- Pensions Ombudsman’s success comes with a sting in the tail
- Pensions Regulator reports on an extraordinary year
- DB scheme funding levels improved in 2018/19
Pensions Ombudsman’s success comes with a sting in the tail
The Pensions Ombudsman’s annual report and accounts reveals more pension complaints being resolved in 2020/21 than the year before, with a new single application process for all such complaints, alongside the well-established focus on early resolution, being the key drivers of this success. However, the increasing complexity of pension complaints has meant it is taking longer to resolve some of them. When taken alongside the continued success in closing a high proportion of cases early on, the Ombudsman has failed his key performance indicator relating to the percentage of open investigations that are more than 12 months old.
The single application process was introduced in May 2020 and, set against a largely unchanged demand from 2019/20, the number of pension complaints closed over the year increased by about 6% compared to 2019/20. However, by the end of 2020/21 the percentage of open investigations that were more than 12 months old leapt from 10% to 29%. Tackling this backlog of over 1,400 cases is now a priority.
The Pensions Ombudsman himself, Anthony Arter, has had his term of office extended for a further year, with it now ending in July 2022.
Comment
There has rightly been much emphasis in recent years on new processes with the aim of accelerating closure of the more straightforward cases, and the Ombudsman has continued to implement these well amid the challenges Covid-19 has presented. But the Ombudsman is much more than a general query and simple cases service. How the Ombudsman tackles those cases that are long-standing is now of importance.
Pensions Regulator reports on an extraordinary year
The Pensions Regulator’s latest annual report and accounts reflects on a year like no other, with it having to respond urgently to a number of issues arising because of the pandemic whilst its workforce, in common with others, has had to work from home. The Regulator rapidly adjusted its intended work plans, issuing a stream of Covid-related guidance, and also made progress with its normal regulatory programme, including starting to implement a number of aspects of the Pension Schemes Act 2021.
The annual report ranges across a number of topics, the details of many of which will be familiar from previous Bulletin reporting. Looking to the future the Regulator says that it will soon be in a position to assess and supervise DB superfunds and that it intends to deliver a regulatory initiative with the theme of employer distress by the end of April 2022. It also says that it will aim to publish its second consultation on the DB funding code in December 2021.
Expenditure came in under budget by £1.7m, and the Regulator met six of its eleven key performance indicators set for the year.
Comment
The Regulator recently published the latest research on how it is perceived by those it regulates, with it scoring particularly well in relation to its response to the pandemic. Hopefully, 2021/22 will be a year marked by a return to a ‘new normal’ during which the Regulator can make progress on important guidance relating to the Pension Schemes Act 2021, not least of which is that on DB funding.
DB scheme funding levels improved in 2018/19
The increase in assets over the three-year period to 2018/19 exceeded that in liabilities over the same period, resulting in an improvement in the average funding level with no less than 31% of schemes reporting a surplus on the technical provisions basis. This is the main finding in the Pensions Regulator’s latest annual scheme funding statistics (see also the annexure), which reports on the funding position of DB pension schemes with valuation dates between 22 September 2018 and 21 September 2019 (ie “tranche 14” schemes with an average valuation date around 31 March 2019).
For schemes in tranche 14 that have submitted their valuations, the average funding level is 91.4% on a technical provisions funding basis, a 4.4% improvement from the same valuations submitted three years prior. And the most mature schemes (those whose liabilities are 75% or more in respect of pensioners) are on average 100% funded.
The median recovery plan length is 5.0 years for those schemes in deficit, with median recovery plan end dates hardly increasing since the previous valuation. The average annual deficit reduction contributions of 2.3% of technical provisions is unchanged from the 2.3% seen three years prior.
The average real discount rate for all tranche 14 schemes dropped to -1.04%, from +0.09% three years prior. The median assumed life expectancies for tranche 14 are lower than the equivalent valuations three years prior.
Comment
In years gone by a fall in discount rates of around 1% would have seen funding levels fall through the floor. The well-hedged pension schemes of today not only shrugged off that setback, but actually improved their funding levels thanks to falling longevity expectations and continually strong contribution levels.
However, we must remember that these are figures from before the pandemic struck, so there continue to be choppy waters to navigate. The reports from the next couple of years may tell a different story to the good news we have seen in 2018/19.
