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The Actuary The magazine of the Institute & Faculty of Actuaries

From the world of pensions

Opra publications

Opra has published its latest annual report (available at www.opra.gov.uk). Highlights of its 2002/2003 financial year include:

  • funds totalling over £44m were made available to members as a result of Opra appointing trustees;
  • the Pension Schemes Registry undertook over 58,000 pension traces, including 27,000 on behalf of the public and 31,000 for the FSA review of personal pensions mis-selling;
  • Opra began a major programme of work to develop a new regulatory approach; and
  • Opra received over 311,000 reports and enquiries.

Opra has published a new guide, ‘Record keeping for your pension scheme’. It is aimed at trustees of insured occupational pension schemes and explains what records they must keep to comply with the Pensions Act 1995. The guide aims to reinforce the point that, although trustees may delegate day-to-day tasks to an insurance company or other administrator, they need to make sure that the right records are kept on their behalf. The relevance of much of it therefore is wider than just insured schemes. The guide covers trustees’ responsibilities to maintain:

  • financial records;
  • members’ records;
  • records of trustee meetings; and
  • records when a scheme starts to wind up.

Opra has also published an updated version of its guide, ‘Appointing professional advisers’. This guide explains:

  • the different advisers who may be involved with a pension scheme;
  • which advisers the law says a scheme must have; and
  • how trustees must appoint those advisers, so that each has a clear understanding of their roles and responsibilities.

Age discrimination – ‘Equality and diversity: age matters’

The Department of Trade and Industry has issued its consultation on the implementation of the age strand of the EU employment directive. The UK government will introduce legislation next year to outlaw age discrimination in employment with effect from 1 October 2006.

The legislation will cover virtually all aspects of employment, recruitment, and vocational training. The legislation will prohibit direct and indirect discrimination against all workers (ie not just employees). It applies to employers but does not appear to apply directly to pension scheme trustees.

Exceptionally, direct discrimination may be justified by reference to specific aims, if it is appropriate and necessary in the circumstances. The UK legislation implementing the directive will spell out the specific aims that employers can rely on for justification. ‘Encouraging and rewarding loyalty’ is cited as a likely specified aim, and one that will be very pertinent to pay and benefit provision.

For occupational pension provision (but note that state pensions are exempt from the legislation), the considerations appear to fall into two main categories:

  • retirement ages; and
  • benefit accrual.
  • Retirement ages

    It will be unlawful for employers to set mandatory ages for retirement from employment (unless objectively justified). However, the government is seeking views on setting a default age of 70 after which employers could require employees to retire.

    This is only in respect or retirement from employment – not the age at which pension scheme benefits become payable.

    The consultation document confirms that the government will take advantage of the directive’s provisions that allow pension schemes to set entry ages and pension ages, and to use age criteria in actuarial calculations.

    Benefit accrual

    Some employers and schemes offer higher contributions or accrual rates on reaching given ages, seniority, or lengths of service.The broad intention is that seniority and long-service increases will be capable of justification on the specific grounds of encouraging and rewarding employee loyalty (and on other objective grounds where the discrimination is indirect).

    The paper scarcely comments on specifically age-related increases. Clearly this is a major issue for the many defined contribution pension arrangements (occupational and personal) which have age-banded contribution scales. Employers should, one would think, be able to rely on objective justification – ie that the increases are in recognition of the costs of pensions increasing with age.

    Consultation continues until 20 October 2003, and the government will consult on draft regulations in the first half of 2004.

    Insolvency – legal claim for pension rights

    It has been reported that Amicus, the trade union, is bringing a legal case against the government for failing to implement correctly the 1980 EU insolvency directive. The case is on behalf of members of the Allied Steel and Wire (ASW) and United Engineering Forgings schemes, where benefits were drastically reduced following the insolvency of the respective sponsoring employers.

    The provision of the directive that is central to the claim (Article 8) reads as follows. ‘Member states shall ensure that the necessary measures are taken to protect the interests of employees and of persons having already left the employer’s undertaking or business at the date of the onset of the employer’s insolvency in respect of rights conferring on them immediate or prospective entitlement to old-age benefits, including survivors’ benefits, under supplementary company, or inter-company pension schemes outside the national statutory social security schemes.’

    At the time, it may have appeared that the very fact that the UK has a funded pension system (with preservation measures) was sufficient to meet the requirement – particularly against a backdrop of predominantly pay-as-you-go systems in continental Europe. However, things can look rather different with the benefit of hindsight. (Later measures such as the debt-on-the-employer legislation have of course gone some way further in addressing the insolvency problem.)

    It is not at all clear what chance the Amicus claim has. But if successful, it would have profound implications for very many schemes and members – not to mention government finances. The case could easily drag on for years.

    The great pensions robbery

    On a more light-hearted note, but still putting over their serious message, visit Amicus’s website at www.amicus-m.org/pensions. This is particularly recommended for fans of the computer game Pac-Man.

    New pensions minister

    Following the June government reshuffle, it has been announced that the new minister for pensions is Malcolm Wicks. He was previously the minister for work.

    Online annuity rates

    The Financial Services Authority has added interactive annuity tables to its consumer website. The aim is to heighten awareness of the competitive annuity market, and in particular use of the open market option which most pensions savers have, and to encourage people to shop around.

    The various tables offered by the FSA are at www.fsa.gov.uk/tables/.