo in the Spending Review document at page 69 where the Treasury officials seem unable to spell ‘equalisation’ correctly. Edukashun eh??

Anyway, back to the plot. While the ‘gut’ reaction to this change might seem somewhat negative, let’s just think about this. Women tend to live longer than men on the whole. Any actuary worth his mortality table will tell you that. So why shouldn’t women work longer too? Add to that the fact that it is still a biological fact that women bear children and as a result might have career breaks which would affect their pension build up (putting aside for one minute the Maternity laws). They may therefore welcome the chance to make up those ‘lost’ years.

Ane then there some recent surveys revealing that women are far less likely to save into a pension anyway – a somewhat worrying statistic to be honest – and you have a pretty logical argument for a longer working life for women at least transitionally to bring them into line with men. We wanted equality girls, this is the price we have to pay for it.

In other Spending Review news, we have an indication that auto enrolement and NEST will continue to be funded ‘to encourage high quality pension provision by employers’ Clearly no one has explained to the Treasury that NEST in its current form will never provide that little promise.

Just a short one this week in that I was interviewed by Lexis/Nexis the legal database, for commentary on St Vince of Cable’s plan to simplify legislation by ensuring a One In One Out approach. Here’s a link to the article. Call me an old cynic if you like but sometimes a glass half empty is exactly that. I’m off on my hols now for a couple of weeks. Lying on a beach in the Caribbean with a good friend, good food and a tall glass of something naughty. Now that glass will certainly be half full! See you in September.

http://lexisweb.co.uk/groups/employment/blog/archive/2010/8/16/21482.aspx

Although it is really something of a statement of the bleedin’ obvious, PwC have recently issued a report which after extensive (and no doubt extremely expensive) research has concluded that Final Salary Pension Schemes will have ceased to exist within 10 years. This is not exactly ground breaking news to those of us within the Pension Industry who have been watching the death throes for several years now.

It does seem however that the pace of change is escalating and frankly this is no surprise either given current economic circumstances, the open ended cost and volatility of running such schemes and the legislative complexity of complying with the over burdensome regulatory regime.  (Oh and Obama’s ridiculous grandstanding over BP significantly reducing the value of our pension funds – when he clears up Bhopal he might just have the moral high ground!!) And that’s before one factors in increasing longevity of members (in other words, we’re all living too long for the actuaries to keep up) and the soon to be introduced reforms in 2012 (I say this with some caution since it is just remotely possible that NEST will be spiked as many of us in the Pension Industry hope…at least in its current form)

But the one area that the report flags up which should be of concern is the fact that employees are simply not saving enough for retirement. 60% of people won’t be able to retire at all due to lack of savings. Yet the previous Government (and this one too if they don’t do something about it) think that an 8% contribution into a monolithic money purchase scheme will be sufficient. Actually the figure that will be invested will be a mere 5.7% after the set up levy and management charges are taken off. Here’s a bit of advice that didn’t take a lot of research – IT ISN’T ENOUGH!!

It is no wonder that employers are incentivising their employees to transfer out of the DB arrangement into something less costly. Someone needs to get a grip of the Pension arena. Who will be brave enough to do it I wonder?

Best news story of the week has to be Mohammed Fayed’s rant at the Harrods Pension Scheme Trustees for not allowing him to ‘raid’ the scheme of his company dividend before paying up for the deficit as the law requires. The full report in the Evening Standard is simply hilarious. I was convinced at first that it had been written by Ian Hislop. The shareholdings in Harrods are opaque in the extreme as any reader of Private Eye will know, with various offshore ‘Fayed Family Trusts’ hiding most of the true picture.

So it was brave and absolutely correct for the trustees to spoil this man’s party by putting their members first.  Well done.

Next, the Coalition Government has announced the end of compulsory retirement at age 65 and instead, retirement will be linked with life expectancy. Those of my devoted Twitter followers will know that I have already commented with some concern on this.  I just don’t at the moment understand how this is going to work. It is a fact of life that a 65 year old will generally have a lower life expectancy than someone aged 30. Just who is going to decide what the appropriate life expectancy for a pension is going to be? Will it be some jobsworth in a dark room? Will those actuarial mortality tables suddenly get a whole new meaning?? Will we all be biochipped at birth and when it starts to flash red we report to Carousel? (you will have to watch Logans Run to get that allusion folks!!)

And what of the sick – what diseases will ‘qualify’ for reduced life expectancy assessment. I have diabetes – can I put in for my pension now please?

Obviously I am being a bit flippant here but it is an example of just how easy it is to make a great announcement. It will be far harder to translate that into a system that actually works. Mind you, we haven’t had a working adequate pension system for several years now, why should I expect anything to change?

Been a bit quiet on the pension front this week – must be something to do with some vote thingy going on in the country. Pensions seem pretty low on the politicians agenda (it’s that ‘too difficult’ basket again) so I thought this week I’d actually blog about a bit of law (shock horror!!)

The Outer House Court of Session (it’s a Scottish court for all you Sassenachs) has put the boot into the English once again over of all things, the equalisation of pension rights in schemes.

For those of my readers who may not be pension experts, a little reminder. Since 17 May 1990 and the Barber decision in the European Court of Justice, men and women have had equal pension benefits applied to them. The decision (and various subsequent and refining judgements) have said that the disadvantaged sex must be given the same rights as the advantaged sex unless and until schemes were amended to ‘level down’ all the benefits equally. Typically this meant that men who had a Normal Retirement Age of 65 would be able to take any benefits that accrued to them after 17 May 1990 at age 60 – the NRD for women – without any actuarial reduction for early payment. However schemes could be amended to make NRD 65 for both sexes. The period between 17 May 1990 and the amendment date is called the Barber Window.

Still with me – jolly good! Now, many schemes got very worried by the Barber window and sought to close it as soon as possible. Unfortunately this was often acheived without too much attention being paid to the strict amendment powers of the scheme rules. The English courts have considered this and have said, most notably in the Trustee Solutions v Dubery case, that unless the amendment requirements were strictly adhered to (for example if it required amendment by Deed, a scrappy piece of paper calling itself an Announcement just wouldn’t do) then the amendment was not valid and the Barber window remained open. Much wailing and gnashing of teeth as schemes already in deficit suddenly faced a liability for which they hadn’t properly funded!

Now our friends North of the Border have put something of a coach and horses through that principle in a case called Low and Bonnar v Mercer Limited. Lord Drummond Young (for it was he) has declared that the Scottish language is somewhat different to that of English and the word ‘Deed’ did not mean quite the same thing and had no techincal meaning in Scottish law. Consequently if a scheme required an amendment to be by Deed in Scotland, that could in fact merely imply some form of formal writing such as a Board Minute. Well, lots of rejoicing in Edinburgh and Glasgow then but not much comfort for us in the South where equalisation remains one of the thorniest problems we pension lawyers are having to deal with.

It’s enough to drive one to drink…Mine’s a good single Malt…