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Will the Government’s red tape challenge on pensions fold or go round in circles?
Red tape is excessive regulation or rigid conformity to formal rules that is considered redundant or bureaucratic and hinders or prevents action or decision-making. It is often applied to governments, and other large organisations.
The “cutting of red tape” is a popular electoral and policy promise.
Today marks the end of the DWPs three week “spotlight on pensions” which form part of the Governments red tape challenge. The aim of the red tape challenge is to remove out of date or unnecessary laws. The Government’s website states “But here’s the most important bit – the default presumption will be that burdensome regulations will go. If Ministers want to keep them, they have to make a very good case for them to stay.”
All of this would have delighted Thomas Carlyle(1795 – 1881) the Scottish writer who, commenting on government inertia, described government as “Little other than a red tape Talking-machine, and unhappy Bag of Parliamentary Eloquence”.
There is little doubt amongst pension practitioners that there are a number of obvious unnecessary or out of date laws which still apply to pensions and Buck has responded to the red tape challenge. In no particular order, scrapping contracting-out laws and with it anti-franking legislation, amending if not scrapping Scheme Pays, updating pension on divorce legislation, removing employees with fixed or enhanced protection from the requirements of automatic enrolment, consolidating the disclosure legislation, I could go on.
It’s all very well promising to do something, the proof of the pudding they say is in the eating. As Thomas Carlyle also said “A man lives by believing something; not by debating and arguing about many things.”
In the Television program “Yes Minister” Bernard Woolley is famously quoted as saying “there were two kinds of chairs to go with two kinds of Minister: one sort folds up instantly; the other sort goes round and round in circles.” Let us hope that for once the Government is made of sterner stuff and delivers on its promise.
I am the Managing Director of Buck Consultants in Europe. The opinions expressed here are my own, and do not necessarily represent Buck’s positions, strategies, or ideas.
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The dollars and sense of pension funding reform
The United States House and Senate are currently in conference to resolve differences in their respective transportation funding bills. The Senate version includes proposed pension funding stabilization provisions, but the House bill does not. This post expresses Buck Consultants’ view on the pension funding issues that are being debated by the conferees.
ERISA required significant smoothing of pension funding by specifying that the assumptions used be the actuary’s best long-term estimates (an “input” into the calculation of minimum funding) and allowed additional smoothing of assets over 5 years (another “input”) as well as smoothing “outputs” such as the period of time for amortizing gains and losses. The Pension Protection Act (PPA) became effective in 2008 for most plans and with it, new pension funding rules were established. For the first time, the rules included the concept of “mark-to-market” liabilities for funding purposes and much of the smoothing under ERISA was eliminated. Under PPA, plan sponsors are required to use an approximation of current market interest rates for purposes of determining these mark-to-market liabilities and the resulting funding requirements for their plans.
The first real test of PPA in a low economic growth and low interest rate environment is upon us, and the ramifications are stifling a much needed business recovery. This situation has made the pension community reevaluate the PPA rules and come up with a way to stabilize pension funding. In our opinion, we believe it is counterproductive to the achievement of economic recovery to require increased pension funding at this time, a result of PPA rules. At the same time we understand the importance of pension security.
Fundamentally, we believe that corporate disclosure should be based on a mark-to-market basis while funding should be determined on a long-term expected basis. A long-term basis would incorporate an interest rate that falls within a historical average range and gain/loss amortization over an average working lifetime, or some fixed period greater than 7 years.
In our view, pension stabilization legislation needs to occur this year, and it must be a direct and simple approach to the problem.
We welcome your comments.
Jeff Leonard, FSA, EA, MAAA
Managing Director
Buck Consultants
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It’s one rule for us and one rule for them.
Until a fat man fell off his boat you were lucky to get one Act a decade which had a real impact on pensions. In the post Maxwell era it is rare for there not to be another Act on the horizon. Hot on the heels of the Pensions Act 2011 there is to be a new Pensions Bill and a Public Services Pensions Bill, according to the Queen’s speech.
The Pensions Bill intends to raise the state pension age to 67 between 2026 and 2028 and reform the state pension system replacing it with a new £140 per week flat rate pension. This is, according to the Government, to make it simpler and more sustainable. Rather than of course to take people off means-tested benefits paid for by reducing the state pensions of those who would have got more than £140 per week.
The Public Service Pensions Bill is to move public sector pensions over to a career average scheme and extend the age at which members can draw their pensions. The intention is, according to the Government, to make public sector pensions sustainable and to share the cost more ‘fairly’ between employers, workers, and taxpayers. We are of course, two years into this Government, still awaiting reform to the gold-plated pension arrangement of MPs, but fairness to taxpayers does not seem to be an issue here!
On the issue of raising the state pension age, this is necessary because people are living longer and, as the Government understandably says, is necessary to make the state pension sustainable. Those same people are living longer in occupational schemes too. If the Government needs to raise the age at which it pays state pension “to make them sustainable,” why does it continue to stop employers from doing the same with occupational pensions? Or is it a case of do as I say and not what I do!
I am the Managing Director of Buck Consultants in Europe. The opinions expressed here are my own, and do not necessarily represent Buck’s positions, strategies, or ideas.
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UPDATED: 2012 Guide to Benefits for Canadian employees
Whether you’re a US employer with a workforce in Canada or just want to know how Canadian workers are protected, this updated guide will show you the range of government, employer, and individual retirement and benefits programs available in Canada.
My name is Steven Laird, and I am the editor for Buck Consultants’ Canadian content. The opinions expressed here do not necessarily represent Buck’s positions, strategies, or ideas.
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Will changes to Trustee in Bankruptcy laws cause misery?
“Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery,” said Mr Micawber
Wilkins Micawber is a character from Charles Dickens’s 1850 novel, David Copperfield. He was modeled on Dickens’s father, who like Micawber was incarcerated in debtors’ prison after failing to meet his creditors’ demands.
Micawber is known for asserting his faith that “something will turn up”.
It has been generally understood that only the pension rights of bankrupt members who are in receipt of a pension can pass to the Trustee in Bankruptcy. That was until 4 April 2012 when the High Court ruled that a bankrupt individual of pensionable age can, where he has a right to draw a pension, be forced to draw his pension to pay his creditors.
This means that it would be possible for an income payment order (IPO) to be applied for against such members. An IPO has the effect of reducing a bankrupt member’s income by a specified amount, which is then paid to the Trustee in Bankruptcy. The Court stated that, otherwise, a bankrupt could avoid his creditors simply by choosing not to bring his pension into payment before being discharged from bankruptcy.
The decision leaves open the question of what the position would have been if the trustees or employers consent had been needed to take the pension. Presumably the bankrupt would have had to ask permission to draw the pension and an IPO would be thwarted if the trustee/employer refused permission. Trustees/employers giving permission to the bankrupt to take his pension early would in such circumstances be acting in the best interest of the member’s creditors rather than the best interest of the member.
What Mr Micawber would have thought of his creditors forcing him to take his pension early and then taking the money from him is best summed up in the following quote from him “Welcome poverty!..Welcome misery, welcome houselessness, welcome hunger, rags, tempest, and beggary! Mutual confidence will sustain us to the end!”
I am the Managing Director of Buck Consultants in Europe. The opinions expressed here are my own, and do not necessarily represent Buck’s positions, strategies, or ideas.
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Peeing on Target: Design makes good things happen
Communication design seeks to attract, inspire, create desires and motivate the people to respond to messages, with a view to making a favorable impact to the bottom line. Simply put, design in communication is the process of taking information and translating it into a useful message that inspires some kind of change.
Getting employees engaged in the decisions they need to make is critical to how managers can put more productive processes in place, help people make more responsible choices, and drive more predictable outcomes. But the content of your message is often not enough to get that level of engagement, to create the deeper personal “meaning” that triggers acceptance and response. How you design and deliver the message can make a huge difference in how effective you are.
Let’s look at four of the things good design can do for your organization.
- Helps them notice the message. This is the one most people are familiar with. Good design will make things look great. But there’s more to it than just packaging. Don’t stop just with aesthetics. Your design should help tell the right story to the right people. It should create meaningful experiences that can satisfy all the senses.
Why, you ask, should I have to think about people’s senses? Because sending out your message is not the same as communicating it, if no one pays any attention to it. You need to grab that attention, making your message sound and look compelling enough to get through the everyday noise and distraction we all face.
- Helps them see what your message says. Good design can bring ideas to life. Designers are able to take concepts and ideas and turn them into something tangible and concrete. It might be by translating the culture behind a company’s internal brand to enhance retention and engagement or by simplifying the complex details of a retirement savings plan through an interactive financial modeler.
Most of the communication you do with employees is aimed at getting them to learn something – from a simple change in a meeting time, to a whole new approach to the business. Design enhances learning, improves clarity, and increases understanding – which leads to much better outcomes.
- Helps them respond to the message. Good design gets under people’s skin and creates a connection between the message and their personal lives. Leaders and the employees they lead rarely see things from the same perspective. Seeing the situation from the employees’ point of view and designing to appeal to them will go a long way in engaging their support.
You can give people all the reasons you can muster for why such-and-such a change, practice, or new habit is a good thing. But unless you can stimulate their desire to act, you’re wasting your time. People are rarely persuaded by reasons alone. They need an emotional buy-in for the message to really register and resonate. It’s an audience-centered approach and it’s the cornerstone of great design.
- Helps them see themselves changing. Applying the design process – the visual elements of the medium you’re using – to your message can help people “envision” possible futures.
For instance, most organizations seek substantial innovation in their products or services as a strategy for market success. And leaders use a variety of communication strategies to develop a strong culture that puts innovation at the top of every organizational “silo.” Design can be the bridge that connects all lines of businesses to the innovation process to build a shared vision and of possible futures.
From “Peeing on target: Design makes good things happen” by Shane Morgenstern, Creative Director, Talent and HR Solutions (download the full paper)
My name is Steven Laird, and I am the editor for Buck Consultants’ Canadian content. The opinions expressed here do not necessarily represent Buck’s positions, strategies, or ideas.
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Reaction to the Pension Regulator’s funding statement
Though April showers may come your way,
They bring the flowers that bloom in May.
So if it’s raining, have no regrets,
Because it isn’t raining rain, you know, (It’s raining violets,)
And where you see clouds upon the hills,
You soon will see crowds of daffodils,
So keep on looking for a blue bird, And list’ning for his song,
Whenever April showers come along.
Al Johnson “April Showers”
We have not so much had April showers this year as a deluge. Is it unsurprising therefore that the Pension Regulator’s funding statement issued today comes as a damp squib. The industry had been waiting for this statement for some time and now it has arrived it has not added anything new to the debate.
Employers who sponsor occupational schemes are, it appears, not going to be given any real additional leeway to help them survive in this difficult economic time. Triennial valuations of occupational pension schemes give a snapshot in time as to the funding of those schemes, yet liabilities are met over 50 years or more. It is inevitable there will be large discrepancies between valuations done at the bottom of an economic cycle and those done at other points in the cycle. Where valuations are done at the bottom of a cycle most peoples’ best estimate would be that things will improve at some stage in the next 50 years.
Therefore common sense might suggest some allowance should be given to the anticipated improvement in economic circumstances. The Regulator has said it would not be prudent for the trustees to second guess future market movements.
The Regulator has dismissed calls that schemes should be able to make allowances for low gilt yields and the effect of quantitative easing in their assumptions, thereby reducing their liabilities.
The Regulator’s funding statement does focus on how trustees should approach valuations. However, it does not deal with the common situation where scheme funding arrangements have to be decided jointly by the trustees and the employer. If the employer wishes to use alternative and some would argue equally valid valuation approaches, it will be interesting to see whether the Pensions Regulator is willing to use its powers to intervene.
According to the Regulator most schemes and employers will be able to manage their deficits “within current plans, or if appropriate, by modest contribution increases and/or modest extensions to recovery plans”. There are a significant number of schemes where one might be stretching the definition of modest when the numbers are crunched.
Most in the industry were hoping that this statement would take us further forward.
I am the Managing Director of Buck Consultants in Europe. The opinions expressed here are my own, and do not necessarily represent Buck’s positions, strategies, or ideas.
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WORKING WELL: A Global Survey of Health Promotion and Workplace Wellness Strategies
Buck Surveys is pleased to invite your participation in the Fifth Edition, Global Wellness Survey 2012.
This survey is designed to gain insight into how employers around the world implement and evaluate strategic wellness and health promotion initiatives to improve employee health and morale, control costs, and enhance workforce productivity and performance.
Building on the data and trends collected from the last edition of the survey — which included responses from more than 1,200 employers in 45 countries — this edition further explores how the economy has impacted wellness programs and priorities, the resources organizations are deploying to support their program, and the tie between incentive values and participation.
The survey is jointly sponsored by Pfizer, CIGNA, vielife, and Wolf Kirsten International Health Consulting.
We invite you to participate in this survey if you are responsible for wellness or health promotion strategy at your company, either globally or at a regional level. The survey is open to employers of every size, in all industries and regions of the world, and is available in multiple languages.
My name is Diane Dobish, and I am marketing manager at Buck Consultants. The opinions expressed here are my own, and do not necessarily represent Buck’s positions, strategies, or ideas.
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No need to feed the over 65’s to the lions
From 1 October 2011, employers compulsorily retiring employees just because they are aged 65 or over must objectively justify that decision. Employers need to identify their legitimate aim, or aims, and show that retaining a retirement age is a proportionate means of achieving those aims. This isn’t easy. However today’s Supreme Court case of Seldon v Clarkson Wright & Jakes (concerning the compulsory retirement of a partner in a law firm at 65) gives an idea of aims that the courts would consider legitimate.
They are:
- ensuring associates get the opportunity of partnership after a reasonable period;
- facilitating partnership and workforce planning across individual departments by having a realistic long-term expectation as to when vacancies will arise; and
- limiting the need to expel partners by way of performance management, thus contributing to the congenial and supportive culture in the firm.
While the Employment Tribunal found that having a mandatory retirement age in this case was a means of achieving legitimate aims, the Supreme Court has sent the matter back to them to decide whether the choice of a mandatory age of 65 (as opposed to some other age) was a proportionate means of achieving the legitimate aims of the partnership. The Supreme Court did however say that where it was justified to have a general rule on retirement (as in this case) then the existence of the rule will usually justify the treatment which flows from it.
Whilst removing any default retirement age may still be the safest option in the current climate, today’s case will be welcomed by any employer seeking to retain a default retirement age.
The Marquis of Bath “took the difficult decision to retire employees who are over 65″ from his Longleat Estate just prior to the 1 October deadline. We were concerned with all those lions around he may have had to come up with a more imaginative way of removing those workers who are now reaching 65. Today’s case may prove the solution, but mean the lions go hungry!
I am the Managing Director of Buck Consultants in Europe. The opinions expressed here are my own, and do not necessarily represent Buck’s positions, strategies, or ideas.
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Are pensions lost in a forest of regulation?
A report published last week by the Institute of Directors says faith in pensions is dwindling. It says the British pension system is lost In “a forest of regulation”.
This comes at a time when pensions regulation is being put in the spotlight as part of the Government’s “Red Tape Challenge”. From 19 April to 10 May pension regulation is being examined in an attempt to abolish out of date, or unnecessary, regulations.
Pensions Minister Steve Webb has defended good regulation of private pension saving saying it plays a vital role. However he wants to go back to first principles and “make sure unnecessary or overcomplicated regulation does not hinder saving.”
If the findings of the Institute of Directors are accurate, which I think they are, this Government initiative needs to be supported even though it comes far too late for a whole generation of savers.
We are all going to have to work longer and save more than previous generations.
The mass of regulation is not the only reason why the number of people putting money into pensions in recent years has declined. The “Red Tape Challenge””, and auto enrolment which begins later this year, are important attempts to reverse this trend. And reverse it we must if we are not to see generations of workers having to work until they drop because they can never afford to retire.
I am the Managing Director of Buck Consultants in Europe. The opinions expressed here are my own, and do not necessarily represent Buck’s positions, strategies, or ideas.
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