Blake Lapthorn's London Pensions conference 19 March 2014

LONDON PENSIONS CONFERENCE

19 March 2014

The State of Pensions

Adrian Lamb, Legal Director, Pensions and Head of Trusteeship Services

[email protected]

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London Pensions Conference 2014

Health & safety and housekeeping!

Feedback forms Ask questions

throughout Participate Challenge Enjoy




9.30 am Introduction - The state of pensionsAdrian Lamb, Blake Lapthorn

10.00 am The future is DC – but can we do better collectively?Kevin Wesbroom

10.30 am Good governance – making a difference John Hamilton, Blake Lapthorn

11.00 am COFFEE BREAK

London Pensions Conference 2014Agenda and timetable




11.20 am Pensions law – latest developments and evolving principles Nicola Walker, Blake Lapthorn

11.50 pm Fiduciary management for both DB and DC worlds Ed Tomlinson, SEI

12.25 pm 2020 (and 2050) vision – Looking ahead – opportunities, challenges and pitfallsAdrian Lamb, Blake Lapthorn

12.45 pm Questions and open forum

1.00 pm LUNCH!




Pensions-underdog.co.uk

Why am I here today?

For: Trustees Employers Employees Actuaries? Administrators? Auditors? Lawyers?
















UK Fund deficits up/down/up/down….? Emerging economies volatility Volatile asset values – where to get some value? Auto enrolment – more work but for whose/what benefit? What chance have employees got to understand all that is going on

– new arrangements; DA, DB and DC; investment choices; AMCs, AMDs, etc.

Continued (and increasing?) pressure on covenants Life expectancy??? Retirement – what will this look like in the future (or now)? Outlook for the economy, gilt yields, etc., etc????

Just when you thought things couldn’t get any worse!




Previous questions

Is there such a thing as a risk free investment? Can I ever know what our liabilities really are? Data, what data? Can I get smarter with my/our investment strategy? What does it take to make DC adequate? What is adequate? Is auto enrolment just a precursor to more tax? Will it work? Can it work? What do we need to do? Can I do anything about this?




Your Starter for 10

DB? DC? DA? AE? CARE? CDC? CB? AMC? AMD? MEGO?




Current questions

Can DC deliver - for employers and employees?

What are my liabilities exactly? Or what measure is the most realistic?

Am I/are we doing the best that I/we can? Where can I achieve the most in the time

available? Can I make auto enrolment into a positive rather

than just a headache? How can I improve understanding? The law is evolving – am I up to date with it all? What is the “big picture” here?

















Increasing market share Different definitions Why is it growing? OK for DB but DC? Consultancies have

dominated so far but ….

FM market grows 20% in a year but consultants lose market sharePensions Insight – 19 November 2013




London Pensions Conference 2014 – Public sector pension reforms





The make up of your pension Now – BSP = S2P or c-out ops + GPP/AVC, etc. The (short term) future – FRSP + AE (OPS/GPP) + ? More annuities? Less flexibility? Less adequacy? Later retirement?




London Pensions Conference 2014– the themes

The future shape of pensions, and the impact of the past and present

The emphasis on governance Learning lessons from the law Making better use of the assets for better outcomes Thinking ahead and looking up




The State of Pensions


[email protected]





Blake Lapthorn Pension Conference 2014

The Future is DCBut can we do better Collectively?Kevin WesbroomSenior Partner, Aon Hewitt

[email protected] 7086 9350






I have an Ambition ….

or





Increase the amount people receive for their savings

Enable innovation and new products … to give people more certainty … and encourage more risk-sharing

Increase transparency and build trust, confidence and engagement

Ensure the sustainability and stability of the UK pension system

Increase the amount people are saving in pensions

Reinvigoration objectives

23

Better pension outcomesBetter pension outcomes





Reinvigoration Workstrands

DB Lite

– We have: CARE, cash balance, longevity adjustment.

– Why no traction? Need new approaches (before 2016!)

DC Plus

– We have: With profits, deferred annuities, targeted or managed DC – Why no traction? Need new approaches

CDC and Scale

– Think Dutch/Danish “If Carlsberg/Heineken made a pensions systems …”





DB Lite – the Runners and Riders

Conditional Conditional IndexationIndexation

Optional Optional IndexationIndexation

Core DB Core DB FlFluctuating Pensiouctuating Pensionsns

Flexi AgeFlexi AgeDBDB

ConversionConversionDB to DCDB to DC

NPA tied to NPA tied to SPASPA





DC Plus – the Runners and Riders

Money BackMoney BackGuaranteeGuarantee

GuaranteedGuaranteedReturnReturn

SmoothingSmoothingFundFund

Advanced AgeAdvanced AgeGuaranteeGuarantee

Income Income GuaranteeGuarantee





Reinvigoration Outcomes?

DB Lite

– Just scrap indexation going forward?

DC Plus

– Not a place for government?– Guarantees are expensive!

Collective DC– Two variations to be introduced

– CDC with guarantees• Dutch model – premium split 2/3 to buy deferred annuity 1/3 to growth assets

and capital. Slow steady build up of benefits that are guaranteed once awarded. Guarantees are expensive!

– CDC without guarantees

– And DC defined along the way!





Collective DC (CDC) plans(the ones without guarantees)

The employer pays a fixed contribution rate– In our view employers will not tolerate pension risk

No individual accounts – Investment done by independent trustees, with professional advice

The member gets a DB-like Target pension– Pension paid from the plan, not annuity purchase– Revaluation and indexation to preserve real value– Expected benefit level facilitates retirement planning

We “square the circle” because the Target Pension is not guaranteed– Indexation and revaluation is not guaranteed– Even the basic pension is not guaranteed in extremis– Benefits adjusted to ensure cost stays constant– Plan would have strict rules on how to get back into balance – benefit

adjustments or bonus additions

28





Does it work?Aon Hewitt Modelling - Historic outcomes

0%

10%

20%

30%

40%

50%

60%

70%

1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Retirement year

Percentage of final pay

DC Gilt[Median = 14%]

DC Lifestyle[Median = 21%]

DC Equity[Median = 27%]

CDC (average in retirement)[Median = 28%]





Does it work?Aon Hewitt Modelling - Projected outcomes





More helpful for planning?

0%

10%

20%

30%

40%

50%

60%

41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65

Age

Pro

ject

ed in

com

e re

plac

emen

t rat

io a

t age

65

DC Lifestyle CDC





CDC Issues

Bigger pensions More stability Pensions not

accounts No annuity purchase No member

investment Lower charges Better returns?

DB in waiting “Soft” guarantees Benefit cuts Cross –subsidies Complexity Lack of choice The need for scale Run off schemes

THETHEBADBAD

With Profits Been Here Before? Risk Sharing?

THETHEGOODGOOD

THETHEUGLYUGLY





Dealing with the Big Ones …

Look at likelihood and severityPublic tolerance – within limits

Cuts in Benefits

Public disclosure of all financesCDC Website

It’s just with profits - complexity

Regular focused communicationRaised public awarenessCommunicating the uncertain future

Soft Guarantees – communicating with members

Explicit legislative referenceBig Red Button in deed

Employer Concerns of Regulatory Creep

ResolutionIssue





Historic modelling - bonuses added

-10%

-5%

0%

5%

10%

15%

20%

1931

1936

1941

1946

1951

1956

1961

1966

1971

1976

1981

1986

1991

1996

2001

2006

2011

Year

Percentage

-10%

-5%

0%

5%

10%

15%

20%





Making it Happen Legislation Political consensus More public awareness raising Large, unionised employers? Employers willing to go first? Ready made solutions – provider led master trusts





Are we alone?

www.aonhewitt.co.uk/collectivedc www.targetbenefits.ca


http://www.aonhewitt.co.uk/collectivedc

http://www.targetbenefits.ca




The Canadian Vision Retirement is still a novel concept for humankind and it continues to evolve.

We have reached a critical point in planning retirement schemes where, in much of the world, individuals can end up receiving a pension for significantly longer than they contributed towards it. This was not the case when existing DB pension plans were originally designed and adopted.

The traditional DB plan has been a 50-year experiment that we have finally begun to understand, while the traditional DC plan is a 30-year experiment that has yet to fully mature and from which we continue to learn

We define a sustainable pension plansustainable pension plan as one that can consistently deliver, through both favourable and adverse circumstances, an appropriate range of benefits within an acceptable range of costs over the long-term. A sustainable approach to pensions will allow a pension plan to adjust both costs and benefits in response to actual experience, with the key objective that adjustments be infrequent and low in magnitude





All we are saying …..le mieux est l'ennemi du bien (Voltaire)

CDCCDC





The Future is DCBut can we do better Collectively?Kevin WesbroomSenior Partner, Aon Hewitt

[email protected] 7086 9350





DC Governance – the dawn of a new era or tell me something new?!

John HamiltonPartner

[email protected]





DC Governance under scrutiny Pension Regulator – Codes of Practice Number 13 (in

force July 2013) and Number 15 (in force September 2013)

OFT Defined contribution workplace market study –September 2013

DWP Consultation Better Workplace Saving – a consultation on charging – October 2013




The current pension landscape

2.7 m840,000960,000118,0001.4 mTotal active memberships

Unknown1.6 m5 m851,0007.8 mTotal memberships

1,80028,62053050880Open Schemes

2,02037,6901,0503305,530Schemes

DC (workplace contract)

DC (trust)Hybrid –dual section

Hybrid –mixed benefit

DBPrivate sector schemes

Source: The Pension Regulator’s presentation of scheme return data 2013-2014




Key findings in the Regulator’s 2013-2014 review of scheme return data £30 billion in assets in DC trust-based schemes with 12 or

more members (excluding hybrid schemes with DC members).

DC memberships now account for 30% of workplace pensions memberships (up from 27% last year).

33% of active DC members in trust-based schemes and 67% in contract-based schemes.

The number of trust-based schemes has reduced by 2%. The number of DC trust-based memberships has

increased by 15% over the last year. The number of DC master trust schemes with 12 or more

members has increased by 11%, and membership of such schemes has increased by 22%.




Triggers of DC governance focus Continued DB closure and replacement by DC Automatic enrolment - an additional 6-9 million

people in DC schemes by 2018 Abolition of short service refunds from DC

occupational pension schemes and “pot follows member”

Increased focus on investor protection – e.g. pensions liberation

Government desire to ease the burden on the welfare state




The four key ingredients of DC governance

Effective management and oversight

Good administration and communication with members

Effective design and execution of investment strategy

Value for money




Advantages of good DC governance from the employer’s perspective

Enhanced reputation as an employer of choice

Effective tool in workforce management

Litigation protection

Cost, efficiency and control




The barriers to good DC governance

Weakness on the buyer side of the market

Complexity of the product

Lack of knowledge from key counterparties –employers, trustees, members

Conflicts of interest

Lack of transparency and complexity of charging




tPR’s powers - DC trust based schemes Regulator’s objectives

– Protect the benefits of members

– Maximise compliance with Pensions Act 2008

Range of options for dealing with trust based schemes:

– Issue notices and orders– Recover unpaid contributions

– Impose fines where it finds a breach

– Prohibit trustees from acting




Key risk areas identified by tPR:

Trust based DC governance:

– Trustee knowledge and understanding

– Internal controls

– Fitness and propriety of Trustee board

– Conflict management

– Poor investment governance and decision making

– Poor administration practice




TPR - steps towards a more robust system of Governance DC regulatory guidance: Governance and

administration of occupational defined contribution trust-based pension schemes (January 2013)

Code of Practice Number 5

Code of Practice Number 13

DC Strategy document

DC compliance and enforcement policy




Code of Practice Number 5 - in force September 2013

Prepare and maintain a payment schedule Check receipt of contributions by deadline Resolve and, if necessary, report late payments to

the Regulator Reasonable periods for reporting Annual statement to member of total contributions




Code of Practice Number 5 – in force September 2013 Risk based approach to check contribution amounts

Procedure for requesting payment information from the employer (e.g. pensionable earnings) to enable checking of amounts.

Report non-provision of payment information.

Information to members so that they can check contributions – regularly updated online access is best practice.




Key areas in Code of Practice 13 Trustee knowledge and understanding

– Know your scheme– Regularly review skills to demonstrate TKU

Internal controls appropriate to a DC scheme– Accurate member data, evaluate regularly– Support employer in understanding responsibilities and processes– Accurate and prompt transactions– Monitor and report contributions– Robust administration system

Investment Governance of conflicts of interest and

advisers/service providers




What DC Trustees need to be doing

Read Codes and Guidance Arrange training/demonstrations Review scheme and current processes against

quality features Come up with a governance Action Plan Prepare a governance statement Assistance from the Regulator?




Key recommendations of the OFT Government intervention to introduce minimum

governance standards

Independent Governance Committees

Closer regulation of master trusts – demonstrate value for money to TPR

Commonly defined single charge

Tackle consumer detriment from legacy schemes

More active role for tPR for small trust based schemes




DWP Consultation on charging A cap on pension charges:

– Option 1: A charge of 1% of funds under management– Option 2: A lower charge of 0.75%– Option 3: A two-tier ‘comply or explain cap

Ban on active member discounts (AMDs)

Ban on consultancy charges to all qualifying DC schemes

Ban on adviser commissions set up prior to the Retail Distribution Review

Now likely to be a delay for ‘at least’ a year – April 2015?




Dawn of a new age for DC governance??? Reflects good practice

– employers and trustees should already be doing to manage risk

OFT’s recommendations will have significant impact on DC providers

For employers and trust based trustees - the emergence of a value for money principle

Will this lay the seed for future legal claims against trustees and employers?




Employers actions to manage risk

Contract based DC - consider establishing a governance committee

Review current and legacy arrangements – both investment and administration

Trust based DC:– do your trustees have the resources to do the job?– consider the appointment of an independent

trustee– is another alternative the best option going

forward?




Any questions?




DC Governance – the dawn of a new era or tell me something new?!

John HamiltonPartner

[email protected]





Refreshments10 minutes




Pensions law – as interpreted by the Court

Nicola WalkerAssociate

[email protected]





Exercise of Trustee/Employer duties and discretions

IBM: "Imperial" duties of good faith do not compel employer to agree to unreduced deferred pensions

" Hastings-Bass " or the equitable remedy of mistake




Construction of Scheme Rules

Construction of pension increase rule Employer Deed of adherence also be construed as deed of

amendment? Members The role of the "reasonable reader" in the

construction of pension scheme amendments Employer

Passage of time and lack of evidencenot fatal to the exercise of trustee discretion Employer




Application of European law and decisions of ECJ

Partner's mandatory retirement at 65 was proportionate means of achieving legitimate aims

Age-related DC pension contributions can be objectively justified

VAT or no VAT




The Pensions Regulator

Financial Support Directions: Court of Appeal

confirms trustees are "directly affected persons"

Supreme Court confirms no "super-priority" for FSDs

Pension liberation schemes are occupational pension schemes




Procedural "unprincipled" to go behind actuary's section 75

certification

Employer’s court application to pre-empt Ombudsman claim is not an abuse of process

Pensions Ombudsman can’t assume jurisdiction to set aside third-party funded compromise

Desmond: Northern Irish High Court refuses permission

for judicial review




Legal Principles

Duties and discretions – Court will not enlarge employer duties and discretionary remedies will not always be granted

Construction – wider practical considerations

Age discrimination tempered by common sense, but VAT is not?

Pensions Regulator – open door but limited value?

Procedure – Fairness and justice prevails of course!




Future trends? Court will be more practical and purposive in its

construction powers

The Hastings-Bass doctrine will not allow Trustees to easily back track on the exercise of their powers

Pensions Regulator will continue to test the scope of its powers

Ombudsman will continue to stray beyond his powers

Pension litigators will put clients in a position of power!




Pensions law – as interpreted by the Court

Nicola WalkerAssociate

[email protected]





1 Footer For Professional Client Use Only – Not for Distribution to Retail Clients © 2013 SEI

Fiduciary Management........

What it is and who it is for?

Ed Tomlinson, Regional Director, SEI Institutional Group

The state of Pensions

conference 2014

2 Footer For Professional Client Use Only – Not for Distribution to Retail Clients

Agenda

• Developments in pension governance regarding investments

• Fiduciary Management for DB schemes

• Master Trust: Can DB experiences improve outcomes for DC trusts


SEI – Key numbers

1968

300

50 Investing in

over

100 managers

465

£135bn

Founded

Investment

Experts

European

Institutional

clients

Institutional

clients worldwide

Assets Under

Management

As at 30 September 2013


The past decade – a perfect storm for pension schemes

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0

200

400

600

800

1,000

1,200

1,400

Gilt

yie

ld

MS

CI W

orl

d I

nd

ex (

GB

P)

MSCI

10 YEAR GILTS

Source: Bloomberg

For most pension

arrangements equities are

used to generate returns

Long gilt yields mainly

determine the ‘price’ of the

liability for both DB and DC


Governance evolutions

• Emergence of Independent Trustees

• Formation of Investment Committees

• Outsourced Investment governance models including:

• DB Fiduciary Management

• DC Master Trust


Acceptance of Fiduciary Management in the UK

The market has continued to grow at a remarkable

pace, at over 20% every year since 2007.


Defining Fiduciary Management

This diagram represents services incorporated within SEI’s Fiduciary Management offering. All services shown may not be offered by other Fiduciary Managers

Trustee Board

Actuary Fiduciary Manager Investment Advice + Implementation + Monitoring

Liability

information

Asset Allocation and

Risk Management

Investment

Implementation

Client Service &

Reporting

‘The mandate objective is typically to meet a funding level/liability target

within a prescribed timeframe.’ – KPMG, November 2013


Trustees decide where their time is best allocated

Strategic

Decisions

Implement Flight plan

Manager Search and

Selection

Manager oversight

Performance

Evaluation /

Rebalancing


Allocation Change: UK fixed income diversification

Allocation Change: De-risked allocation

Approximate

funding

level

differential:

16%

Allocation Change: Add Global fixed income

Allocation Change: Reduce Index Linked, Increase

High Yield Corporate and Emerging Market Debt

Client case study Actual & Simulated Performance

Currency: GBP Gross of fees and charges. The Legacy Strategy represent simulated performance designed to replicate the Client’s strategy prior to SEI. Does not reflect actual

performance of predecessor investments nor any allocation changes that might have been advised. Past performance is not a Guarantee of Future Performance. As of 30/06/2012..

Implemented: Diversified strategic allocation

Fiduciary Management Legacy strategy


The benefits of Fiduciary Management for trustees F

un

din

g L

eve

l

Proactive

Cost Lower investment manager fees may enable a budget for Fiduciary

Management. The solution might be cheaper overall.

Governance

Control

Accountability


SEI Trustees responsible for the bespoke DC solution

SEI DC Solution leverages governance commonly used for

DB schemes to improve member outcomes.

Employer

Employer (& current Trustees)

decide solution for the section

Administration

Communication

& Education

Investment

Manager selection

Investment menu

& Default Strategy Sub-section(s) within

SEI Master Trust

Regular

Reporting


Reasons why sponsors select a DC Master Trust

• Paternal nature - accepts that members need help

• No desire to internalise the pension governance burden

• Solution for deferred members - alternative to Buy-out

• Reduce ongoing costs without compromising quality


About SEI’s Institutional Group SEI’s Institutional Group is one of the first and largest global providers of outsourced

fiduciary management investment services. The company began offering these services in

1992 and today acts as a fiduciary manager to more than 450 retirements, non-profit and

healthcare clients in seven different countries. Through a flexible model designed to help

our clients achieve financial goals, we provide asset allocation advice and modelling,

investment management, risk monitoring and stress testing, active liability-focused

investing and integrated goals-based reporting.

About SEI

SEI (NASDAQ:SEIC) is a leading global provider of investment processing, fund

processing, and investment management business outsourcing solutions that help

corporations, financial institutions, financial advisors, and ultra-high-net-worth families

create and manage wealth. As of June 30, 2013, through its subsidiaries and partnerships

in which the company has a significant interest, SEI manages or administers $507 billion in

mutual fund and pooled or separately managed assets, including $204 billion in assets

under management and $303 billion in client assets under administration.

For more information visit: http://www.seic.com/enUK/institutional-investors.htm.


Important information

This document and its contents are directed only at persons who have been classified by SEI Investments (Europe) Limited as a Professional

Client, or an Eligible Counterparty, for the purposes of the FCA New Conduct of Business Sourcebook.

This information is issued by SEI Investments (Europe) Limited, 4th Floor, Time & Life Building 1 Bruton Street, London W1J 6TL, which is

authorised and regulated by the Financial Services Authority.

No offer of any security is made hereby. Recipients of this information who intend to apply for shares in any SEI Fund are reminded that any such

application may be made solely on the basis of the information contained in the Prospectus.

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events,

or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or

any stock in particular, nor should it be construed as a recommendation to purchase or sell a security, including futures contracts.

The value of an investment and any income from it can go down as well as up. Investors may not get back the original amount invested. If the

investment is withdrawn in the early years, it may not return the full amount invested. In addition to the normal risks associated with equity

investing, international investments may involve risk of capital loss from unfavourable fluctuation in currency values, from differences in generally

accepted accounting principles or from economic or political instability in other nations. Narrowly focused investments and smaller companies

typically exhibit higher volatility. Products of companies in which technology funds invest may be subject to severe competition and rapid

obsolescence.

Whilst considerable care has been taken to ensure the information contained within this document is accurate and up-to-date, no warranty is given

as to the accuracy or completeness of any information and no liability is accepted for any errors or omissions in such information or any action

taken on the basis of this information.

Past performance is not a guarantee of future performance.

Investment in the range of SEI's Funds is intended as a long-term investment.

SEI sources data directly from the following vendors: Factset, MSCI Barra, Russell, TOPIX, FTSE, Barclays Capital and BofA Merrill Lynch. Where

appropriate, returns in base currencies are converted to the relevant currency using WM Reuters 4pm Spot rates.


Important Information on Case Study

Fiduciary Management Case Study

Performance of the SEI Strategy represents an actual client track record, representing an asset allocation implemented through our UCITS Funds with the inclusion of investment strategies as a result of our enhanced advice.

The performance illustrated is reflective of the time period from the client’s first investment with SEI and assumes investment at the beginning of the period indicated and reflects changes in allocations (as applicable).

SEI treats every client individually, therefore these results may not reflect the impact material economic and market factors, within the timescale stated, may have had on SEI's decision making if a different client mandate was being managed. Past performance is not indicative of future performance.

The Legacy Strategy is designed to replicate the client’s portfolio prior to transitioning to SEI. It was created using the client’s prior asset class allocation matched to the closest SEI Fund based on asset type. This does not reflect the actual performance that would have resulted had the client stayed in their original investments and does not incorporate any adjustments to allocations or recommendations that may have been made to the client’s portfolio had they remained with their previous provider.

The legacy portfolio / strategy was weighted in the following manner: 12.85% SEI UK Equity Strategy (X% SEI Quantitative UK Equity Fund and X% SEI Fundamental UK Equity Fund), 2.93% SEI US Large Companies Fund, 2.64% SEI European (ex-UK) Equity Fund, 1.88% SEI Japan Equity Fund, 2.60% SEI Pacific Basin (ex-Japan) Equity Fund, 0.45% SEI Emerging Markets Equity Fund, 1.19% SEI Global Developed Markets Equity Fund, 45.47% SEI UK Credit Fixed Income Fund, 14.21% SEI UK Index Linked Fixed Interest Fund, 4% SEI Global Government Fixed Income Fund, 9.54% SEI UK Property Fund, 2.24% SEI Offshore Opportunity Fund II.

Allowance has been made for deficit repair contribution inflow and benefits payment outflow from the portfolio.

Liability projections and inflation assumptions used with each Strategy are identical.

Master trust Case Study

Projections carried out using SEI’s capital market assumptions and returns (before fees) achieved by funds in the SEI Master Trust over 1 and 3 years to 30 September 2013. Projected membership assumes a salary of £25,000, price and salary inflation of 2.5% pa, a total contribution rate of 5% and a normal retirement age of 65. Annuity change based on the change in the FTSE Over 15 year gilt yield over 1 year to 30 September 2013.

This information is for illustrative purposes only.

Looking ahead to 2020 and 2050


[email protected]





How full (or empty) is my glass?












A = Abandonment Assets? Auto enrolment? Ageing population – and workforce Aches and pains! Ambition – defined or otherwise? Active engagement Annual management charges Actuaries Attitude







“One Fiscal cliff delayed – but not avoided What is normal? “Zombie companies and individuals” “Extend and pretend” More for less (or at least no more) Eurozone stagnation risk Debt is not coming down QE tapering/ emerging economies BRIC - CIVETS – MINTS – SMARTIES - PIIGS

London Pensions Conference 2014- the economic backdrop




London Pensions Conference 2014Many children “slower runners than their parents were”

Average household debt doubled in last decade - £54k per household and now stands at a total of

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More bad news if valuation 1st half 2013 Auto enrolment to cope with on top of everything else Total costs on the rise – where can I make savings? Resource shortage so can I stay on top of it all? Can I be confident that I know the true position? Do I have time to look ahead? Do I have time not to?

An Employer’s perspective – a look back at the last 12 months




More - or at least the same - for less – adviser fees Focus on value (or cost)? Continued trend towards fiduciary management (or FM

lite) Still a wall of money waiting for Buy ins/outs Data and benefit audits TPR expectations and pressure on governance Even less time = even more focus

Trustee’s perspective – a look back at the last 12 months




Trustees’ circle of interdependencies

Employercovenant Funding

Investment




Predictions for 2020

Private sector DC world –adequacy a real issue

Public sector still DB Debt and deficit + legacy DB – still

with us AE contributions start to rise State pension age increases

accelerated England still haven’t won the

World Cup




Predictions for 2050

State pension is safety net, not entitlement for some/all

DC evolves to CDC/other models

Public sector pensions rumble on

Debt and deficit + legacy DB – still with us

AE contributions at minimum 15% combined

State pension age at 75 and rising

England current holders of Football and Rugby World cups and the Ashes and Europe has won the Ryder Cup 15 times in a row




Reasons to be cheerful?

•Recovery is taking hold – BOE•Latest growth figures encouraging•Car production and sales are up - SMMT•Factory orders strongest since 1985 - CBI•House prices are on the up in most areas?•2013 - 7th warmest year since 1850?




Things to take away from today

Liabilities - follow the rules but check your data Manage/mitigate all of your risks Good governance is essential and worthwhile – Most DB schemes headed for either buy out or PPF

– but is there an alternative? Master trusts/aggregated schemes? Other efficiencies are also available K.I.S.S.




Things to take away from todayIMPROVING DC OUTCOMES

Good choice of funds, including default fund Salary sacrifice Annual management charges Save more tomorrow? Governance matters just as much here and with

increasing focus from regulators and government Master trusts/aggregation

It’s in everybody’s interests that it is made to work




Employer checklist

Employment costs likely to rise AE is not just compliance – engagement may pay

dividends Scrapping DRA adds others pressures but creates

opportunities – can you get more value for the spend?

Contracting out is going – think about it soon More governance needed for all DC Good governance pays off in the end




Trustees’ checklist

Manage the assets effectively Monitor the covenant effectively and proportionately Manage your costs – savings in time and money are

possible Monitor your time, your governance and your

performance Make sure you know your liabilities Be prepared for any opportunities Good governance pays off in the end




Looking ahead to 2020 and 2050


[email protected]



