The British Tourist Authority and VisitScotland have yet to sign off on their scheme’s 2015 valuation as they are looking to secure guarantees from the UK and Scottish governments, in what has been described as a “torturous” process.
Quasi-public sector employers sometimes seek to secure backing from central or local governments for their often generous schemes.
Sponsors of the British Tourist Boards’ Staff Pension and Life Assurance Scheme are also seeking to improve their covenant strength with a government guarantee, which would allow them to reduce their contributions, but the process has delayed the scheme’s 2015 valuation.
The government tends to run a very long way away from providing guarantees
David Davison, Spence & Partners
If the bid for government backing is successful, this would not be a first for the scheme: when the Welsh Assembly ceased to contribute from February 2009, it triggered a cessation debt, and a guarantee for the remaining debt on a buyout basis was obtained.
The Welsh Assembly also agreed that further help can be requested “should the funding of the scheme significantly worsen in the future”.
Employers push for lower contribution rates
Trustee chair David Kidd, from Law Debenture Trustees, wrote that the valuation had been “the major concern” during 2017. The trustees had hoped to settle it in the autumn of last year, with the next valuation due as at March 31 this year.
“The delay in completing the valuation is due to the time taken by the employers in attempting to obtain formal support for the scheme from government departments (the Department of Digital, Culture, Media and Sport in particular),” the scheme’s annual report notes.
“At this stage, however, the trustees are unable to complete the valuation as they and the employers are unable to agree on the assessment of covenant strength to be used.”
A spokesperson for VisitBritain said there has been no further movement since the report was published; the statutory deadline for the valuation has passed with the agreement of the Pensions Regulator.
“We have been in discussion with TPR, [HM Treasury], DCMS and the trustees through this period with regard to the covenant and longer-term future of the pension provision,” the spokesperson said.
If a guarantee is offered, this “would cover any deficit payable to the fund if BTA or VS were ever closed down”, added the spokesperson.
“It would mean the covenant was declared as strong. This affects the discount rate for calculation for the deficit and hence reduces the employers’ contribution rates and the deficit recovery plan. This makes it more affordable.”
A spokesperson for the DCMS said discussions are ongoing: “We continue to work with VisitBritain to ensure a sustainable approach to managing their pension scheme.”
A Scottish government spokesperson pointed to the balance to be struck between securing pensions and protecting taxpayer money: “The Scottish government is assessing the VisitScotland pension scheme guarantee proposals, and there is work ongoing to develop a solution which will both support the scheme and protect public funds.”
No legal obligation on government
One reason why the employers are seeking a guarantee could be that the BTA and VisitScotland schemes might not be sectioned off, said John Hanratty, head of pensions in the north at law firm CMS.
In late 2017 a consultation was underway at the scheme on whether to close it to accrual for 135 staff at VisitBritain and VisitEngland, after their scheme had just closed to new entrants that year. For new employees at VisitScotland, however, the defined benefit scheme remains open.
Hanratty said if VisitScotland employees continue to accrue benefits for the coming years and the employer were to become insolvent, “then all the liabilities are likely to fall back onto VisitBritain”.
However, he said there was no legal basis on which the government would have to offer a guarantee, as the organisation is a non-departmental public body, and as such is at arm’s length from the government. The Development of Tourism Act 1969 set up the tourist boards as corporations and wholly separate from the crown.
Hanratty said he knows of only one case where the government chose to provide a guarantee despite not being legally obliged to, when a fishing organisation faced losing its entire funding within 24 hours; a European court judgment about the organisation’s sources of income meant the guarantee was not necessary in the end.
Trustees concerned about scams
Trustees of the British Tourist Boards scheme also worked to improve pension transfer checks. Trustee chair David Kidd said the pension freedoms have “resulted in a greater choice for employees but also in a number of attempted and successful pension scams”.
Members looking to transfer large sums out of the scheme are now interviewed by actuaries Xafinity Punter Southall, in addition to checks carried out by third-party administrator Capita.
David Davison, owner-director at consultancy Spence & Partners, said he would expect “all sensible trustees” to take steps to ensure a transfer is made for the right reasons.
“The difficulty is with so many scams going on, the trustees need to make sure they’re providing any transfers to legitimate pension schemes,” while also making members fully aware of their options and the risks they are taking, he said.
Many schemes are running communication exercises to raise awareness, but “ultimately it is the members’ choice – they can push it through regardless of the [scheme’s] restrictions”, he said.
It is about getting members “to step back and consider this properly before taking any decisions”, said Davison, adding that “any process that assists that from a scheme perspective is valuable”.
Jonathan Watts-Lay, director at financial education provider and adviser Wealth at Work, agreed that guidance can help to question a member’s decision. He noted that in some cases members might want to transfer simply because “my mate did it”.
He echoed Davison’s views on the need to put in place a process, “even if it’s [just] one person transferring”.
He noted that circumstances can play a role when trying to obtain guarantees. “When I’ve advised in the past it was just after the global crash and we took a very hard position on behalf of the government, which is, ‘We have no liability here, sort it out yourselves’.”
Generally, a lot will depend on employers’ bargaining position, he said. “It’s not inconceivable that they may get a guarantee, but… it’s going to be down to negotiations and whether the government feels it’s in its interests to give the guarantee or not.”
Access to the right people can be a struggle
Negotiations with government can be strewn with difficulties, said David Davison, who heads up the public sector, charities and not-for-profit practice at consultancy Spence & Partners.
“Often there are significant difficulties in negotiating or even discussing guarantees with government, even where there are strong background cases as to why there should be guarantees,” he said.
Not only is it hard for employers to persuade government to agree to guarantees, it is often difficult to get the right people in government to consider them and understand the pension aspects, he said.
“It can be a torturous process to get to a level in government who actually understands this,” Davison said.
He noted that the devil is often in the detail, and much depends on the type of guarantees that are being sought.
If “some of these liabilities [were] accrued under public ownership, which have now moved into a private sector entity and they feel they should be getting some protection for them”, the scheme might have a better chance of securing a guarantee, he said.
However, usually in such negotiations, “the outcome is that the government tends to run a very long way away from providing [guarantees]”.
This is the case with local government as well; Davison said it is “very common that they try and walk away from these liabilities, which can have a catastrophic impact on the organisations providing the servicing”.
He said he has even seen a case where the words ‘in principle’ have become the bane of a scheme. “The government is rejecting continuing to provide [the guarantee], saying it’s moved beyond ‘in principle’... It’s a constant battle.”
