evoc pension presentation june 2013
Download
Skip this Video
Download Presentation
EVOC Pension Presentation June 2013

Loading in 2 Seconds...

play fullscreen
1 / 34

EVOC Pension Presentation June 2013 - PowerPoint PPT Presentation


  • 151 Views
  • Uploaded on

EVOC Pension Presentation June 2013. Presenter. David Davison Spence & Partners Ltd Actuaries & Pension Consultants Head of Charity / Not-for-profit Practice Advise 100’s of charities on stand alone & multi-employer pension schemes Involvement with CFG / ICAS

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about ' EVOC Pension Presentation June 2013' - carys


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
presenter
Presenter
  • David Davison
  • Spence & Partners Ltd
  • Actuaries & Pension Consultants
  • Head of Charity / Not-for-profit Practice
  • Advise 100’s of charities on stand alone & multi-employer pension schemes
  • Involvement with CFG / ICAS
  • Steve Webb / Pension Minister DWP ‘Working Party’

Private and confidential 2

agenda
Agenda

Defined benefit risks and issues

Accounting position

LGPS issues

Pension Trust issues

Summary and conclusions

Questions

2

high profile cases
High profile cases
  • Wedgwood Museum
  • People Can
  • Spirit of Enniskillen Trust

Private and confidential 4

charity background
Charity background
  • In general charities do not tend to have:-
    • A strong and flexible underlying asset base
    • An asset base increasing in line with pension liabilities
    • Flexible net income
    • Clear division of restricted & unrestricted assets
  • Organisations function on tight margins
  • Boards focus on ‘charitable objectives’
  • Competition for income
    • funding / tenders / donations / rents
  • Pressure to re-structure / merge

Private and confidential 5

charity background1
Charity background
  • Evolution out of or provision of services for public sector
  • Competition for staff
  • Benevolent employers
  • Legacy DB
  • Retained much longer than in private sector
  • Unsustainable

Private and confidential 6

introduction
Introduction

Defined Benefit-Risks and Issues

Confidential: internal use only 4

defined benefit scheme how is it valued
Defined benefit scheme-How is it valued?
  • Liabilities = benefits promised to members plus expenses
  • Estimate of cost based upon salary, price inflation and life expectancy
  • Time value of money

Private and confidential 8

defined benefit scheme how does it work
Defined benefit schemeHow does it work?

Future Deficit

Liabilities

Contributions &

Investment return

Assets

Future

Liabilities

Past Deficit

Past

Employer

guarantee

Assets

Contributions &

Investment return

Benefits

Private and confidential 9

pension funding
Pension funding

45%

Under-pays

25%

Contribution

Over-pays

5%

20

65

Age

Private and confidential 10

key funding measures
Key funding measures
  • Accounting – FRS17
  • SFO / On-going
  • Cessation / S75

Private and confidential 11

funded defined benefit characteristics risks
Funded Defined Benefit – Characteristics & risks
  • Members pay a fixed % of salary (which may increase for benefits building up in the future)
  • Employer contribution assessed by the Scheme Actuary
  • Build assets to pay benefits when due based upon contributions and investment return
  • Objective of meeting cost during employee’s service

Private and confidential 12

funded defined benefit characteristics risks cont d
Funded Defined Benefit – Characteristics & Risks cont’d
  • Uncertain cost
  • Funded on basis that the scheme continues
  • Increased focus on prudent funding
  • Lengthening longevity risk as mortality rates improve
  • Much higher liability on exit/closure
  • Cross generation subsidy unless contributions reflect ultimate cost
  • Cross company subsidy if non segregated multi employer

Private and confidential 13

an imperfect storm
An ‘imperfect’ storm
  • Reduced asset returns
  • Falling gilt yields
  • Rising inflation
  • Lengthening longevity
  • Requirement for ‘prudent’ funding
  • Insolvencies/administration
  • Rising contributions
  • Falling membership-affordability

Private and confidential 14

multi employer schemes section 75 cessation
Multi-employer schemes- Section 75/Cessation
  • Active member test
    • Closure agreement by all participants
    • Inadvertent trigger
  • Dealing with re-structures
    • Some new flexibility
  • Inconsistent with stand alone and segregated multi-employer schemes
    • Cease future accrual and fund over a very long term

Private and confidential 15

multi employer schemes section 75 cessation1
Multi-employer schemes- Section 75/Cessation
  • Unaffordable exit costs forces organisations to continue to accrue
  • Payment within Pension Trust schemes without benefit ‘secured’
  • 2011 DWP review didn’t greatly help although did recognise specific charity issues

Private and confidential 16

last man standing
Last man standing
  • ‘Orphan’ debt
  • Wedgewood case highlighted risks- £134m
  • Connected and unconnected employers
  • ‘Cross subsidy’ inconsistent with charity law
  • Are charitable assets available to pension scheme?
  • Concern for charity trustees
  • ‘Unmanageable’ and ‘unidentifiable’ risk- weak and strong organisations
  • ‘Domino’ effect

Private and confidential 17

member security
Member security
  • Higher under multi-employer last man standing
  • Providing enough ‘stronger employers’ in scheme and total covenant in excess of total liabilities
  • Future accrual increases risk
  • Impact on job security

Private and confidential 18

other issues
Other issues
  • Restricted, unrestricted and designated funds
  • Can pension scheme access charitable assets?
  • Donations
  • Tendering for services
  • Off balance sheet liabilities
  • Establishing the employer covenant
  • Auto-enrolment
  • Scheme retention- move to DC
  • Insolvency/ administration

Private and confidential 19

accounting position frs102
Accounting position – FRS102
  • FRS17 disclosure
    • Disclose as DC where share of underlying assets/ liabilities cannot be identified
  • Existing inconsistency
  • Balance sheets overvalued
  • Risk not being identified or understood
  • Will create a more consistent playing field
  • Will force some level of disclosure
  • Inability to ‘hide’ behind the exemption

Private and confidential 21

accounting position1
Accounting position
  • For each £10,000 per annum of deficit contributions broadly £100,000 negative on balance sheet
  • Net present value of contributions likely to be higher than FRS17 calculation- encourage FRS17 calculations
  • What would be bank/ funder/ donators view about ‘true and fair’ representation
  • Re-negotiating banking covenants?
  • Bringing deficits on to the balance sheet for the first time
  • Negative balance sheets
  • Introduction from 2015 – early adoption being encouraged

Private and confidential 22

lgps specific
LGPS Specific
  • Liability transfer basis – past service liabilities
  • Public service review
  • FRS17 accounting
  • ‘Fair deal’
  • Exit process and timescales
  • Strain on fund costs
  • Integration with auto-enrolment

Private and confidential 24

pension trust specific1
Pension Trust specific
  • Multiple schemes
    • Growth Plan
    • SHPS/SHAPS
    • SVSPS
    • CARE Scheme
    • Independent Schools Pension Scheme
  • Closed / Open

Private and confidential 26

pension trust specific2
Pension Trust specific
  • Funding
    • Consistently used real return assumptions 2+ times those of LGPS
    • Future service contributions consistently 10% below those in LGPS
    • LGPS funding rates remained stable whilst TPT schemes fell by 20%-30%
  • Employer covenant-weaker than LGPS
  • Rising average membership ages
  • Reducing investment returns
    • Even where assumed investment returns achieved funding position has deteriorated

Private and confidential 27

growth plan
Growth Plan
  • Four options
    • GP1 & GP2 – defined benefit
    • GP4 – defined contribution
    • GP3 - unclear
  • Need to understand were liabilities sit in GP1-GP4 and also how spread across active, deferred and pensioner members
  • ‘Orphan liabilities’ around 20%
  • There are options to reduce debts particularly where liabilities mostly in GP3

Private and confidential 28

pension trust specific3
Pension Trust specific
  • Managing very significant deficits
  • Perception of inconsistency
  • DB promotion in a DC environment
  • Governance
    • Balance of powers
    • Committees/ Employer Groups
    • Clear terms of reference
  • Retained salary link
  • Pension Trust DC options

Private and confidential 29

slide30

Summary & Conclusions

Confidential: internal use only

strategic advice
Strategic advice
  • Pensions are becoming a much higher priority for Charities
  • Wide range of knowledge levels - Board & Executive
  • Focus should be on:
    • Effective risk management
    • Affordability- now and in the future
    • Effective staff rewards
    • Consistency and fairness
    • Impact of auto-enrolment
  • You need to take action

Private and confidential 31

conclusions objectives
Conclusions & objectives
  • Need for change
    • Legislation- DWP/ Treasury
    • Practice and approach- Schemes
    • Mounting pressure
    • Lobbying continue
  • Difficult funding negotiations ahead
  • Communication is key
  • There are options in each scheme
  • Restructuring flexibility

Private and confidential 32

the charity trustees pension checklist
The Charity Trustees Pension Checklist
  • Available at www.spenceandpartners.co.uk/blog/

Private and confidential 33

ad