SHPS Forums Q&As October 2016

Transcription

1 SHPS Forums Q&As October 2016 Financial update How do the Committee decide on valuation assumptions? The Scheme Actuary advises the SHPS Committee (the Committee) on the financial and demographic assumptions to adopt. Based upon this advice and taking account of the degree to which employers can support a range of likely outcomes and the scheme investment strategy, the Committee agrees the assumptions. When will the results of the next valuation be available and which reporting period would you expect them to fall into? The preliminary results for the 30 September 2017 valuation are likely to be available by the Spring of 2018 however it is likely to be towards the end of 2018 when the valuation is fully completed and signed off by the Committee and Scheme Actuary and we expect that any changes to the Recovery Plan would be implemented from 1 April Will the assumptions (about inflation) put in place by the Committee hold true, or will Brexit and the reduction in the value of the pound have an impact? Actuarial assumptions are an evidence based assessment of what may happen in the future. The Committee is required to make prudent assumptions, so there should be more likelihood of the assumption being borne out in practice than not. However, assumptions do not provide any guarantee and actual experience can be very different. The difference between the assumptions and actual experience will be reflected in the results of the following valuation. You say that SHPS DB is a maturing scheme what is the SHPS Committee Strategic view on the development for the future. Do you have concerns over the funding position? Any deficit in the scheme is of course a concern to the Committee. However, the Committee has confidence in the plan to eliminate the deficit given the strength of the employers who stand behind the Scheme. Currently the funding level is around 70%, at what % level would a recovery plan not be in place? Under the regulations when a pension scheme is less than 100% funded, a recovery plan must be put in place to return the scheme to full funding. 1

2 Will the change in the value of the pound affect the return on any of the funds SHPS invest in? There would be an effect on some of our funds, such as the Global Equity fund, however as part of the wider investment strategy some currency hedging is in place to mitigate the impact of adverse currency movement on performance. How many bulk transfers out of SHPS have taken place to date? There have been three to date, mainly due to consolidation as two of the employers already have a pension scheme outside of SHPS. For employers that bulk transfer out of SHPS, what are the triggers for this? Typically a bulk transfer is undertaken due to a consolidation exercise being undertaken by the employer or to take control over their own pace of funding. Why can you identify the assets and liabilities for a bulk transfer but not identify them on an accounting basis? The actuarial valuation includes an assessment of the value of liabilities for each individual member. It is therefore possible to identify the liabilities attributable to each employer by adding together all of its members liabilities. When a bulk transfer takes place a full valuation is carried out to identify the employer s liabilities at the point of transfer. The usual basis for calculating the bulk transfer value is a share of fund i.e. a share of the scheme assets based upon the employer s share of the total liabilities. However, this is simply a mechanism for calculating the transfer value, the assets of the Scheme are co-mingled and not directly attributable to individual employers. In relation to orphan liabilities, are we talking about Housing Associations predominately? Orphan liabilities are liabilities in respect of members that were previously employed by employers that no longer participate in SHPS. The majority of employers that participate or have participated in SHPS are Housing Associations or registered providers. However, there are other associated employers, for example care and repair type organisations, which joined SHPS prior to the introduction of the eligibility criteria based upon the financial assessment process. What work does the Committee undertake to assess the performance and value provided by TPT? The Committee reviews performance and value for money in a variety of ways. TPT presents a report at each quarterly Committee meeting and the Committee receives details of customer satisfaction surveys both from internal and external sources. During 2015 the Committee undertook a detailed root and branch review covering 2

3 all aspects of the service provided. This included a value for money review undertaken by an independent external pension consultancy. Financial Assessment What does the term covenant mean? The covenant is the employer s legal obligation and financial ability to support their defined benefit (DB) scheme, now and in the future. As part of the funding approach for any DB scheme, it is important to understand the current strength of the employer covenant and how it could change in the future. Assessing and regularly monitoring the covenant helps to decide the appropriate level of risk when setting investment strategy, funding target and recovery plan. What would you do if, under the new method of covenant assessment, a high risk employer now becomes low risk? The employer would already have gone through the relevant, and sometimes difficult, process of closing the DB structure to accrual so we would not open the Scheme up automatically. If the employer wanted to open the DB structure to new members again they would apply to the SHPS Committee and be assessed as any other employer wishing to open the DB structure. Membership update Any concerns over employers closing to DB The Committee has introduced flexibility within the Scheme to allow employers to access a wide range of pension options to fit in with their own pension strategy and overall employee benefits package. The Committee has no concerns with employers who wish to close to DB and indeed the DC section is in place to allow employers to do this and remain within the Scheme. Are there any obvious implications for the Scheme going forwards, such as forced closure of a benefit structure by the Committee? Continuing accrual of DB benefits is unaffordable for many employers and the Committee has implemented a number of controls to prevent sponsors from accruing unaffordable liabilities. However, the Committee recognises that employers decided to participate in SHPS as part of a wider strategy for remunerating staff and provided it remains strong and can meet its obligations the Committee is not minded to force an employer to cease participation. One qualification to that principle is that it will always be monitoring activity so as to recognise a time when the scheme could 3

4 become unmanageable operationally/from a risk perspective for just a handful of remaining actives; then it may propose closure to the employers collectively but only after a period of consultation. With regards to Benefit Changes, are there any specific changes planned for the near future? There are no specific changes to be introduced in the near future. The Committee will be seeking feedback from remaining DB employers as to any suggestions for changes they would like to see but early indications strongly suggest employers are satisfied with the options already in place. When both DB and DC structures are open, do you know which structure employees tend to be joining? This would be different for each employer and would depend upon a number of factors, such as the level of contributions for both the DB and DC sections. Due to Auto-Enrolment, new members tend to be enrolled into DC rather than a DB Structure and remain in DC. Is there a risk of losing track of Deferred Pensioners? TPT request members to keep us informed of any change of address. In the event of an up to date address not being held when a member reaches retirement age, TPT use the services of a tracing agency to locate members. Is it possible to for the Annual Allowance Statements to go online? The feasibility of doing this will be looked into for future developments. DC Update In light of the pension freedoms, what are you doing to warn against pension scams? We are signposting information regarding pension scams in retirement communications and informing members where to access further advice via PensionWise. There is also an article on pension scams on the SHPS website. Why do you outsource DC administration to JLT Benefit Solutions? This strategic decision was made by TPT with the advent of auto-enrolment (AE). The existing administration systems would have struggled to cope with the sheer volume of members that AE has generated. The capital expenditure and resources that would have been required to implement new systems and processes were significant and represented a material risk to the sustainability of TPT. Hence the decision to outsource following a detailed selection and due diligence process. 4

5 TPT doesn t have an income draw-down product available. Will this change? The majority of DC pension funds held within TPT are relatively small and therefore the demand does not yet exist with our current membership. We will continue to monitor our membership and also the products which we offer in order to continue to provide our members with suitable products. From January 2017 members will be able to access a draw-down product via the at retirement services provided by our outsourced DC provider, JLT Benefit Solutions. There are a large variety of options within the Scheme with the managed fund (default) being the most popular. Would it save costs if the offering was reduced? No. What percentage of contributions go towards the DC life cover lump sum? The cost of providing the life cover is 0.45% of Monthly Pensionable Earnings, which is deducted from the employer share of contributions each month. Does the cost for providing the death-in-service benefit make the Scheme noncompliant for AE qualification purposes when an employer pays the minimum contribution? The legal advice received by TPT states there is nothing in the legislation preventing the deduction from the minimum contribution to cover the cost of providing life cover. In SHPS DC the life cover level is set, at Scheme level, as 3 x annual salary, are there any plans for this to change in the future to allow employers the choice to offer the level of life cover they want? The level of life cover has recently been reviewed by the SHPS Committee and agreed that the level was sufficient, however the SHPS Committee can take this point into the next round of discussions on potential changes to the Scheme following the next valuation. Whose responsibility is it to ensure members are aware of this benefit, SHPS or employers? Under AE legislation it is an employer s obligation to ensure that members are made aware of the benefits of the Scheme or where they can access details. The Scheme literature explains about the life cover available within the Scheme. 5

6 Is there any way a member can take their DC fund if they are only a member for a few months and decide they want to join the DB Scheme? No, any member joining a DC arrangement from 1 October 2015 is only entitled to a refund of their own contributions if they are members of the Scheme for less than one month. If the member participates in the Scheme for longer than one month they are entitled to either a transfer of their fund to another provider or a preserved pension. On BenPal, the online facility, salaries have not been updated. This can happen when an employer does not upload the HR data file with any changes to their member s salary. It is recommended that a HR data file is uploaded at least once a month. Should there still be an issue, please contact the Employer Support Team at TPT on Is it possible to see which of our members has signed up to use BenPal? Please see the online guide for BenPal. As an employer, are we allowed to promote both DB and DC Structures and are we able to resend out DC member access activations? Yes, you can promote both DB and DC Structures. TPT is able to facilitate resending activation s to members who have not activated their BenPal DC accounts accounts. Employers are now able to re-issue individual member activation codes and instructions are available in the online guide for BenPal Does the HR Data File change the address for DB member records when the member is currently DC Main Scheme? If the member s DB record is under the same membership number then yes the record would be updated, if the member had a separate deferred record (i.e. a separate member reference number) the member would need to contact TPT separately to inform us of the change of address. 6