October 2022
28Oct

Discounting and the Market Valuation of Defined Benefit Pensions

By luca larcher & Francis Breedon We investigate how defined benefit pension schemes of FTSE firms are valued by the equity market, focusing on how future liabilities are discounted (since UK data allows us to estimate the duration of pension liabilities fairly accurately). We find that equity market valuation is consistent with discounting without allowing for credit risk. This differs from the approach used in published accounts for which IAS 19 (and SFAS No. 158, its US equivalent) allows for...

October 28, 2022
Articles, Pension design, ,
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27Oct

Don’t Count on Sunak to Protect Your UK Pension

Liz Truss lasted only 44 days as UK prime minister. But her legacy in respect of your pension will almost certainly endure for decades. It is important to understand how this might affect you and how best to respond. One of Truss’s last acts as PM was to reaffirm the government’s commitment to raise the state pension each year by the higher of earnings, inflation or 2.5%. The more fiscally hawkish new Prime Minister Rishi Sunak has been more circumspect...

October 27, 2022
News, OP Ed, Op-Ed,
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26Oct

UK. TPR publishes consolidated enforcement powers

The Pensions Regulator has published its new enforcement policy, which contains new powers awarded in the Pension Schemes Act 2021, and replaces and consolidates compliance and enforcement policies governing defined benefit, defined contribution and public sector pension schemes. Amid a raft of announcements, TPR also published responses to a consultation issued after the PSA 2021, which came into force in order to provide clarity on how the watchdog intends to use its new powers. “Feedback from stakeholders also highlighted a need...

October 26, 2022
News,
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25Oct

UK. University staff to strike over pay and pensions

University lecturers, librarians and admin staff across the UK will strike over pay and pensions, the University and College Union (UCU) has announced. A total of 70,000 UCU members at 150 universities were asked to vote in two separate ballots - one on pay and working conditions, and another on pensions. Strike dates are yet to be decided. University employers say a pay rise would put jobs at risk in what they say are "very difficult" financial times. Students - some of whom...

October 25, 2022
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24Oct

UK. Inflation sparks a new era of pensions inequality

The generosity of public sector pensions was a compensation for low salaries. However, this gap is narrowing. The average worker in the private sector earned £622 a week in the year to August, according to an IDR analyst. The average public sector worker, excluding those who worked in finance, earned £593. Former public servants will also enjoy two layers of taxpayer-funded inflation protection next year, assuming the “triple lock” state pensions are maintained. The policy pledges to increase the state pension...

October 24, 2022
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24Oct

UK parliament panel probes defined benefit pension schemes over safeguards

A British parliament panel on Monday launched an inquiry into the defined benefit pension schemes with liability-driven investments (LDIs) to ascertain whether they have adequate regulation to protect pension funds' value. The work and pensions committee inquiry will examine the impact of the recent volatility in gilt yields and intervention by the Bank of England (BoE) as well as the role of the pensions regulator in monitoring the use of LDIs and whether these schemes have proper oversight arrangements in...

October 24, 2022
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20Oct

Liz Truss commits to triple lock but then resigns as UK’s Prime Minister

The prime minister has resigned after 44 days in the role. In a statement outside 10 Downing Street today (October 20), Liz Truss said: “I came into office at a time of great economic and political instability…I cannot deliver the mandate.” Read also U.K. Pensions Doom Loop May Not Be Over Truss was told to quit by senior Tory members, according to the FT, the day after the home secretary, Suella Braverman, quit the government and used her resignation letter to issue...

October 20, 2022
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19Oct

UK. Pension triple lock at risk as Truss warns of ‘difficult decisions’

Number 10 has refused to commit to the state pension triple lock, after Liz Truss promised to keep the measure just weeks ago. Truss’ spokesperson refused four times to say Truss would uphold the triple lock, which would ensure state pension payments stay in line with inflation next year. New chancellor Jeremy Hunt warned yesterday that public spending is not going to rise by “as much as people hoped” and he today told cabinet ministers to “find efficiencies” in their departments. Hunt...

October 19, 2022
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17Oct

US Public Pensions Unlikely to Face UK Pension-Style Crisis

U.S. state and local pensions are unlikely to face the sudden liquidity crisis that U.K. corporate pensions are confronting given their different approaches to valuing liabilities and the resulting differences in investment strategies, Fitch Ratings says. However, U.S. public pension funds’ investment return assumptions incentivize higher yielding asset investments, posing the risk of deeper losses in a market downturn. State and local government pensions discount their liabilities using the same fixed long-term investment return rate that they assume for their...

October 17, 2022
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17Oct

U.K. Pensions Doom Loop May Not Be Over

Rebalancing pension portfolios in the wake of the LDI crisis may prove difficult. The Bank of England’s short-term bond-buying program ended on October 14, but that may not mean the end of the problems plaguing U.K. pensions. On Monday, the Bank of England made a series of announcements that were ostensibly designed to outline an “orderly end” to its support. To date, the bank has carried out eight daily auctions, offering to buy up to £40 billion, (US$44.40 billion) and has...

October 17, 2022
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