Let’s not hide pension longevity from the young.
I have a very mystified CEO concerned that a pension scheme should be looking to pay pensions beyond the life expectancy of him and presumably his pension executive/trustee
Let me give you a worked example from a real member of our closed scheme. I think the youngest member is a man aged circa 45. The scheme was closed at least 20 years ago. Under our scheme rules (which I think reflected then best practice) it assumes that he could be married to a woman 20 years younger who would receive a 50 % widows benefit until her death. This was done to avoid an 85 year old man marrying an 18 year old on his death bed and she might then receive said benefit until she met her (or his, in this brave new world) maker.Even so, if said 45 year old member were to marry a partner on Monday morning aged 25 under current mortality tables she would be expected to live a further 61-63 years. That means, in the worst case, the scheme would be on the hook for her liabilities until 2088. Do you really want to have said liabilities on the books until at least 2088?
I am absolutely astonished that you are considering re admitting members to your scheme.
 Byron McKeebybyron.mckeeby@outlook.com 192.0.87.124 |
In England & Wales, personal discretionary trusts established after 5 April 2010, have a maximum duration of 125 years, as set by the Perpetuities and Accumulations Act 2009.
Before 2010,a common law rule of “lives in being plus 21 years” was used to determine the maximum trust duration. This meant a trust would terminate 21 years after the death of the last person alive at the time the trust was created who was named in the trust instrument. The Perpetuities and Accumulations Act 2009 does not apply in Scotland. It is specifically stated that the Act only extends to England and Wales. Scotland has its own legal framework, including rules on accumulations, which may differ from those in the 2009 Act. The Trusts and Succession (Scotland) Act 2024 is the latest Scots Law legislation which received Royal Assent on 30 January 30 2024. While the Act passed, not all provisions were immediately enacted. Some sections, particularly those related to succession, came into effect on April 30, 2024. Other provisions regarding trusts, however, may require further steps by Scottish Ministers to be fully implemented. I don’t know whether either or both of these Acts apply to pensions trusts, and one or more of your legal followers may wish to comment about this. Some “Scottish” pension trusts may also have been written under English law. |
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In England & Wales, personal discretionary trusts established after 5 April 2010, have a maximum duration of 125 years, as set by the Perpetuities and Accumulations Act 2009.
Before 2010,a common law rule of “lives in being plus 21 years” was used to determine the maximum trust duration. This meant a trust would terminate 21 years after the death of the last person alive at the time the trust was created who was named in the trust instrument.
The Perpetuities and Accumulations Act 2009 does not apply in Scotland. It is specifically stated that the Act only extends to England and Wales.
Scotland has its own legal framework, including rules on accumulations, which may differ from those in the 2009 Act.
The Trusts and Succession (Scotland) Act 2024 is the latest Scots Law legislation which received Royal Assent on 30 January 30 2024. While the Act passed, not all provisions were immediately enacted.
Some sections, particularly those related to succession, came into effect on April 30, 2024. Other provisions regarding trusts, however, may require further steps by Scottish Ministers to be fully implemented.
I don’t know whether either or both of these Acts apply to pensions trusts, and one or more of your legal followers may wish to comment about this.
Some “Scottish” pension trusts may also have been written under English law.
I am completely bewildered that a CEO is worrying about whether a hypothetical spouse will be alive or not in 2088. Such worries indicate that they are giving no thought to the 25-year old employees who may well be alive in 2088 and are dependent on the contributions the CEO has decided the employer should pay into their DC arrangement etc.
That’s why we need a Better Business Act, ASAP.
Look at the accounts of WHSmith! Threw away a £400m surplus, no member enhancement, and pocketed a £70m refund and all on the alter of seeking ‘certainty’ of a buy-out at any cost.
What are the Regulators for!?
The required TAS300 analysis and actuarial sign off on that example (to take but one) should be very very interesting. Members and a Select Committee should demand sight of that. FRC should insist on publication of these. More impactful (in terms of member/societal/economic) and important than any post event accounting audits FRC pour their energies into. It’s self evident that any half competent TAS300 report would show for that case that member benefits more secure, better prospects for discretionary protection against adverse pension destroying inflation spikes, and serious prospects and scope for surplus to be invested in the wages and the business.
A truly truly shocking example of the mis-alignment between PE profit distributions, and the better management of the business, the economy the staff and the pension members of the scheme.
Look
up www dot lcp dot com/en/pensions-benefits/case-studies/a-win-win-for-members-and-company-achieved-through-efficient-execution-of-the-transition-to-buy-out
It is very difficult to properly assess the WH Smith transactions because it does appear that WH Smith have not reported the transactions in accordance with IAS19.
1. If the buy-out has removed all responsibility for the future benefits from the Company then IAS19 para 135 requires the Company to identify and report the past service cost arising from the settlement of the liabilities in the P&L A/c. This is set out in IAS19 as follows:
Gains or Losses on Settlement
109. The gain or loss on a settlement is the difference between:
(a) the present value of the defined benefit obligation being settled, as determined on the date of settlement; and
(b) the settlement price, including any plan assets transferred and any payments made directly by the entity in connection with the settlement.
110. An entity shall recognise a gain or loss on the settlement of a defined benefit plan when the settlement occurs.
111. A settlement occurs when an entity enters into a transaction that eliminates all further legal or constructive obligation for part or all of the benefits provided under a defined benefit plan (other than a payment of benefits to, or
on behalf of, employees in accordance with the terms of the plan and included in the actuarial assumptions). For example, a one-off transfer of significant employer obligations under the plan to an insurance company through the purchase of an insurance policy is a settlement; a lump sum cash payment,
under the terms of the plan, to plan participants in exchange for their rights to receive specified post-employment benefits is not.
2. Similarly if members’ benefits have been enhanced beyond the constructive obligation identified and evaluated at time of service (e.g. beyond discretionary powers in the Deed) then the cost of the enhancement should be reported as Change of Benefit Past Service Cost.
It does seem odd that a pension fund with assets valued at over £1.4BN before the transaction, closed to benefit accrual in 2007, and paying benefits at the rate of £42M per year should end up with refunding only £87M to the employer (after tax?). The loss to the Company reported as £508M in 2022 and questionably taken below the line as a remeasurement of the liabilities in the Statement of Comprehensive Income. However without access to the relevant information we can only speculate!