1

Southern pensions conference10 November 2010

The future of retirement

2

Southern Pensions Conference The future of retirement

WelcomeHousekeepingHouse rules– participate– challenge– interrupt– enjoy

3

Southern Pensions Conference

4

Batting order

Now Introduction9.45 am Looking ahead at the past – Richard Murphy10.15 am Changing the liabilities – Nicola Wynne10.40 am A smoother investment ride – David Hutchins11.10 am Coffee11.30 am Governance and trustees’ workload – John Hamilton12.00 pm The impact of scrapping default retirement age – Sarah

Peacock12.30 pm Retirement in the future – Adrian Lamb12.50 pm Q&A1.00 pm Lunch

5

Weather forecast

6

How will the past affect the future

Legacy = millstone?Limited time = not enough time for past and future2012 – levelling downAdequacyChange and manage your liabilitiesGet smarter with your investmentsFocus on key governance issues – not box tickingThink and plan ahead – default retirement plus adequacyThe past can help with the future - if we let it

7

Learn from the past

Pension schemes used to finance restructuringLittle or no inflation protection - and high inflation!Compulsory membershipAttraction and retentionPart of social fabric?Retirement to working life ratio 1:4 – now?

Lane Clark & Peacock LLP Trustee Consulting Investment ConsultingCorporate Consulting Insurance Consulting Business Analytics www.lcp.uk.com

Blake Lapthorn’s Southern Pensions Conference Wednesday 10 November 2010

Looking ahead to the past: Delivering past service liabilities

The moment of truth for DB pensions

“The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place we are entering a period of consequences.”

Winston Churchill(1936)

Legislation Interest rates

Communication

Inflation

Data accuracy

Asset performance

Pensions knowledge loss

Benefits

Trapped surplus Perceived value

Corporate bondspreads

Salary growth Regulatory bodies

Longevity

Pension risks

Agenda

Setting long-term strategies for delivering benefits

Managing and securing the liabilities

Devising viable recovery plans in difficult times

Actions to take now

“Fix it so it stays fixed” Setting the objectives

Deliver promised benefits

Affordable and practical set up going forward

Off the company balance sheet when possible

Minimise costs and risks in the meantime

Employer’s and members’ interests no longer aligned

Case study: de-risk to wind-up

Closed to new entrants

Closed to future accrual

2001 2002 2003 2004 2005 2006 2007 2008 2009

Company decision in principle to de-risk over 10 years; deficit £100m

Indicative buyout quotations showing opportunity

Competitive buyout auction - locked in to deficit of £40m

2010

Completed scheme wind-up

Late 2006: started to switch assets

The path for closed DB plans

What is a pensioner buy-in?

Trustee purchases an insurance policy as a scheme investmentPolicy pays a monthly income to the Trustee

– equal to the benefit payments that the Trustee is due to make to current pensioners

– value of policy can be used for the benefit of all members

Trustee gains exposure to insurer’s covenant

57%37% EquitiesResidualLiabilities

Bonds

InsurancePolicy

PensionerLiabilities

Before After

EquitiesLiabilities

Bonds

Pension plan pays

Insurer takes on uncertainties….

What is a longevity hedge?

Longevity improvements relative to expectations

What is a DIY buy-in?

Buy-in with insurer

Schem

e

Insurer

Assets

Interest Rate Risk

Inflation Risk

Longevity Risk

DIY buy-in

Schem

e

Provider(s)

Assets

Interest Rate Risk

Inflation Risk

Longevity Risk

Setting your strategic plan

Agree objectives

Set asset strategy– Manage risks– Set triggers to lock in good

performance as it happens

Get certainty on benefits

Manage liabilitiesAgree funding strategy

Monitor and, when opportunities arise, take action

Managing liabilities now – the options

Capping of accrued benefits– Address as part of future changes– Cap the growth of those liabilities– Simplify the benefit structures

Closing out the risk– Buyouts and buy-ins– (Enhanced) transfer values

Pension increase exchange

Member optionBenefit certaintyCost savingsIncreased PPF levyWatch tax changesPensions Regulator

Uplift now

Member option to convert to a level pension

Fixed for lifetime

Enhanced transfer values We believe it is possible to design an exercise to benefit both the sponsor and the members

smaller schemereduced deficitlower volatility

The platform for win-win

Transfer value Liability

EnhancementReduction in liability

Net savings

Assets Liabilities Assets Liabilities

Overall impact from balance sheet perspective

Before After

Meeting the funding challenge Using the whole toolkit

Longer recovery plans

Back-end loaded

Contingency on profitability

Trigger-based payments

Contingent assets

Parent company guarantees

Anything else!

Assets

Deficit

Defining Prudence Benchmarking funding strategies

Average scheme size £300mAllows for:

– Funding assumptions– Asset allocation– Employer covenant

Covenant scores have deteriorated since 2006No obvious link between covenant strength and funding strategyBe satisfied with your position before deciding on your recovery plan

Scheme Risk Index against Covenant Risk Index

What’s coming up?

Just arrived – clarity on tax regime from 2011/12

Autumn – CPI / RPI implications

Autumn/Spring – action to mitigate PPF levy

£50,000 Annual Allowance

16:1 Valuation Factor for DB

Reduced Lifetime Allowance £1.5m

Decision document Issued 14 October

Applies for some savings

immediately

The tax calculation: DB A long serving high earner in a 1/60ths scheme

£160,000 x 24/60 = £64,000 pa

= £65,984 pa

£171,000 x 25/60

= £71,250 pa

£5,266 paX 16 = £84,256£5,266

First £50,000 = No tax

Excess £34,256 taxed at 50% = NEW TAX £17,128

+3.1% (2011/12)

but check carry forward

PIPs - early start to new tax Example with a PIP year ending 30 June

Antiforestalling “penalties” still apply here

This part tested against £50k

14 October

2010

5 April 2011

30 June 2010

30 June 2011

2011/12 tax year: new regime applies

CPI - BT announcement 4 November 2010

BT today announced the impact of the Government’s decision that the Consumer Prices Index (CPI), rather than Retail Prices Index (RPI), will be used as the basis for determining the rate of inflation for the statutory revaluation and indexation of occupational pension rights.

The change to CPI – the highlights

1. Minimum statutory increases for pensions in payment deferment are (probably) changing from the Retail Prices Index (RPI) to the Consumer Prices Index (CPI)

2. Varies by year but CPI has averaged 0.7% pa lower on average than RPI, which could knock up to 15% off the value of benefits

3. Unusually for UK legislation, this is applying to past service benefits4. Announcement on the Government’s plans “shortly” but no legislation is needed to

change the statutory requirement from 1 January 20115. The impact will depend on the wording of your Rules “ the small print lottery” so

TAKE LEGAL ADVICE6. If your pension increase month is January, your administrator needs to know in the

next few weeks whether to apply RPI (4.6%) or CPI (3.1%)7. For deferred pensioners retiring from January 2011 the new increases may apply8. Do not forget tax-free cash commutation and transfer values9. We do not know yet how members will react (but it has been surprisingly quiet!)

By 2012

Compliance with auto-enrolment

Employer debt regulations?

Solvency II?

State pension changes?

2012/13 PPF levy

DC contracting- out abolished

Planning for updated IAS19

GMP equalisation?

tPR record keeping deadline

Conclusion

Set your strategic plan

Manage the liabilities and grab opportunities

Update your 2010/11 to do list

Scope

LCP is part of the Alexander Forbes Group, a leading independent provider of financial and risk services. Lane Clark & Peacock LLP is a limited liability partnership registered in England and Wales with registered number OC301436. LCP is a registered trademark in the UK (Regd. TM No 2315442) and in the EU (Regd. TM No 002935583). All partners are members of Lane Clark & Peacock LLP. A list of members’ names is available for inspection at 30 Old Burlington Street, London, W1S 3NN, the firm’s principal place of business and registered office. The firm is regulated by the Institute and Faculty of Actuaries in respect of a range of investment business activities. Locations in London, Winchester, Jersey, Belgium, Switzerland, the Netherlands and Ireland.

This generic presentation should not be relied upon for detailed advice or taken as an authoritative statement of the law.

If you would like any assistance or further information, please ask.

While this document does not represent our advice, nevertheless it should not be passed to any third party without our formal written agreement.

How to manage liabilities………

Nicola Walker

in a pension scheme

Final Salary Pension Scheme Liabilities

.

Dealing with the liabilities

The Scheme TrusteesThe sponsoring employerThe members

The options

Managing future service liabilities– Accrual/contribution rates/salary cap– Reshaping: DC /CARE/Cash Balance– Review discretionary benefits– Cessation of accrual

Managing past service liabilities– Enhanced transfer exercises– Pension increase exchange– Buy ins and buy outs

Managing future liabilities – scheme amendments

Amending scheme rules Powers of amendment– Just do what it says on the tin? (but where is it and what does it actually

say?!)

Deed/ resolution/ “pending” powers using announcements etc

Relevant protections and restrictions (“fetters”)

NB: Informing members

Overriding legislative protection

Section 67 Pensions Act 1995Prevents “Detrimental modifications”– i.e. A modification of an occupational

pension scheme which on taking effect would or might adversely affect any subsisting right of any member of the scheme, or any survivor of a member of the scheme.

“Subsisting right” means any right which has accrued to a member– i.e. which he would retain if he left

service at the date of the change

I have the power!But do you really?!

– “No such alteration which would vary or affect any retirement benefits then already provided

– “rights or interests which shall have accrued ”

– rights or interests of any Member in benefits secured by contributions

Enhanced transfer exercises

What are they?

Why use them?

Limited time only for contracted-out benefits!

Enhanced transfer exercises

Trustee considerations– Security for remaining members’

benefits– Funding of the enhancements– Data protection– Scheme Rules– Compliance with Regulator’s guidance– Informed member consent

Clear and accurate communicationNo misrepresentation of the Trustees’ roleIndependent financial adviceReasonable deadline

Regulator’s guidance

Start from the presumption that it will not be in the member’s interestsFive key principles– The offer should be clear, fair and not misleading– The offer should be open and transparent– Conflicts of interest should be identified and managed– Trustees should be involved from the start– Independent financial advice should be made available to

membershttp://www.thepensionsregulator.gov.uk/guidance/guidance- inducement-offers.aspx

Will it be worth it?

Fair and reasonable enhancement offer+ comprehensive communications+ independent financial advice (preferably without fee or restriction)+ regard to Regulator’s guidance+ right level of take-up= reduced risk and reduced cost(hopefully!)

Pensions Increase exchangeWhat is it?

– Members with pension increase entitlements above statutory requirements – Members agree to exchange these increases for;

a cash sum; ora higher base pension

Why do it?– Funding level usually improves – Reduces risk– May suit certain members (but risk of selection against scheme)

Trustee considerations– Rule amendment if higher base pension to be provided– Protecting members’ benefits– Regulator’s guidance on inducements– Data protection

Legal issuesSection 67 (Subsisting rights)

– Unless member consents

Amendment power restrictions?

Section 91 Pensions Act

– How does this interact with s67?– Express exception for surrendering

benefits for the purpose of acquiring entitlement to further benefits under the Scheme

Strong communication– Ensure compliance with Regulator’s

guidance– Provide Independent Financial Advice

Document individual agreement

And here’s one made earlier! ITV Pension Scheme

Proposal made to existing pensioners (of which there were 11,000)

Ongoing programme of liability management

Pension increase option did not require cash injection

The offer:

– No effect on spouse’s pension– Uplift applied in 5 year age bands– Sharing saved 60/40 in member’s favour

Pensioners offer pack

– Personalised leaflet– Generic explanatory leaflet– Form

Letters to DB actives

ITV Communication strategy: the offer

ITV Communication strategy: the offer

ITV Support

JLT helpline

Pensions Department Helpline

Section on ITV pensions website including FAQ’s

ITV communication strategy: reminders and confirmation

Mid decision phase update

– Reminder of offer – FAQ’s

Final reminder

– Postcard

Confirmation

– No, thanks: confirmation letter to those who declined

– Yes, please: confirmation statement sent before first uplifted pension payment

ITV: The challenges and the results

Dealing with press interest and ensuring that the offer was seen in a positive lightAvailability of dataEngaging members remotely10,300 offers were made, of which there were 4,419 acceptances (43% take-up)Liability saving well in excess of original £30 million target

Buy ins and buy outs

Buy in– Insurance Policy– Trustees continue to manage scheme with

added certainty over pensioner costs– Policy is a scheme asset when held in the

name of the trusteesBuy out– The ultimate in de-risking!– Scheme assets and liabilities transferred – Insurer writes policies in the names of

individual members

And if you get it right…….

November, 2010

The Future of Pension InvestingDesigning a Smother Ride for both Defined Benefit and Defined Contribution Schemes

This presentation is issued by AllianceBernstein Limited, 50 Berkeley Street, London W1J 8HA. AllianceBernstein Limited is authorised and regulated in the UK by the Financial Services Authority (the FSA). This presentation booklet has been provided to you for use in a private and confidential meeting to discuss a potential or existing investment advisory relationship. This presentation is not an advertisement and is not intended for public use or distribution beyond our private meeting. This document is directed at Professional Clients, as defined by the FSA, and the products and services described are only available to such clients. This document is provided for informational purposes only and is not intended to be an offer or solicitation, or the basis for any contract to purchase or sell any security or other instrument, or for AllianceBernstein to enter into or arrange any type of transaction as a consequence of any information contained herein.

David Hutchins Head—Investment Research & Design, UK & Ireland

AllianceBernstein.com

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Through September 30, 2009Source: FTSE, Investment Management Association and AllianceBernstein

Markets Have Provided a Bumpy Ride

FTSE All Share Index

AllianceBernstein.com

Sadly Diversification can also Fail

As of September 30, 2009Source: Barclays Capital, Dow Jones, FTSE NAREIT, Global Financial Data, MSCI and AllianceBernstein

(54)%

(35)%

(17)%

9%

(19)% (18)%

(67)%

GlobalEquities

GlobalProperty

High YieldCredit

InvestmentGrade Credit

GovernmentBonds

Commodities HedgeFunds

Cumulative Returns October 2007—February 2009

AllianceBernstein.com

Who Suffers the Ride?

Defined Benefit

1st

EmployerAssets

2nd

PPF

&Members

Defined Contribution

1st

Assets

2nd

EmployerTrustees

&Members

Source: AllianceBernstein

AllianceBernstein.com

Asset Allocation Matters

For the majority of investors over 80% of

returns and 90% of risk is explained by asset

allocation rather than individual stock

selection.

As of September 30, 2009Source: Barclays Capital, MSCI and AllianceBernstein

AllianceBernstein.com

Steps to Building a Smoother Ride for DB and DC

Set Clear Objectives based on:

Need for returns and ability to cope with downside

Allocate Assets efficiently using:

Liability sensitive assets (LDI funds) and diversifying return sources

Manage Assets Dynamically to amend allocation as:

Needs and markets change

Ensure Effective Oversight is built in via:

Efficient implementation and clear accountability

Smoother Ride = Happier Members/Employers = Happier Trustees

AllianceBernstein.com

Objectives Should Consider Need for Returns versus ability to cope with the Potential Downside

Coping with Downside / Risk

Flexibility of Time Horizon

Need for Returns

Flexibilityof Outcome

OutcomeAffordability

LossAffordability

AllianceBernstein.com

A Simple Glidepath will Help Set Benchmark for Asset Allocation Manager

(40) (30) (20) (10) 10

Ris

k C

apac

ity

1

43

2

ExpectedRetirement

Date

Source: AllianceBernstein

TargetFunding

Ratio

DC =Time

DB =FundingRatio

60% 70% 80% 90% 110%

AllianceBernstein.com

Liability Sensitive Funds Reduce Risk for DB Schemes

Assets Liabilities

£20.0 Mil.

Assets Liabilities

£27.0 Mil.

Assets Liabilities

£23.5 Mil.£80 Mil.£100 Mil.

£83 Mil.£110 Mil.

Without LDI

WithPrudent

LDI £86.5 Mil.£110 Mil.

£50 Mil. Equities£30 Mil. Bonds/LDI Funds

10% liabilityincrease

Source: AllianceBernstein

AllianceBernstein.com

Risk of a Static Portfolio Changes Significantly with Markets

Portfolio Volatility60% Global Equities / 40% Global Bonds* 1970–2009

0

5

10

15

20

70 73 76 79 82 85 88 91 94 97 00 03 06 09

The results depicted above are hypothetical and are derived from a back-tested simulation. Please read “Note on Simulation Results” in back of presentation for important additional information.Through September 30, 2009Global Bonds refer to Global Government Bonds Hedged to USD and Global Equities refer to Global Developed Equities Hedged to USD.Static portfolio results are based on a portfolio that is 55% MSCI World Index, 35% Barclays Global Aggregate Index (as adjusted to reflect duration only) and 10% FTSE NAREIT, rebalanced halfway back to target when weights become +/- 5% from their long-term target. Source: Barclays Capital, MSCI and AllianceBernstein; see Disclosures and Important Information

60/40

Average Volatility

9.2%

Per

cent

AllianceBernstein.com

8.0%34.5%S&P 500

Investors Are Not Always Compensated for Elevated Risk

6.5%4.2%

6.8%23.9%Global Equity

1.0%2.4%

2.1%8.7%Global Bonds

2.0%1.5%

7.0%13.1%Foreign

Currencies

4.6%3.7%

6.2%21.8%Commodity

Futures

Excess Returns 12 Months Forward

Through September 30, 2009Excess returns refer to returns over cash. All asset classes are sorted by quintile of volatility, showing highest and lowest quintile, except foreign currencies, which are sorted by tercile. Periods covered, by asset class, are: S&P 500—since 1928; global equities—since 1970; fixed income—since 1970; currencies—since 1974; commodity futures—since 1970. Past volatility is an exponentially weighted average using daily data with a three-week half-life (5% decay per day).Source: Barclays Capital, Global Financial Data, FTSE NAREIT, MSCI, S&P and AllianceBernstein; see Disclosures and Important Information.

Past Volatility

7.6%5.3%

Highest Quintile Lowest Quintile

AllianceBernstein.com

A Good Asset Allocation Manager will Look to Smooth the Ride

Dynamic Asset Allocation

Lower Returns Higher

Conventional Asset Allocation

Fewer LargeGains

FewerLarge

LossesFreq

uenc

y

AllianceBernstein.com

That is Good Asset Allocation Manager will tend to Reduce Volatility whilst Maintaining Long Term Returns

0

5

10

15

20

70 73 76 79 82 85 88 91 94 97 00 03 06 0960/40 Rebalanced Dynamic Allocation

Through September 30, 2009The results depicted above are hypothetical and are derived from a back-tested simulation. Please read “Note on Simulation Results” in back of presentation for important additional information.Global Bonds refer to Global Government Bonds Hedged to USD and Global Equities refer to Global Developed Equities Hedged to USD.Static portfolio results are based on a portfolio that is 55% MSCI World Index, 35% Barclays Global Aggregate Index (as adjusted to reflect duration only) and 10% FTSE NAREIT, rebalanced halfway back to target when weights become +/- 5% from their long-term target. Source: Barclays Capital, Global Financial Data, FTSE NAREIT, MSCI and AllianceBernstein; see Disclosures and Important Information.

NiftyFifty

1987 Crash

Bank Crisis

Russia/ LCTM

TMT Bubble

Credit Crunc

h

60/40Dynamic

9.2%7.8%

Per

cent

Simulated Portfolio Volatility60% Global Equities / 40% Global Bonds

Average Volatility

AllianceBernstein.com

The Past

Equity Holdings

Fixed Income

Holdings

Other Holdings

Trustees Select Balanced Manager(s)

Manager(s) Manage Asset Allocation Against other Managers

AllianceBernstein.com

Derivative overlays:Interest Rate SwapsInflation SwapsCurrency ForwardsEquity Options

Collateral management

Proactive de-risking strategies

Lifestyling strategy

Today

AllianceBernstein

Equity Holdings

Fixed Income

Holdings

Other Holdings

Trustees Manage Asset Allocation Against Scheme Specific Objectives

UK Global

Small Cap Large Cap

UK Global

Fixed Index Linked

Property Annuities

Commoditie s

Private Equity

Infrastructure Venture CapitalDuration CreditActive Passive

Style Active PassiveTacticalAsset

Allocation

Hedge Funds

AllianceBernstein.com

Tomorrow

Equity Holdings

Fixed Income

Holdings

Other Holdings

Trustee set Scheme Specific Objectives and Select “Fiduciary” Manager(s)

Manager(s) Manage Assets against Scheme Specific Objectives

“Target Date Funds” in DC

AllianceBernstein.com

AllianceBernstein Solutions

Defined Benefit Schemes

*Launching in 4th quarter 2010

Defined Contribution Schemes

Retirement StrategiesSM

Small schemes + contract based schemes

Pre-built Target Date Funds

Passive with Volatility Management

From December 2010

Customised Retirement StrategiesSM

Larger schemes

Customised Target Date Funds

AB accepts accountability

Fully open-architecture

ABdb

Small schemes

Scheme specific liability benchmarked investment strategy which includes:

Liability sensitive investments

Market sensitive risk management

Dynamic de-risking glidepath

Full implementation and reporting

AllianceBernstein.com

Disclosures and Important Information

The views and opinions expressed in this presentation are based on AllianceBernstein's internal forecasts and should not be relied upon as an indication of future market performance or any guarantee of return from an investment in any AllianceBernstein services.

Past performance is not a guide to future performance.

The value of investments and the income from them can fall as well as rise and you may not get back the original amount invested.

The value of non-exchange securities may be subject to exchange rate fluctuations.

Pension Scheme Governance

How to ease the burden

John Hamilton Partner

Why governance is an issue for pension schemes

“Good Scheme governance underpins secure pensions and enables the effective management of risk”.

The Pension Regulator

“Governance is a key issue of our times. As the bar has risen on standards of governance within companies, the NAPF believes that pension schemes – on which million of people depend – should also apply high governance standards”

NAPF Discussion Paper (July 2005)

The legal framework for pension scheme governance

Trust law

Pensions Act 1995– Member Nominated Trustees – Reports and audited accounts– Record keeping– Relationships with professional advisers

Pensions Act 2004– TKU – new trustees have only 6 months to get up to speed – Duty to report breaches– Notifiable events. – Internal controls.

Other strands of governance

Myners principles Data Protection Act 1998Disclosure regulations FSA regulation

Internal controls

Article 14(1) of the European Directive 2003/41 ECSection 249A of the Pensions Act 2004

Regulation:

“ The trustees or managers of an occupational pension scheme must establish and operate internal controls which are adequate for the purpose of securing that the scheme is administered and managed:

−

In accordance with the scheme rules; and−

In accordance with the requirements of the law.”

Putting this into practice – what does the Regulator now expect of trustees?Regulators Code of Practice

Key themes:-

Code provides guidelines rather than a prescription.Schemes must have internal controls but trustees have the flexibility to determine how these internal controls are implemented. Risk-based approach Trustees should consider the circumstances of their own scheme. Proportionate and common sense approach.

Putting this into practice – a risk based review

Ask yourselves the question – “What are we trying to achieve?”– Minimising financial and non-financial risk in the

running of your scheme.Identify risks – look at processes to see where the main potential for risk arises. Define success – be realistic when setting targets. Assess risk.Produce action plan – e.g. set out ideas for internal controls against each risk.Implement the plan. Monitor and review.

Putting this into practice – identifying the key risks

Risk that internal controls don’t work. Risk of fraud Corporate riskFunding/investment risk – the risk that scheme investment strategy is no longer appropriate.Compliance/regulatory risk – failure to comply with scheme rules or breach of legislation. Administration risk – overpayments etc. Computer system and database failures. Poor scheme management. Risk of ineffective decision making – trust law (wrong factors), conflict etc.

Putting this into practice – identifying the key risks

Source: based on Watson Wyatt business management cycle

Documenting your risk review process

Common pitfalls for trustees

– Failing to implement an action plan for controlling risk – compliance should not become a box ticking exercise.

– Ineffective management of conflicts.

– Ineffective record keeping. Importance of record keeping.Legislative requirements.

– Ineffective supervision of delegates and advisers Establish a process for assessing your advisers and delegates.Are their internal controls adequate - don’t be afraid to ask!

Common pitfalls for trustees (contd.)

– Forgetting the basicsNot understanding the trust deed and rules.Misunderstanding the difference between duties and discretionary powers. Misunderstanding the balance of powersNot acting as a trustee

– Forgetting the wider responsibilities Data protection – consents, unauthorised processing, inadequate security measures. Focussing on the present and trying to forget the past! – e.g. equalisation.

What more can trustees be doing?Conduct of trustee meetings

– Keep key risk areas on the agenda for every trustee meeting – e.g. conflicts, covenant assessment

– Frequency– Manner by which Trustees conduct business– Use of sub-committees– Include legal/technical update as a regular agenda item

Composition of your trustee board

– Ask yourselves, is the trustee board effectively representing the interest of members?

– Having difficulty finding MNTs – ask yourself why?– Consider the appointment of an independent trustee – not necessarily a

professional trustee.

What more can trustees be doing? – cont’d

Scheme Documentation– Do you understand your deed and rules?– If the answer is no, what action should be taken?

Training?Rule rewritePrepare a working copyMake use of benefit and legal auditsMaintain a balance of powers summary

Communication– Timescales, manner, content – Open meetings with members?– How can you best make use of modern media?

What lies ahead?

Data cleansing and tPR– What are you doing to reach the Regulator’s target

deadline?– Is this built into your action plan for internal controls?

MNT – will we see a move to 50% as a mandatory requirement? Increased exposure for Trustees under DPA?The impact of Government cut-backs in public spending?Increase in litigation?

And finally … let’s not forget DC!

Contract based schemes – “the Governance Vacuum” (NAPF 2005 discussion paper)Pension committee Should there be some risk sharing for the employer?

Scrapping the default retirement age – what does this mean for

employers and employees

Sarah Peacock

Phasing out from April 2011

Consultation ended on 21 October 2010 and the Government intends to publish a response in November 2010. Proposals:Retirements that have been notified before 6 April 2011 to take effect before 1 October 2011 are valid.If notified before 6 April 2011 to take effect after 1 October 2011 will not be valid.

DRA will cease completely on 1 October 2011

No new notices of intended retirement may be issued after 6 April 2011Statutory retirement procedures will be abolished

Compulsory Retirement - Objective justification

Seldon v Clarkson Wright and Jakes and anorCourt of Appeal - September 2010Rosenbladt v Oellerking Gebaudereinigungsges mBhEuropean Court of Justice - October 2010

Advantages

Retain experienceRetain knowledgeRetain skillsDemonstrates equal opportunitiesImproved attitude towards older workersLower labour turnoverDecreased sickness absence

Disadvantages

Fewer opportunities for career development for new/younger employeesReduced capabilityPerformance diminishing with ageDifficulties in succession planningLess natural wastageIncreased sickness absenceIncrease cost of insured benefitsImpact on pension arrangements

Insured benefits

Life assuranceMedical coverIncome protection schemesCritical illness coverPermanent health insuranceEmployee Share Schemes – good and bad leavers

Government assurance

Most employers agree to requests to work beyond retirement ageMost employees only choose to work one or two years past the age of 65Work performance in most jobs is not affected up to the age of 70

Southern Pensions Conference – is the past any guide to the future?

Is the past any guide to the future?

Review what we have covered so farLook at some of the issues that still remain from the “legacy”Some things to be on the look out for

Changing the scheme’s liabilities

RPI/CPI – will it be overriding?Ceasing DC contracting out – another transfer window?Liability reduction exercises stay on the agendaGood process, good communications are critical

Investment

A key risk!Smarter solutions and options now available to allDiversification, speed of decision making, dynamic adjustments, etc.,Trustees to focus on strategy – 80:20 Contributions likely to remain limited so investment performance – risk v. return – more important than ever

Governance

Monitoring plan for employer covenant with annual review (minimum) and actions where necessaryFocus on the key risks Standing item on their meeting agenda Refer to TPR where relevantTKU burden increasing – think about how best to copeTrustees and employer monitoring role for advisers, administrators, managers, etc. – understand what is possibleDon’t forget the data and the TPR deadlines

Default retirement and age discrimination

Benefit provisionInsurance availabilityCost alone is not a justificationDB or DC?Life cover, private medical, etc?

2012 -2016 – auto enrolment and NEST

Auto enrolment a reality3 month window – but how much will this help?Additional costs for employers and employeesWill this force more opt outs?Danger of levelling downApplication depends on employer size

Employer (by PAYE scheme size or other description)

Staging date

120,000 or more 01-Oct-1250,000-119,999 01-Nov-1230,000-49,999 01-Jan-1320,000-29,999 01-Feb-1310,000-19,999 01-Mar-136,000-9,999 01-Apr-134,100-5,999 01-May-134,000-4,099 01-Jun-133,000-3,999 01-Jul-132,000-2,999 01-Aug-131,250-1,999 01-Sep-13

Auto-enrolment staging

Employer (by PAYE scheme size or other description)

Staging date

800-1,249 01-Oct-13500-799 01-Nov-13350-499 01-Jan-14250-349 01-Feb-14Certain employers with less than 50 01-Mar-14240-249 01-Apr-14150-239 01-May-1490-149 01-Jun-1450-89 01-Jul-14Other with less than 50 Aug 2014 to June 2015

Auto-enrolment staging

And Also

TPR spreads net– Nortel - Financial Support Directive– Lehman Brothers– Bonas Group – Contribution Notice

PPF to be self sufficient by 2030?Act now to get your surplus or at least to make sure you retain the right to get at it

And not forgetting ……

Disclosure changesRegulator’s data deadlinesAnnuitisation deferral – the first step to collectivism?Tax changes – annual allowance, reduced lifetime allowance, etc.

Trustees’ circle of interdependencies

Employer covenantFunding

Investment

Questions to ask - Trustees

Are we focusing on the key risks?Can we get more from our current and future assets?How rigorous is our covenant monitoring? How rigorous does it need to be?Have we reviewed all our liabilities and operational issuesHave we considered all options and issues?Have we challenged our advisers on these issues?Have we challenged ourselves and assessed our own performance?

Questions to ask - Employer

Are we fully engaged with the Scheme?What is our strategy? Have we thought about the end game? Have we considered all of our options?Have we started to think about 2012 and the effect of the tax changes?

To Do List

Work together – establish and maintain a good working relationshipReview governance and operations 2012 is even closer now!Be active rather than reactiveKeep your nerve

2020 Vision (or 2040?)

No such thing as a normal pension ageRetirement commonly age 70 (or later)Older workersDC inadequacy – 10 more years of DC, 10 less of DB!Employers and employees understand the need to save enoughCloud Pensions (Collective DC – double Dutch, going Dutch of just learning from the Dutch)Forced annuitisation a thing of the past

Question time