Carillion collapse

The recent headlines have been dominated by the collapse of Carillion which was seen by most as “too big to fail” – it employed 43,000 staff worldwide and serviced 450 UK government contracts. Its liquidation is a stark reminder to funds that employer risk management is vitally important and a key part of an administering authority’s role. In conjunction with your actuary, we suggest you carry out an overall employer risk review and ensure a bond or suitable guarantee is in place for each admission body. We also suggest annual risk assessment reviews and covenant monitoring are carried out, where appropriate. We have set up a specifically designed route for admission bodies to obtain lower cost bonds and would be happy to arrange a no-obligation quote on an employer’s behalf.

Scottish tax proposals with a UK-wide impact

At first glance, LGPS funds may think that they are not affected by the Scottish Government’s proposal to change the bands and rates of income tax for Scottish taxpayers.  After all, members contribute through net pay arrangements and therefore receive full, up-front tax relief on their contributions without the need for any further action. However, any fund in the UK with pensioners who reside in Scotland will need to ensure that their pensioner payrolls can cope with the new rates of Scottish income tax. The new rates are due to be in place by 6 April 2018, so time is short to make the appropriate changes to administration systems.

Road to pooling – transitioning to the new world

In our October survey of independent advisors, 85% of respondents said the transition of assets was one of the main risks with pooling.  We agree with this sentiment.  Nevertheless, if the appropriate arrangements and support are in place we believe this risk can be managed.  In this 60 Second Summary we discuss transition management in more detail, identifying on the key areas that Funds should focus on as they approach pooling.

Capital Markets – Which way now?

2017 was generally one of improving funding levels for pension schemes.  All in all, its feels like a relatively positive backdrop against which to start 2018. However, it will be challenging – the strong returns over recent years means many assets are now highly valued but with some decent global growth and earnings growth momentum, the challenges may appear manageable.  We provide further thoughts on the global economy and the outlook for different asset classes in our latest Investment Perspectives publication.

LGPS (Scotland) Regulations 2018 consultation

The consultation ended on 15 January.  If taken forward, key changes will be introduced regarding the use of AVCs in line with Freedom & Choice, refunding surplus on cessation and providing greater freedom for administering authorities around managing exit payments for ceasing employers. Disappointingly, a number of the key drafting changes were missing from the consultation.  It’s hoped that further consultation takes place before any changes are introduced. In the meantime, here’s a copy of our response.

Insolvency developments

The Government is currently consulting on the new insolvency regime (known as Education Administration) for further education and 6th form colleges. The consultation paper doesn’t say anything about pensions and we may have to wait for secondary legislation when we will see more of the technical detail of the new regime. The Government’s aim is to have the necessary legislation in force to allow the new regime to be in place in late 2018. It is also worth noting that the Government recently announced that it is planning to look at how pension debt ranks against other debt on insolvency, following the collapse of Carillion. The focus appears to be on private sector pension arrangements and safeguarding the Pension Protection Fund, although perhaps there will be a knock-on impact on the LGPS as it admits private sector employers. 

Can, down, road, kicked…

The Treasury has published its response to the November 2016 consultation on the indexation and equalisation of GMP in public service pension schemes. The ‘interim solution’ in place between 6 April 2016 and 5 December 2018 of fully indexing GMPs will be extended by two years and four months, thereby covering members who reach SPA before 6 April 2021. The Government plans to spend the time investigating the possibility of GMP conversion in the longer term.

2017…the year of the re-tender

2017 was undoubtedly a busy year for the LGPS. It was made even more so by the large number of funds which had to re-tender their actuarial and benefits contracts. We know the procurement exercise is a lot of work for funds and we really appreciate the work that is put in to ensure they are carried out thoroughly. We are thrilled to have won so many of these contracts – more than all of our competitors combined. We are even more delighted that the consistent feedback from these appointments points to our better service, investment in innovation and competitively priced offerings that harness the benefits of technology. Here’s to more of the same in 2018!