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Hymans Robertson finds cost savings in local government pensions
Single-tier state pension passed into law
IFoA: majority of pensioners won’t hit social care cap
A review of the Local Government Pension Scheme by actuaries Hymans Robertson has concluded that as much as £660m a year could be saved through reforms to its asset management regime, including greater use of common investment vehicles.
The Pensions Bill has now become law, bringing the introduction of a simple, single flat-rate state pension “a step closer”, the Department for Work and Pensions said. From April 2016, the flat-rate state pension will be set above the basic level of meanstested support, currently £148.35 per week.
Only a small minority of elderly men and women will benefit from the government’s cap on the costs of social care, the Institute and Faculty of Actuaries has warned. A £72,000 cap on an individual’s lifetime care costs is set to be introduced from 2016, but an IFoA analysis found this would only kick in for those individuals facing the highest care costs. It would also not offset or replace savings as a key means of funding care. Report author Thomas Kenny, said: “Anyone who is expecting that the cap will pay for care is in for a shock. The care cap is there to protect against catastrophic care costs and we estimate that few people entering care aged 85 years will reach it.” The IFoA recommends some regulatory and tax changes to help develop the use of pensions for long-term care provision. It also suggests that good information and advice are needed to combat diverse care needs and complex cost structures. Kenny continued: “We also found there is no silver bullet – no one product would suit everyone’s personal circumstances to help them meet care costs.” For more on this story, visit bit.ly/1lEmfTY
Moving from an actively managed fund management approach for listed assets like bonds and shares to a passive arrangement through a common investment vehicle for funds would eventually save £230m a year in investment fees and a further £190m a year in lower transaction costs, the firm found. Additionally, the creation of a common investment vehicle to invest in alternative assets, such as infrastructure projects, hedge funds, private equity and property would save £240m a year. Merging LGPS funds would take longer and save less than setting up common investment vehicles, the firm said. John Wright, head of public sector pensions at Hymans Robertson, said that while mergers had seemed the likeliest route to savings, “now the story is different”. “Collective Investment Vehicles are now the government’s leading option,” he said. “These vehicles can deliver investment scale benefits across the LGPS faster than merger. They also make it possible to preserve the local accountability and decision making that would be lost by merging funds.” For more on this story, visit bit.ly/Ttwggk
Reformed annuities could offer health insurance, PPI suggests The UK annuity market could adapt to provide attractive and flexible products for consumers following the pension reforms announced in the Budget, the Pensions Policy Institute has said in a briefing note. Its Freedom and choice in pensions paper compared international retirement systems and the role of annuitisation. PPI said: “The analysis suggests that innovation in the market, for example annuities that can also provide elements of insurance for health, disability or long-term care needs during retirement, and deferred annuities that could be combined with income drawdown products to provide insurance against very long life, could provide features that consumers value as the industry responds to the new flexibilities in the Budget.” The think-tank suggested that, while demand for annuities is expected to fall in the short term as a result of the new flexibilities, improved annuity products could prove to be an attractive retirement income solution for some groups in the future. Industry and employers have a pivotal role to play in designing simple, understandable, and value-for-money products that savers can use to access their defined contribution savings at and during retirement, the PPI argued. For more on this story, visit bit.ly/1tjJWqs See also Soapbox (pg.8)
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TPR issues first auto-enrolment non-compliance report The Pensions Regulator has published its first auto-enrolment section 89 report, warning employers struggling to meet their autoenrolment duties to raise the issue with them sooner rather than later. The report sets out problems experienced by Dunelm Soft Furnishing Ltd, which missed its staging date by four months. bit.ly/S0wyup
Charity watchdog warns on pension deficits A majority of charities are failing to explain adequately how they are dealing with the financial risks of a pension scheme deficit, the Charity Commission has warned. Sam Younger, the watchdog’s chief executive said: “Pension deficits can pose a potentially serious risk for charities.” (See p.24) bit.ly/1sHLnyO
UK state pension age rise ‘short-changes Scots’ Lower life expectancy in Scotland means the country’s pensioners will be ‘short-changed’ by as much as £11,000 if it stays tied to Westminster, Scottish ministers have claimed. The Scottish National Party administration has said an independent Scotland would establish a self-governing commission to consider the appropriate pace of any further change to the retirement age beyond 66. Its Life expectancy and the state pension report found a 65 year-old woman entitled to a total pension of £160 per week could expect to get about £11,000 (£10,000 for a man) less in Scotland than south of the border. For a woman who lives in Glasgow this pension gap increases to £22,000 for women and £29,000 for men. But the Department for Work and Pensions said spending on pensions would be more affordable for Scotland if it remained part of the UK, while shadow pensions minister Gregg McClymont called the SNP’s argument “appalling”. “If this is the extent of the nationalists’ ambition for Scotland the Scottish Government should be ashamed and immediately apologise for insulting the intelligence of Scots,” he said. For more on this story, visit bit.ly/1tjN1qD
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