Developments in Employee Benefits law and practice for week ending xx month 2016. Stories covered are: ‘VFM’ in defined contribution workplace pensions | Bulk transfer regulations do not require consideration of security of benefits | Court of Session holds equalisation measure ineffective | tPR latest statistics indicate employer compliance with auto-enrolment duties | FRC consults on new ‘Pensions TAS’
‘VFM’ in defined contribution workplace pensions
A new report from the Pensions Policy Institute considers the definition of value for money in workplace pensions, including both contract and trust-based schemes.
The report‘ Value for money in DC workplace pensions’ primarily considers value for money from the member’s perspective whilst recognising that pension schemes should also look to provide value to employers.
The report highlights that, while there is no single definition of value for money in pensions, there is consensus that value for money is about more than simply cost. Although costs and transparency of costs are important, consideration of value for money should also include elements such as administration, communication with members, and governance. Schemes may also look for consistent returns or an investment strategy in line with the level of risk that members are willing to take.
Three outcomes are likely to be seen as positive indicators of value for money by members. They are:
- pension pot value,
- the security of the pot, and
- the level of trust in the scheme.
In practice, good governance can be the lynchpin for driving better value for money, as it can communicate the importance of contribution rates and set the right investment strategy for the membership. It can also ensure effective administration and appropriate member communications, as well as challenging and negotiating charge levels.
Much debate has so far focused on value for money during accumulation. However, the report says it is important that members get the best value for money in retirement as well.
Bulk transfer regulations do not require consideration of security of benefits
In Pollock v Reed, the Chancery Division ruled, with regard to a proposed transfer of the assets and liabilities of the Halcrow pension scheme to a new occupational pension scheme, that the Preservation of Benefit Regulations should not be construed in a way which required the actuary to consider the security of the benefits in the transferring and receiving scheme when giving a certificate under those regulations. It also held that there was no scope for a different construction or analysis of the regulations where the transferring scheme was in winding up as opposed to where it was ongoing.
The scheme trustees had argued that, when determining whether the transfer credits in the receiving scheme were “broadly no less favourable” the actuary should take into consideration the security of the benefits in transferring and receiving schemes. However, the employer submitted and the court agreed that the correct approach was that the actuary may take into account a variety of factors which he considers relevant, including the security of benefits, but was not under an obligation to do so.
Court of Session holds equalisation measure ineffective
In Bett Homes Ltd v Wood, the Inner House of the Court of Session in Scotland held that the correct procedures had not been followed in relation to an amendment to equalise pension ages for men and women.
The Court found that, although a “special terms” clause could be viewed as used to have altered the scheme’s pension increase rule, the same could not be said in respect of an alleged equalisation exercise. This was because there had been no evidence of the trustees’ consent to the change. Copying in the trustees to a letter to members did not suffice in terms of compliance with the requisite formalities of the trust deed and rules.
tPR latest statistics indicate employer compliance with auto-enrolment duties
The Pensions Regulator has published its latest figures showing employer compliance with automatic enrolment since it was introduced in October 2012.
More than six million people have been automatically enrolled into workplace pensions since 2012 and more than 100,000 employers have completed the process.
In January 2013, auto-enrolment accounted for 13 per cent of employees in a workplace pension scheme – the remaining 60 per cent were already in a scheme and 27 per cent were not in workplace pensions at all.
As of March this year, this figure has more than doubled, with 28 per cent of employees now in a workplace pension scheme.
FRC consults on new ‘Pensions TAS’
The Financial Reporting Council has published a draft pensions technical actuarial standard “TAS 300” for consultation.
TAS 300 sets out the specific standards applicable to pensions work.
The proposed scope of TAS 300 covers four broad areas of actuarial work:
- Funding or financing of private and public sector pension schemes.
- The derivation of actuarial factors used to calculate benefits such as transfer values, lump sums at retirement and early retirement pensions.
- Supporting incentive exercises such as enhanced transfer value (ETVs) or pension increase exercises (PIEs).
- Work for governing bodies concerning changes which may affect members' benefits from bulk transfers or modifications of accrued benefits.