Your favourite pension lawyer spent most of last week snowed in so has been a little remiss in posting but with the thaw comes the need to write so here goes.
This weeks bon mots concern the Government proposals to allow schemes to adopt the Consumer Price Index (CPI) in place of the Retail Price Index (RPI) when calculating the amount by which pensions should increase each year. Now I can already hear the yawns but bear with me because this actually is pretty important. First, some background.
TPR has issued its latest guidance on the very tricky subject of Employer Related Investments. Readers may know that for many years now there have been fairly strict limits on the amounts that a pension scheme can invest in the business of its sponsoring employers. In very simple terms, no more than 5% of the fund can be invested and there are complete bans on things like providing bank guarantees to the company.
I have recently been instructed by a trustee client to assist them in the merger of two pension schemes of the same employer. Great news of course especially for my bank balance, but it immediately started me thinking about possible conflicts of interest. Stay with me here and I’ll explain why.
A little unusually, the two schemes had the majority of the trustees in common. Now most Conflicts guidance, including that of the Pension Regulator tend to concentrate on the possible conflicts that can arise when a senior executive of the Employer also sits as a trustee and that’s fine and dandy but this was a bit different. So what were the trustees to do? Could they effectively and fairly negotiate with themselves when dealing with relative funding positions, future benefits in the merged scheme and the like?
One of the most amusing stories that has arisen in the past week (although it has a serious purpose) is the proposal that Diageo, the drinks conglomerate has come up with to try and solve its Final Salary Scheme funding deficit. As readers may know, when an actuarial valuation reveals a deficit, the law requires that the Trustees and the Employer get together to try to agree a cunning scheme to repair that deficit over a period of time. This is called a Recovery Plan.
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.
I have decided that this blog will be an election free zone – at least for the time being. I suspect that none of the three main parties actually have much of a clue about pensions other than how they can get the over 55’s to vote for them with a bribe or two so let’s not go there and instead talk about a couple of other pensiony issues
First, a cautionary tale for Trustees, with tPR having reported two trustees from the firm GP Noble to the Serious Fraud Office. Charges have been laid and the matter is next due before Southwark Crown Court on 16 April.
It wouldn’t be a ’start of the year’ without a few predictions so Mystic Jens has been gazing into her crystal ball and has seen the future…mind you, she was still a little the worse for wear at the time so please do not take any of these suggestions seriously…until they come true that is!!!
First, a bit of a no brainer – there will be even fewer Defined Benefit schemes by the end of 2010 than there are now.
The new Tory Government will announce a review of pension provision with particular focus on the Personal Accounts Regime due for introduction in 2011..er…2012…er whenever…!!
It has long been a bit of a joke in the pension world that BA is a pension scheme that occasionally flew a few planes. Well, many a true word spoken in jest it seems.
Although the immediate threat of a strike over the Holiday period has been averted, it is almost certain that a fresh ballot will produce the same result. What’s that got to do with pensions you may ask? The answer is painfully simple.
BA has a combined £3.7 billion black hole in it’s pension scheme funding.The law requires that the Trustees and the Company reach some sort of agreement on how that deficit is going to be dealt with by June 2010.
In last weeks’ posting, I said that I doubted the Chancellor would be able to keep his dirty mitts off pensions. I am sorry to report that I was right although even I didn’t appreciate just how underhanded he was going to be. Along with his annoucement that he was extending the restriction of tax relief to those earning effectively £130,000 (we already knew about the £150,000 limit) Mr Darling announced that he intended to raise the State Pension by 2.5%.
Much rejoicing in the Labour camp that at least pensioners – some of those most affected by rising prices and reducing benefits – would be winners in the budget merry go round.
First the good news is we are being told that the recession is over and the FTSE 100 has risen to over 5300 at at 17th of November. You would think then that pension scheme trustees would be expecting reducing deficits when their scheme actuary comes to look at the figures.
On the other hand, other observers are telling us that pension deficits could have been underestimated by nearly £270 billion, and far from things getting better, in reality the funding position of schemes is getting far worse. And it is beginning to effect not only defined benefit schemes but defined contribution schemes too are also showing severe underperformance.
Jennie advises large multi-employer schemes as well as smaller single employer arrangements and has wide experience of both Defined Contribution and Defined Benefit schemes. Jennie qualified in 1986 originally as a criminal prosecutor. She sits as a Magistrate in her local justice area and is an Approved Chairman and Deputy Chair of the Bench Training and Development Committee. Jennie was formerly Legal Director of the Occupational Pensions Regulatory Authority. When her busy practice allows, Jennie likes to indulge her passion for travelling. To consult Jennie on any corporate Pensions matter, please call her on +44 (0)20 7749 2700 or send her an email by clicking below: Email Jennie