From milk-snatching to tablet-snaffling: purging perks makes for clearer pension planning

Back in the early 1970s we had Maggie Thatcher, then Education Secretary, labelled the “Milk Snatcher” for removing free milk for the under-7s. We had it in child-sized glass bottles at school.

Now, the chancellor, Philip Hammond, has become the “iPad Nabber” for taking away employees’ access to discounted iPads and Galaxy Tabs.

Apologies if you’re wondering what I’m on about? One of the more popular benefits under employer salary sacrifice schemes has been the ability to purchase a nice shiny piece of IT hardware (usually a tablet, Notebook or Desktop) with the added bonus of making Tax and NI savings on the purchase price. However, the chancellor has decided to remove the salary sacrifice (tax and NI savings) benefit of doing so. Other salary sacrifice benefits such as Pensions, Childcare Vouchers and Cycle2Work schemes are to remain protected.

For Darren Hedgley’s full blog, click here.

Quarterly pension bulletin: stormy waters ahead for pensions

Whilst we may have seen fewer thunderstorms this year than in previous summers, there has been no shortage of developments which could signal stormy weather ahead for pensions.  A Cabinet reshuffle, recent high-profile developments relating to the British Steel and BHS pension schemes and the prospect of a new Pensions Bill, to name but a few.

All this takes place against the context of the vote to leave the European Union, which we have already considered in our briefing note ‘What does Brexit mean for pension schemes’?

Click here for the full bulletin.

Brexit Watch – July, 2016

Brexit Watch brings together views and latest insights from our actuarial, investment and workplace savings and benefits businesses across the Punter Southall Group. Future editions will be published as further details emerge and negotiations develop. For the full round-up, click here.

Fear and the future

Fear and the future

I’m in Newfoundland for an international conference for actuaries who appear in court as expert witnesses. We help the courts to make sense of pensions disputes for trustees, companies and individuals. It’s one of our specialisations and something I enjoy.

To hear what is probably one of the most momentous decisions for the UK in its history while thousands of miles away was odd, to say the least.

But that distance does lend itself to cool reflection.

Part of my talk was about the fear factor in what can be an exposed situation, like being cross-examined in court. I think it’s fair to say that fear has also been a factor in the referendum itself and what the future will now look like.

My presentation is themed on the voyage of John Cabot, who set sail from Bristol in the 15th century to sight land at Newfoundland. A venture into the unknown which was worth the risk. Seems that might find a wider audience than us actuaries after last Thursday’s vote.

One of the skills, I humbly submit, we bring to the courts is the ability to calculate how a range of scenarios might pan out, given changing conditions. Bluntly, what the future will look like if certain things happen.

It’s not a crystal ball but an informed, best guess. Which is where many of us in the UK are at the moment.

Legal proceedings go hand in hand with uncertainty and we try to offer some answers for the court. But, on a global scale, uncertainty is now the biggest risk to the flow of investment into the UK. The gyrations in the stock market on Friday was the first squall, followed by a period of calm but we are only days in.

If the timescale for this is two years to leaving the EU, there is a long time to go and pension scheme trustees will rightly be asking their advisors what this period will look like and what they should do.

In the short-term, inflation is a real possibility, so schemes ought to maintain any inflation hedge they have in place. Given the near deflationary environment we have had since 2008, it’s a reflection of the importance to have some form of hedging, even if the coast looks clear.

If inflation were to edge up, I think the Bank of England, which has said it stands ready, is likely to keep the real rate of interest negative for longer to maintain stability. Let’s not forget that this decision will also have as a great an impact on the EU, its economy and the value of its assets, that also has to be considered.

It also casts new light on the triple-lock promise of the state pension – see my colleague Richard Jones’s blog on the subject – which the Remain camp said would be under threat from Brexit. What is going to happen to state pensions increasing each year by the higher of Consumer Prices Index (“CPI”) and national average earning increases, with a minimum of 2.5 per cent each year?

We hear much about red tape from Brussels. Despite the claims that this will be cut, that is unlikely. The amount of new rules and regulations generated is likely to be greater or, at least, the effort required to dot the i’s and cross the t’s, in this new era. Pensions governance, legislation and regulation is not back-of-an-envelope. We are appointed to navigate what will always be complex and technical.

You can expect the volume generated for pensions to be considerable. This will be driven not just by the process to uncouple from the EU but also for the growing risks presented by failing companies with large pension schemes in traditional manufacturing areas.

They are already on the brink – we have seen one example in TATA – and an economy in transition will push more in that direction. The crux is that, even now, there is not enough money to pay defined benefits pensions in full AND allow these companies to invest in their manufacturing capability. This has now been given new emphasis. The headwinds already buffeting pension funds striving for full funding will continue to swirl.

There is so much more to consider.

Looming on the horizon, the election due to take place in the US in November. Donald Trump proposing an America that is more protectionist and isolationist. A similarly unexpected result there will dwarf the impact of our national opinion poll.

Like Cabot, we seem to be plotting a course with no guaranteed outcome but, equally, let’s bear in mind that his step into the unknown led to a new continent being established, the expansion of Britain’s mercantile tradition and ever-wider horizons.