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This is second of the three month view of how things could work out for England playing in the World Cup. Last month, before the first match against the USA, we felt that the future ahead was bright as both the England’s games and our pension audit were at the Planning stage and our June newsletter gave 3 tips for success and three articles to read.
In July our thinking has moved from Optimism in June to Disappointment. England failed to meet expectations and perhaps your own Audit fieldwork stage might be stuttering. Perhaps we feel disappointed that both the England players and pension auditors just go through the motions. We want to know how things are going, which is easier when pictures are beamed around the world, but it still pays to be kept up to date if this is not possible.
- Audit planning promises should be monitored
- Trustees need updating
- Problems or shortcomings need to be discussed
To help you cope with the disappointment of the England football team’s performances in the World Cup and the performance of your pension auditors, take a look at this download to inspire you and provided at no cost to you:
Ash Shaw’s Simple Technique for Stress-Free Audited Accounts
If you would like a hard copy sent to you or have any queries, please contact one of your Ash Shaw team or email Sally Tasker.
This month we would like to thank Rhidian Williams of Quantum Advisory for sharing his views on the confusing world of explaining DB scheme funding.
Rhidian Williams, Quantum Advisory
Do you sometimes get as frustrated as me by the way some newspaper headlines can appear to distort the truth in order to sensationalise a particular story?
Well, the pensions world seems to be getting in on the act too – with its own ‘sensational headlines’.
Take the following recent 2010 headlines issued within the pensions press:-
Headline 1 (April)
“Top returns for 2009”
Headline 2 (May)
“Combined DB deficits of £210bn, £95bn worse than last year”
Headline 3 (April)
“DB schemes in (PPF) surplus for the first time since June 2008”
Headline 4 (May)
“Total deficit funding of £11.1bn last year, up from £4.4bn the previous year - an increase of more than 150%”
Now, I don’t know about you, but these headlines appear to me to conflict with each other. Is the funding position of DB pension schemes improving or not? What is the true position? Well, the answer really is “It depends on what you are actually trying to measure”!
We know that there are different types of valuations (e.g. accounting, funding, PPF etc) and that funding DB schemes isn’t an exact science. Small changes to the assumptions can result in large changes in the answers. So bearing all this in mind let’s take a closer look behind these headlines:
- Headline 1 – Perhaps the simplest one! Over the last year in 2009 equity markets had an exceptional rally, rising some 30% over the year, a top market return for well over a decade (though markets over recent months are a salutary reminder of investment volatility!);
- Headline 2 - The reduction of uncertainty in credit markets saw yields on corporate bonds reduced significantly in 2009 from their dramatic rise in 2008 due to the “credit crisis” as these concerns subsided. Therefore liabilities for company accounting purposes have risen faster than the improvement in equity markets, resulting in significant increases to pension accounting deficits;
- Headline 3 - However, yields on Government bonds (gilts) have risen slightly which, when coupled with the significant rise in equity markets, has given rise to large improvements in pension schemes’ PPF funding positions.
- Headline 4 - Under scheme specific funding, deficits in pension schemes have generally grown over the last few years due mainly to poor investment returns (looking over a number of years), increasing life expectancies and Trustees taking (more) prudent views on funding (which the Regulator expects). Hence, deficit funding requirements have grown and so contributions payments are inevitably higher.
So there you have it – or at least a better understanding of conflicting news headlines.
But what’s the moral here, if there is one?
Well, what is important when considering funding is to know what measurement you need and to make sure you have a good actuary to explain it in a language you understand!
Without that, the confusion is likely to remain.
If you would like some of the confusion about pension funding explained to you, please contact Rhidian Williams at or visit http://www.quantumadvisory.co.uk
Please email Sally Tasker should you wish to contribute to our next issue.
A reminder that our new address is 180 Piccadilly from 1 July - just a short walk from the previous 211 Piccadilly address. Our new building will have better facilities, such as larger meeting rooms, and we look forward to meeting you there sometime.
Our telephone number remains the same 020 7917 2987 as does the postcode W1J 9HF, but it would be helpful if you could update your address book to Ash Shaw LLP, 180 Piccadilly, London W1J 9HF.
If you have any questions, please make a call to one of us in the Ash Shaw team or email Sally Tasker
The Pensions Regulator (TPR) has published its guidance on record-keeping.
The Regulator expects all schemes to measure their member records and, where necessary, have plans in place for improvement. In summary that means TPR expects to:
- See trustees meeting specific targets for standards of common data
- Using regulatory powers to investigate and sample schemes for data audit
- Enacting enforcement action if there is a breach of legislation and TPR has sufficient concerns over the failure of trustees to keep good records.
The original two year wind-up target set out in guidance of June 2008 expired on the 30 June 2010. The Regulator will be intensively scrutinising those schemes that fail to meet the 2012 target.
If you want to take action now before the summer break, please contact one of your Ash Shaw team or Sally Tasker.
To help us help you more swiftly, please send us a brief description of your situation (or a copy of last year's signed accounts if you are looking for new auditors) to Sally Tasker and let us know when would be a convenient time to call you.
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