What's the Difference Between Pensions and Retirement?

Transcription

1 SAS Conference 2014 Resistance

2 The Transition from DB to DC John Gordon FFA 12 th February 2014

3 Agenda Defined Benefit Drivers for change Defined Contribution Drivers for change? A Third Way? Questions?

4 Before that Retirement at sixty-five is ridiculous. When I was sixty-five I still had pimples. - George Burns Retirement: It's nice to get out of the rat race, but you have to learn to get along with less cheese. - Gene Perret The question isn't at what age I want to retire, it's at what income. - George Foreman, prize fighter

5 Last one I've been attending lots of seminars in my retirement. They're called naps! - Merri Brownworth

6 Defined Benefit The Transition from DB to DC

7 Basics KNOWN BENEFIT ANNUAL ACCRUAL GUARANTEED

8 Types Final CARE CASH Salary BALANCE

9 Positives Employer Employee Retirement planning Retirement planning Contribution holidays Less risk Double digit returns

10 Defined Benefit reasons for change The Transition from DB to DC

11 Where did it go wrong??

12 Regulation Abolition of Advanced Corporation Tax (ACT) relief 100bn??

13 Regulation Scheme specific funding Employer debt regulations

14 Regulation IR Limits / Lifetime Allowance Flat-rate state pension (Abolishing Contracting-Out)

15 Financial Conditions 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Jan 1981 Jan 1983 Jan 1985 Jan 1987 Jan 1989 Jan 1991 Jan 1993 Jan 1995 Jan 1997 Jan 1999 Jan 2001 Jan 2003 Jan 2005 Jan 2007 Jan 2009 Jan 2011

16 Risk

17 Longevity (1) Life expectancy (male currently aged 65) 15.9 Cumulative liability impact % % % % % %

18 Longevity (2)

19 Moving the goalposts Increases in deferment Increases in payment Spouses benefits Added up to 40%+ to liabilities

20 Millions The journey of DB Plc Active members of private sector DB schemes Source: ONS Occupational Pension Scheme Survey 2011

21 The journey of DB Plc Status of DB schemes in PPF universe % 31% 32% 14% 50% 54% Open to new members Closed to new members Closed to future accrual Source: PPF s purple book 2013

22 Hasn t been smooth

23 Defined Contribution The Transition from DB to DC

24 Own individual money box

25 Basics Investment Government Employer Employee Your Pension

26 Positives Employer Less risk Employee Flexibility Simplicity Simplicity Less regulation (?) Portability

27 Full of leaks!

28 Basics Investment Fees Policy change RISK! Expenses & Profit Annuity cost

29 Pensions landscape By Scheme 5,590 (16%) 1,050 (53%) 1,780 (88%) By Active Members 588,000 1,435,000 38,690 (76%) DB DB + DC DC workplace contract DC trust 2,600,000 Over 2.5m members in nearly 40,000 DC schemes or sections run by trustees 916,000 Source: the Pensions Regulator 31 December 2012

30 Auto Enrolment ll employers automatically enrol all eli ible obholders into a ualifyin workplace pension scheme and pay contributions for them

31 Defined Contribution drivers for change? The Transition from DB to DC

32 Member outcomes? 5% growth 7% growth 9% growth 8% pa 10% pa 20% pa FS60th Contribution pa

33 Timing DB DC

34 Auto Enrolment ll employers automatically enrol all eli ible obholders into a ualifyin workplace pension scheme and pay contributions for them

35 What might be on the horizon? DWP consulting on proposed new legal requirements Governance body meeting every 6 months 25% of governance body with appropriate professional qualification Annual check of member contributions Contributions invested within 5 working days Monthly reconciliation to investment manager units Consider whether members are disadvantaged by scheme size Cap on charges

36 A Third Way? The Transition from DB to DC

37 Defined Ambition (DA) The DWP proposes creating a new definition of DA scheme in which members are given some form of guarantee, but not complete certainty over the amount or timing of the benefit they receive.

38 Positives Employer Shared risk Employee Shared risk Simplicity Simplicity Less regulation (?) More defined Government support Government support

39 Barriers to change No settled methodology Employer appetite? Too little too late??

40 Watch this space

41 Punter Southall Punter Southall is a trading name of Punter Southall Holdings Limited. Registered in England and Wales No Registered office: 11 Strand, London WC2N 5HR. Punter Southall Limited is registered in England and Wales No Punter Southall Defined Contribution Consulting Limited, Punter Southall Health and Protection Consulting Limited and Punter Southall Investment Consulting Limited are authorised and regulated by the Financial Conduct Authority. This communication should not be relied upon for detailed advice or taken as an authoritative statement of the law. If you would like any scheme specific advice please speak to your usual Punter Southall contact or enquiries@puntersouthall.com A Punter Southall Group company For further information visit

42 SAS Conference 2014 Resistance