Pensions Board and Pensions Research Sub-committee
Ten new member-led working parties
The Pensions Board and Pensions Research Sub-committee are looking for volunteers to establish
10 new working parties during the 2017/2018 session.
The areas highlighted for research are:
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Potential removal of the triple lock
Auto protection
Connecting pensions to other relevant savings or insurance products
Pensions dashboard
Actuarial input to provision of financial advice
How will Brexit affect pension provision in the UK?
Are transfer values too generous?
Who are the “old”?
The pros and cons of regulation
Employer and trustee conflicts
In detail:
1) Potential removal of the triple lock
The Cridland Review on state pension age suggested that, rather than increase state pension age
further than the way recommended, if cost were a factor then government should consider its
policy towards the triple lock. Other commentators have commented on the apparent intergenerational cross subsidy of providing a triple lock on state pension while many people in work
see the real value of their pay decline.
This working party will consider whether the triple lock has met its objective, whether there are
grounds for suggesting an alternative, and what criteria the alternative should be expected to
meet.
2) Auto-protection
In 2016 the then Chancellor, rocked the pensions boat by introducing “pensions freedoms” that
took away the need to annuitise money purchase savings. Did he go too far? Can pension savers
be trusted to make the right decisions in relation to their savings throughout their working and
retired lifetimes, or should compulsory or semi-compulsory options be imposed at critical
junctures in their lifetimes?
3) Connecting pensions to other relevant savings or insurance products
Some financial markets provide a confusing range of different types of product, while other
markets are far more limited. In either case, whether due to an abundance of choice, or due to
lack of choice, saving for particular objectives (e.g. retirement or life insurance) can prove difficult.
Would it be simpler if products could be bundled together, to meet a variety of needs?
Alternatively, would there be benefit in, and, if so, would it be possible for, regular
communications made by financial providers to allow for all insurance and other savings products
an individual has access to?
4) Pensions dashboard
What can the actuarial skill set contribute to the challenge of providing a pension’s dashboard to
members, enabling them to understand the risks and opportunities their current saving affords
them.
5) Actuarial input to provision of financial advice
The FCA is reviewing the definition of “financial advice” while the market providing access
changes dramatically, including fully automated service providers and on-line product providers.
This working party will consider how the actuarial skill set could contribute to the advice process
and, in particular, how it could result in on-line algorithms that better reflect the risk profile and
decision making skills of its users.
6) How will Brexit affect pension provision in the UK
The UK government has triggered Article 50, meaning that, in 2 years, the UK will have left the
EU in one shape or form. What are the possible repercussions for pension’s schemes in the UK?
Might there be advantages in no longer being tied to the IORP Directives (I and II), or are there
lessons we still need to learn from EU regulation?
7) Are transfer values too generous
A combination of legislation that was written more than 30 years ago, decisions by trustees and
employers to reduce the investment risk in schemes, and very low interest rates, have resulted in
members being able to take transfer values from defined benefit schemes that are historically
high. Have transfer values become too generous? Is it right that increases in cost because
employers have become risk averse should be reflected in the option value provided to scheme
members?
8) Who are the “old”?
Many countries are considering how “old age” pensions should be are provided. Who, in this
context, should be considered “old”? Does the answer depend on whether the pension is provided
by the government, or by the private sector, including an individual’s employer?
In many cases, governments use the age when state pension comes into payment to mark point
when individuals become eligible for other “old age” benefits, rather than for “working age”
benefits. Is it appropriate or sensible to assume one age fits all, in this respect?
9) The pros and cons of regulation
Throughout the EU, the direction of travel in financial services, including pensions, has been to
increase the amount of legislative prescription and advice. The FRC has been a notable
exception in relation to its Technical Actuarial Standards, although their scope has been widened
and we have the prospect of associated guidance. Other regulators (including the IFoA and the
Pensions Regulator) are clear net contributors to the regulatory burden. Is there value in
additional regulation, or would a less prescriptive and perhaps differently enforced regime
produce better outcomes?
10) Employer and trustee conflicts
The Pension Regulator’s guidance urges trustees and employers to work collaboratively together,
while IFoA practice standard APS P1 requires actuaries to assume they have an irreconcilable
conflict when considering the financing of defined benefit pension schemes. Which position is
nearer to the truth? How should employers and trustees react when they have differing objectives
in relation to the scheme, and is there any way their conflicts can be “reconciled”?
If you have any questions on the topics in detail, please contact Elvis Gannon.
May 2017