Will pensioners be given advice on how long they will live?
Pensions minister Steve Webb has suggested that people retiring will in future be given a rough estimate of their life expectancy as part of the promised “face to face” financial guidance at retirement, in order to inform their decision on how to use their pension savings under the new freedoms announced in the Budget last month (see our News Alert). Factors such as gender, where a person lives and whether they smoke will be taken into account.
Mr Webb warned that underestimating just how long one can expect to be retired could well leave people without enough savings later.
Comment
The idea has attracted widespread comment (see for example “Who wants to live forever?” by Bob Scott of LCP). It remains to be seen whether it will survive into the material that will be required to support the “guidance guarantee” which needs to be in place this time next year.
Gleeds case – Sometimes everything does go horribly wrong
Hot on the heels of the Honda case, on which we reported in last week’s Pensions Bulletin, another very serious problem with scheme documentation has come to light. In the Gleeds retirement benefits scheme the High Court has held that every single deed relating to the scheme from 1991 until the discovery of the problem in 2010 had been invalid because of incorrect execution.
This was because of technical changes to the law – The Law of Property (Miscellaneous Provisions) Act 1989 – about how deeds must be executed. Where the employer is a traditional partnership, as Gleeds is, each partner’s signature must be witnessed for a deed to be valid. This was not done.
Gleeds argued that the law of estoppel prevented the members from successfully arguing that the deeds were invalid. The estoppel argument was not accepted by the court nor (largely) was the argument that there was an “extrinsic contract” (see eg Pensions Bulletin 2012/24) validating certain changes not implemented by the invalid deeds.
The consequence of the deeds being invalid was that the following changes never, in fact, legally happened:
- “Barber” equalisation amendments
- Adoption of a new definitive deed and rules
- Appointment and removal of various trustees
- Introduction of a money purchase section
- Increase in member contributions/cut in final salary accrual rate
- Change of “principal employer”
- Introduction of a new money purchase section/closure of the final salary scheme to future accrual; and
- A consolidation exercise
It is estimated that the deficit will go up by £45m as a consequence of this. Some Scheme members stand to receive windfalls whilst others will be deemed not to have joined. There will likely be further costs involved in validating decisions taken by trustees and a principal employer not validly appointed. As the judge said “Unfortunate consequences are, I am afraid, unsurprising when so many documents have not been validly executed”.
New Draft SORP for Pension Scheme Accounts published
The Pensions Research Accountants Group (PRAG) has published an Exposure Draft of a new Statement of Recommended Practice (SORP) for the financial reports produced by pension schemes.
The SORP has been restructured to reflect Financial Reporting Standard 102 (FRS 102, see Pensions Bulletin 2013/14) and is intended to apply to pension schemes’ accounts for scheme years commencing on or after 1 January 2015.
Key changes proposed in the Exposure Draft include:
- Guidance on how the new FRS 102 requirements for the fair value of buy-in policies and similar assets to be ”the present value of the related obligation” should be applied. Many pension schemes which have previously reported the value of the assets at “nil” will in future obtain a regular valuation of the policy
- Guidance on the valuation of Special Purpose Vehicles (such as Scottish Limited Partnerships used in asset-backed contribution arrangements) and longevity swaps
- Additional guidance regarding the new hierarchy for assessing the fair value of investments, split by those that have a regular quoted price, those with a recent transaction price and those that have to employ a valuation technique
- Additional guidance surrounding the new disclosures on investment risks required by FRS 102
- A suggested approach for the initial auto-enrolment contributions for members who subsequently opt-out of the pension scheme
- Removal of the recommendation that the Scheme Actuary’s certification of the calculation of technical provisions is included with the financial report
The restructure is so comprehensive that a track-changed version from the current SORP is not available. Responses to the consultation should be made by 16 July 2014.
Comment
The move to FRS 102 has required an almost complete re-write of the SORP. We can expect to see a number of adjustments to the way in which pension scheme accounts are drawn up as the implications of the new requirements are digested.
FRC confirms its Plan, Budget and Levies for 2014/15
The Financial Reporting Council (FRC) has published its finalised Plan & Budget and Levies for 2014/15, which confirms its proposals from late last year (see Pensions Bulletin 2013/52)
In particular, that part of the FRC’s budget attributable to actuarial activities will again be £2.3m in 2014/15 and the levy on large pension schemes also remains at £2.55 per 100 members.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.
