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Proposed £90bn indexation cut in UK defined benefit (DB) schemes ruled out by Government

20 March 2018

19 March 2018 - The UK Government has ruled out a proposed £90 billion cut in defined benefit (DB) scheme benefits through indexation changes. 

In last year's green paper on DB schemes, the DWP proposed 'across the board' cuts to indexation for DB schemes, allowing them to move from the Retail Price Index (RPI) to the lower measure of Consumer Price Index (CPI) 'on the grounds of rationality and fairness'. The UK Govt, in their White Paper published on 19 March 2018, rejected this proposal, stating 'Any across-the-board change would allow sponsoring employers to reduce their liabilities at members' expense even if the employer had no difficulties in meeting their existing liabilities.' click here to view article by Citywire, New Model Adviser.

As UK DB scheme deficits have grown significantly over the past several years, it is likely we will see further initiatives trying to reduce the overall value of these schemes. As reported by us in January 2018, one large corporate DB scheme announced that all CETVs (Cash Equivalent Transfer Values) from Feburary 2018 would reduce by 20% across the board.The DWP proposal came on the back of growing DB schemes deficits across the UK pension industry, fueling concerns that not all member liabilities could be met by many of the largest FTSE 100 companies. The funding liabilities for FTSE 100 defined benefit (DB) pension schemes in the UK have risen to £705 billion at the end of December 2017 from £460 billion at the end of September 2017, according to research by JLT Employee Benefits. 

It also reported that 41 FTSE 100 organisations could settle their pension deficits in full with a payment of up to one year’s dividend, seven would need a payment of up to two years’ dividends to settle their pension deficits in full, and 15  would need a payment of more than two years’ dividends in order to settle their pension deficits in full.

If you have a UK DB/Final Salary Scheme and are aged between 45-60yrs, we recommend a discussion with our client services manager regarding your possible options.

Call Sterling Planners on 1300 132 737.

For Specialist QROPS advice on your UK pension situation - click here for details on how to engage our services. 

 

 


UK Company Pension Scheme Announces CETVs to reduce by 20% from February 2018

18 January 2018

January 2018 Breaking News:

A well known UK company pension scheme has announced that effective from February 2018, all new Cash Equivalent Transfer Values (CETVs) issued for their Defined Benefit/Final Salary Pension Scheme will reduce by 20% to help alleviate the overall scheme underfunding situation.  This follows a trend Sterling Planners identified since January 2017, observing that increasing numbers of DB Scheme CETVs began to decline by circa 10-20% from previous quotes.

The announced new 20% reduction in CETVs is no doubt indicative of the likely measures many UK Defined Benefit/Final Salary Schemes will need to take in order to address their significant underfunding crisis over the next decade. see Article "Is Your DB Scheme Secure?' .

If you have an eligible UK DB/Final Salary Scheme and you are:


History to UK DB/ Final Salary Scheme developments that have occurred since 2015:

    • In 2015, UK legislation banned transfers of all unfunded Public Sector DB schemes (details below) 

    • In 2015, UK legislation placed additional safeguard requirements on DB scheme transfers with values over £30k - i.e. they must now obtain UK FCA Advice in addition to Australian Advice

    • In 2016, growing speculation that the Public Sector ban may extend to Private Sector (Company) DB schemes caused a significant increase in the volume of transfer requests for Company DB Schemes throughout 2016/17 - click here for more details

    • In 2017, CETVs (Cash Equivalent Transfer Values) for some DB schemes began to decline, after experiencing all time highs for the past few years

Partial Ban on Public Sector DB Scheme Transfers:

Effective from 6 April 2015, Unfunded Public Sector Pension transfers (like the NHS) have been banned from overseas transfers. Funded Public Sector Pensions (like USS) however, are still eligible for transfer - see expanded list below- click here for more information. 

    • Unfunded Public Sector Pension Schemes include MyCSP, NHS, Police, Firefighters, Teachers, Armed Forces, SPPA (Scottish Public Pensions Agency - NHS & Teachers).
    • Funded Public Sector Pension Schemes include USS (Universities Super Scheme), LGPS (Local Govt Pension Schemes), Railways Pensions and SPPA LGPS's.

 Important: Many Public Sector/Civil Service Pensions require requests for transfer at least 12 months prior to reaching retirement age (usually 60 yrs old) therefore, we suggest investigating your pension situation by no later than 58 years of age.

Possible Future UK Legislation to Ban Private Sector (Company DB scheme) Transfers

Growing speculation that the 2015 public sector ban on DB scheme transfers could extend to private sector (company) DB schemes was discussed recently in a Professional Pensions article - click here for details. As a result, a significant increase in the number of DB scheme transfer requests has ocurred since mid 2016.

Additional Safeguards - UK DB (Defined Benefit/Final Salary Schemes) with transfer values of GBP 30k or over will now require UK FCA Advice.

Effective from 6 April 2015, DB schemes with transfer values greater than £30k, UK legislation now requires members to obtain UK advice from an advisor who is authorised by the UK FCA (Financial Conduct Authority), has appropriate experience and permissions from HMRC and who is independent of the fund.
Sterling Planners can facilitate this requirement for UK advice via our UK partner, Cobens PLC
Additional Fees for the UK advice component are circa £ 900 for the UK Statement of Advice and circa £ 1,850 to set up an appropriate UK SIPP for initial transfers (as required).

 Some UK DB Scheme CETVs Begin to Decline:

 CETVs (Cash Equivalent Transfer Values) for UK DB Schemes have been at all time highs since 2013 and as predicted, some of these schemes have begun issuing declining values from early 2017. 

This could be the best time ever to transfer a DB/Final Salary Scheme given transfer values have been at all time highs (for the past few years). The prediction throughout 2016 stated that as interest and gilt rates begin to rise, transfer values would begin to fall - which has been evidenced by some recent CETVs issued from late 2016.

 PDF Version of Article:-  click here to read the article " Best Time Ever to Ditch your Final Salary Pension" by Moira O'Neill for the Investors Chronicle, Feb 2013. 

 If you have any questions please contact our client service team on 1300 132 737.