Inflation – Implications for Pension Schemes: The increasing level of inflation has many implications for DB pension schemes, in terms of funding, investment, hedging, employer covenant, scheme factors and member communications. Trustees should be considering whether to act with regard to members who take early retirement before the end of the year. These members are expected to be giving up a high deferred revaluation increase, in exchange for a lower pension increase in payment.
We have written a special newsletter on this topic, which can be found here: Atkin – Consequences of High Inflation
The Institute and Faculty of Actuaries (IFoA) has issued a risk alert to its members on the impact of high inflation. This states that all members, regardless of practice areas, should consider and adjust their work by taking appropriate consideration of i) expectations of future inflation ii) different types of inflation iii) the impact of current high inflation on underlying methodologies and iv) the quantification of uncertainty to ensure the user of the work understands the potential range of plausible and possible outcomes. The IFoA notes that pensions actuaries may wish to consider retirement factors for deferred members, the impact of any caps and collars on cashflows, and possible member or political pressure to ignore inflation caps or apply discretionary increases, amongst other factors.
The Pensions Regulator’s latest news update has encouraged employers to assist staff who may be struggling to pay pension contributions or considering taking cash from their pension to pay bills. TPR has said that employers and scheme managers can encourage members to seek help from MoneyHelper before making any decisions. TPR has also warned schemes that there could be increased scam activity and that members seeking to transfer should be directed to the ScamSmart website.
Change to Inflation Measure – Schemes lose legal challenge: Earlier in the year, we reported that the trustees of the BT Pension Scheme, Marks & Spencer Pension Scheme and Ford Pension Scheme had launched a legal challenge to HM Treasury’s decision to align RPI with CPIH from 2030. The Trustees of the schemes argued that the decision would have significant impact on pension schemes, as significant investors in inflation-linked bonds and that millions of Britons will be worse off in retirement. The High Court rejected the legal challenge, which claimed that the UK Statistics Authority had overstepped its legal limits and had also failed to consider the impact on the pensions sector. It has been reported that the pension schemes do not intend to take their challenge any further.
Tendering for Fiduciary Managers – TPR updated guidance: Since 2019 trustees have been required to run a competitive tender when appointing fiduciary managers (in relation to 20% or more of scheme assets). Trustees have also had to set strategic objectives for their investment consultants. Trustees have also had to send a confirmation each year to the Competition and Markets Authority that they are following the regulations. From 1st October, TPR will be taking over monitoring compliance with the requirements. This will mean that trustees will need to confirm compliance via the Scheme Return, rather than by notification to the CMA. TPR has also updated its guidance on tendering for fiduciary management services, which can be found here: TPR – FM Services
PPF Levy 2022/2023: The PPF has started to issue the risk-based levies for 2022/23. These will be sent in the post, unless trustees have opted for paperless invoicing, in which case it will be sent via Mimecast. Levies must be paid within 28 days and so they will need to be checked quickly to ensure that they are in line with expectations.