Future Influencer Breakfast 5 December 2013
Future Influencer Drinks
22 January 2015
Private and confidential
1
Chris Roberts Spence & Partners
Private and confidential
2
Auto Enrolment – How are we doing?
Private and confidential
3
Agenda
• What is auto enrolment? • Staging Dates • What has happened? • Key challenges
Private and confidential
4
What is auto enrolment? • Introduced under Pensions Act 2008 • Automatic pension provision by all employers for the majority of the UK workforce • All employees between 22 and SPA earning above £10,000 per annum • Other employees can opt-in • Minimum contribution levels phased in between 2% and 8% • NEST set up to provide a national default Scheme
Private and confidential
3
Staging Dates Employer size (by PAYE scheme size) or other description at April 2012
Automatic Enrolment duty date From
To
1 October 2012
1 February 2014
50 to 249 members
1 April 2014
1 April 2015
Test tranche for less than 30 members
1 June 2015
30 June 2015
30 to 49 members
1 August 2015
1 October 2015
Less than 30 members
1 January 2016
1 April 2017
1 May 2017
1 February 2018
250 or more members
New employers
Private and confidential
6
What has happened? • • • •
Introduction of new pension vehicles “the rebirth of Master Trust” NEST has developed a positive and different product Positive opt out rates – Estimate reduced from 30% to 15% Employer engagement – 99% Employers achieved compliance without intervention • tPR exercised formal power 18 times during the 2013/2014 tax year • April 2015 “Pension Freedom Day” may improve engagement
Source: TPR Automatic enrolment - Commentary and analysis: April 2013 – March 2014
Private and confidential
7
Key challenges
• Smaller employers will likely be difficult to manage • Huge volume of business to be written, can the industry cope? • Are members being asked to contribute enough?
• How will auto enrolment interact with “Pension Freedom Day”
Private and confidential
8
Questions?
www.spenceandpartners.co.uk
Richard Pettit Burges Salmon
Private and confidential
10
Pension Protection Fund “Drop-Ins”: An Easy Way Out?
Agenda The Pension Protection Fund (PPF) PPF Drop-ins - Basics - Mechanics
- Conditions Conclusion
The Pension Protection Fund (PPF) Reasons for introduction
Compensation - Above Normal Pension Age (NPA) => 100% - Below NPA => 90% and cap Assessment period “Rescue deals”
PPF Drop-Ins: The Basics Regulated Apportionment Arrangement (RAA) Statutory process - approval of tPR and the PPF Agreement of trustees Pension liabilities apportioned to “martyr company” Scheme enters PPF assessment period Objectives
- Remove defined benefit pensions liability - company remains solvent
PPF Drop-Ins: The Mechanics XYZ Limited (Employer)
DB Scheme (in deficit)
Newco (Martyr)
£1
Liability
Mitigation Package
Apportionment of liabilities
Insolvency Event
PPF (after assessment period)
PPF Drop-Ins: The Conditions Imminent insolvency
- ‘reasonable likelihood’ of employer insolvency - within the following 12 months - insolvency would lead to entry of scheme into PPF assessment period
PPF Drop-Ins: The Conditions Power in scheme rules
- scheme rules must provide for an RAA - amendment necessary? Approval by the Pensions Regulator - notice issued that it would be reasonable to approve the RAA
PPF Drop-Ins: The Conditions No objection from the PPF
- mitigation satisfies minimum requirements: 1. Immediate cash sum - “significantly better than the dividend which would be received if the company went into an ordinary insolvency” and - “fair given what the other creditors and shareholders are to gain as a consequence of the rescue”
PPF Drop-Ins: The Conditions No objection from the PPF
- mitigation satisfies minimum requirements: 2. Anti-embarassment stake - 33% equity stake - 10% equity stake where new money is provided by new investors
Conclusion
An easy way out?
“We expect that the use of regulated apportionment arrangements will be very rare and only appropriate in exceptional circumstances.” The Pensions Regulator Guidance
Questions?
Private and confidential
21
Matt Taylor BDO
Private and confidential
22
HOW A SNAKE CAN CHARM PENSION TRUSTEES Employer Covenant Advice
Matthew Taylor [email protected] 22 January 2015
THE EMPLOYER COVENANT VECTOR 1. POSITION
OVERALL
?
?
? ?
2. PROSPECTS
?
3. POWER
We assess Employer Covenant on a ten point Scoring scale (one weakest to ten strongest), based on the three vectors set out opposite.
SCHEME FUNDING: THE SNAKE STRONG EMPLOYER COVENANT
10 9
TRUSTEE PULL
Employer Covenant Vector
8 7
6
EMPLOYER IN CONTROL POWER TRANSFERS FROM WHAT HAPPENS IT IS A EMPLOYER TO IN BETWEEN? NEGOTIATION TRUSTEE
5 4 EMPLOYER VIEW
3 2 1
WEAK EMPLOYER COVENANT
TRUSTEE VIEW
TRUSTEE IN CONTROL
EMPLOYER PULL
0 BEST ESTIMATE
Technical Provision Deficit SCHEME FUNDING
BUY OUT
THE SNAKE Calibrating the Employer Covenant and Technical Provisions Strong Employer Covenant
10
Very Strong
9
Tending to Strong Upper Moderate Moderate Lower Moderate Tending to Weak Weak Very Weak
Weak Employer Covenant
Employer Covenant Vector
Strong
8 7 6 5
Employer Pull
4 3 2
Trustee Pull
1 0 BUYOUT
BEST ESTIMATE
SCHEME FUNDING
Technical Provisions deficit
DISCUSSION POINTS 1. Who is the statutory Employer? 2. Should prospects solely determine the covenant score? 3. How would you reconcile Covenant and Funding? 4. Where is the inflexion point?
Questions?
Private and confidential
28
Thank You
Private and confidential
29
22 January 2015
Private and confidential
1
Chris Roberts Spence & Partners
Private and confidential
2
Auto Enrolment – How are we doing?
Private and confidential
3
Agenda
• What is auto enrolment? • Staging Dates • What has happened? • Key challenges
Private and confidential
4
What is auto enrolment? • Introduced under Pensions Act 2008 • Automatic pension provision by all employers for the majority of the UK workforce • All employees between 22 and SPA earning above £10,000 per annum • Other employees can opt-in • Minimum contribution levels phased in between 2% and 8% • NEST set up to provide a national default Scheme
Private and confidential
3
Staging Dates Employer size (by PAYE scheme size) or other description at April 2012
Automatic Enrolment duty date From
To
1 October 2012
1 February 2014
50 to 249 members
1 April 2014
1 April 2015
Test tranche for less than 30 members
1 June 2015
30 June 2015
30 to 49 members
1 August 2015
1 October 2015
Less than 30 members
1 January 2016
1 April 2017
1 May 2017
1 February 2018
250 or more members
New employers
Private and confidential
6
What has happened? • • • •
Introduction of new pension vehicles “the rebirth of Master Trust” NEST has developed a positive and different product Positive opt out rates – Estimate reduced from 30% to 15% Employer engagement – 99% Employers achieved compliance without intervention • tPR exercised formal power 18 times during the 2013/2014 tax year • April 2015 “Pension Freedom Day” may improve engagement
Source: TPR Automatic enrolment - Commentary and analysis: April 2013 – March 2014
Private and confidential
7
Key challenges
• Smaller employers will likely be difficult to manage • Huge volume of business to be written, can the industry cope? • Are members being asked to contribute enough?
• How will auto enrolment interact with “Pension Freedom Day”
Private and confidential
8
Questions?
www.spenceandpartners.co.uk
Richard Pettit Burges Salmon
Private and confidential
10
Pension Protection Fund “Drop-Ins”: An Easy Way Out?
Agenda The Pension Protection Fund (PPF) PPF Drop-ins - Basics - Mechanics
- Conditions Conclusion
The Pension Protection Fund (PPF) Reasons for introduction
Compensation - Above Normal Pension Age (NPA) => 100% - Below NPA => 90% and cap Assessment period “Rescue deals”
PPF Drop-Ins: The Basics Regulated Apportionment Arrangement (RAA) Statutory process - approval of tPR and the PPF Agreement of trustees Pension liabilities apportioned to “martyr company” Scheme enters PPF assessment period Objectives
- Remove defined benefit pensions liability - company remains solvent
PPF Drop-Ins: The Mechanics XYZ Limited (Employer)
DB Scheme (in deficit)
Newco (Martyr)
£1
Liability
Mitigation Package
Apportionment of liabilities
Insolvency Event
PPF (after assessment period)
PPF Drop-Ins: The Conditions Imminent insolvency
- ‘reasonable likelihood’ of employer insolvency - within the following 12 months - insolvency would lead to entry of scheme into PPF assessment period
PPF Drop-Ins: The Conditions Power in scheme rules
- scheme rules must provide for an RAA - amendment necessary? Approval by the Pensions Regulator - notice issued that it would be reasonable to approve the RAA
PPF Drop-Ins: The Conditions No objection from the PPF
- mitigation satisfies minimum requirements: 1. Immediate cash sum - “significantly better than the dividend which would be received if the company went into an ordinary insolvency” and - “fair given what the other creditors and shareholders are to gain as a consequence of the rescue”
PPF Drop-Ins: The Conditions No objection from the PPF
- mitigation satisfies minimum requirements: 2. Anti-embarassment stake - 33% equity stake - 10% equity stake where new money is provided by new investors
Conclusion
An easy way out?
“We expect that the use of regulated apportionment arrangements will be very rare and only appropriate in exceptional circumstances.” The Pensions Regulator Guidance
Questions?
Private and confidential
21
Matt Taylor BDO
Private and confidential
22
HOW A SNAKE CAN CHARM PENSION TRUSTEES Employer Covenant Advice
Matthew Taylor [email protected] 22 January 2015
THE EMPLOYER COVENANT VECTOR 1. POSITION
OVERALL
?
?
? ?
2. PROSPECTS
?
3. POWER
We assess Employer Covenant on a ten point Scoring scale (one weakest to ten strongest), based on the three vectors set out opposite.
SCHEME FUNDING: THE SNAKE STRONG EMPLOYER COVENANT
10 9
TRUSTEE PULL
Employer Covenant Vector
8 7
6
EMPLOYER IN CONTROL POWER TRANSFERS FROM WHAT HAPPENS IT IS A EMPLOYER TO IN BETWEEN? NEGOTIATION TRUSTEE
5 4 EMPLOYER VIEW
3 2 1
WEAK EMPLOYER COVENANT
TRUSTEE VIEW
TRUSTEE IN CONTROL
EMPLOYER PULL
0 BEST ESTIMATE
Technical Provision Deficit SCHEME FUNDING
BUY OUT
THE SNAKE Calibrating the Employer Covenant and Technical Provisions Strong Employer Covenant
10
Very Strong
9
Tending to Strong Upper Moderate Moderate Lower Moderate Tending to Weak Weak Very Weak
Weak Employer Covenant
Employer Covenant Vector
Strong
8 7 6 5
Employer Pull
4 3 2
Trustee Pull
1 0 BUYOUT
BEST ESTIMATE
SCHEME FUNDING
Technical Provisions deficit
DISCUSSION POINTS 1. Who is the statutory Employer? 2. Should prospects solely determine the covenant score? 3. How would you reconcile Covenant and Funding? 4. Where is the inflexion point?
Questions?
Private and confidential
28
Thank You
Private and confidential
29
