Year in review: Pension managers and trustees took a variety of measures to protect their members' benefits, Pensions Week reported over the past year, from more efficient administration software to covenant safeguards.
Rising deficits put pressure on many defined benefit schemes, prompting some to increase member and employer contributions and forcing the closure of others.
However schemes also managed the risks affecting their members' benefits by this year diversifying into alternative assets and merging functions to reduce costs.
The following case studies below illustrate how schemes have tried to reduce their exposure to risk.
Avon fund upgrades software to reduce data risk
Avon Pension Fund introduced a new software system in order to reduce the risk of errors when gathering member data.
Though the system was expected to help employers with auto-enrolment, its implementation was part of a move towards 100 per cent electronic data submission by 2014.
The system is used by larger employers with 5,000 or more members, with Bristol City Council being the largest using it.
“[The package] has enabled us to obtain all the data from payroll extracts and upload [them] to the pension system without human interference,” said Geoff Cleak, pension benefits manager at the fund.
MNOPF increases contributions to secure benefits
The Merchant Navy Officers Pension Fund increased employer and member contributions to the new section of its DB scheme to strengthen its ability to pay future benefits.
On October 1 MNOPF increased employer contributions to the post-1978 section of its scheme to 20 per cent from 15.5 per cent and upped member contributions to 12.2 per cent from 9.5 per cent.
The MNOPF wrote to employers in spring telling them to inform members about plans to increase contribution rates. The scheme’s trustees then consulted with employers about members’ views before setting the new member rate, according to Waring.
“The [new overall contribution] rate is that advised by the actuary to the trustees as being the cost of the future benefits,” said Andrew Waring, the fund's chief executive.
Pearl beefs up covenant safeguards for DB members
The Pearl Group Staff Pension Scheme renegotiated a series of funding conditions with its sponsor to improve security for members of its DB section.
The scheme introduced a sharing mechanism that speeds up employer contributions to its closed DB section if certain payments are made to other company stakeholders – and firmer consequences if the sponsor fails to meet its promises.
The insurance workers’ scheme “tightened” the terms of enforcing the legal security it holds in certain group subsidiaries, if the company does not meet its funding promises, according to a summary document issued to members.
“As a consequence, the [group’s] ICA surplus will now be significantly less sensitive to market movements,” said a spokesperson for the scheme.
Saul curbs transfers-in to avoid 'unknown liabilities'
The £1.6bn Superannuation Arrangements of the University of London decided to suspend members from transferring-in their old private sector pensions to manage the risk and cost of regulatory changes, including auto-enrolment, reduced tax relief and anticipated government announcements about guaranteed minimum pension equalisation.
Penny Green, chief executive at Saul, said the scheme wanted to manage the unknown and "disproportionate" risk from the government's anticipated rules on GMP equalisation, data cleansing requirements from the Pensions Regulator and auto-enrolment.
“There is a lot of uncertainty around at the moment. We are nervous about taking on unknown liabilities and risks,” she added.
Royal British Legion to expand Pie after £1m saving
The Royal British Legion worked on a pension increase exchange offer for members coming up to retirement, after an exercise with the scheme’s pensioners last year cut £1m off its deficit.
The charity offered a Pie to more than 500 of its pensioner members – of whom 60 per cent contacted the independent financial adviser employed by the company, and 123 accepted the offer – knocking £1m off the scheme's liabilities.
As part of the offer, members were given the opportunity to give up pension increases above the guaranteed minimum pension for the pre-1997 element of their benefits, in return for a larger initial pension. The member received 60 per cent of the benefit of this change, while the scheme itself received 40 per cent.
"There was quite a prolonged period of negotiations," Helen Downie, chief financial officer, said of the discussions between the company and scheme trustees to set the level.
