How much money are you going to have to live on in retirement? Perhaps, just like one in five Britons, you do not know. This is not a surprise since there are so many shifting factors, or risks, to consider when thinking about retirement finances. You need to think about how much you’ll earn during your life, to what your employer will decide to contribute towards your a pension, and how much tax you will have to pay. And then, even...
Pension scheme trustees considering a buy-out are likely to welcome this, because the Duty will require the insurer to use its influence to deliver good outcomes for the members in relation to the policies. This will further strengthen the regulatory regime that applies to insurers and the protection it offers to bought out members. How the Consumer Duty will apply to pension schemes In July 2022, the FCA published its rules for a new Consumer Duty that will apply to FCA-regulated...
Funding is reaching record levels and DB schemes are now in a position of strength. Current regulations compel schemes to target ultra low investment returns, but taking risk and therefore return out of DB pension investments may be going too far, representing a ‘missed opportunity’ to better invest £1.5 trillion of UK DB pension scheme assets. Steve Hodder, partner at LCP, said: “For 20-plus years, regulatory focus has been on ‘slowing down’ DB schemes through reducing investment risk. This was...
A policy paper published on 15 May states that the cost control mechanism (CCM) for new public sector schemes will exclude those legacy schemes closed to new members. Following a review by the government actuary and a series of consultations, the government will now bear “full risk” of costs related to unfunded legacy schemes, which includes civil servants, teachers and NHS staff. The paper states: “The government believes this is the right approach to take in order to ensure the CCM...
With the X-date looming for when the U.S. government could default on its bonds and welch on paying other obligations due to the standoff over raising the federal debt ceiling, there is scant panic among pension plans. While they have little to say publicly about the prospect of a default, one CIO said, “We have enough liquidity to get through this, and we think [the impasse in Washington] will be resolved quickly.” Typically, plans exude an outward calm. A spokeswoman for...
The U.S. pension risk transfer market had a very strong first quarter, with an estimated $6 billion in total volume, according to a report from Legal & General Group. The estimate exceeds the previous record for a first quarter set last year at $5.3 billion. Legal & General noted that PRT activity has traditionally been the slowest during the first half of the year and projects a total of $23 billion in volume for the first half of 2023. The...
PPG Industries Inc., Pittsburgh, purchased a group annuity contract in March to transfer $309 million in U.S. pension plan liabilities to insurance companies. The chemical company disclosed the transaction in its 10-Q filing with the SEC on April 21. The filing did not disclose the number of insurers or their names. It is at least the third pension risk transfer transaction completed by the company in the past seven years. In 2016, PPG Industries purchased two group annuity contracts to transfer $1.6...
By Mustafa O. Caglayan, Edward R. Lawrence & Robinson Reyes-Peña As most of the state pensions in the USA deal with their respective funding crisis, we compare the management approaches undertaken by funds located in the states that are governed by Republicans vis-à-vis funds that are located in states governed by Democrats. We find that pension funds located in states governed by Republicans display a lower funding ratio compared to the pension funds located in states governed by Democrats. The...
Defined benefit (DB) pension scheme trustees have been encouraged to review how they are managing their pension risks after data from the Office for National Statistics (ONS) showed that company insolvencies increased in March. According to the ONS, total insolvencies were up by 16 per cent compared to March last year, while the number of compulsory liquidations more than doubled, up by 106 per cent year-on-year. Furthermore, total bankruptcies and debt relief orders increased by 28 per cent over the same...
People are living longer, and it has created rising concern among retirees and their financial advisors about whether they will have enough to live on in retirement. Several firms have acknowledged this longevity risk and are urging advisors to speak to their clients and promoting certain financial products that can help. According to Milwaukee-based Northwestern Mutual, there is a 50% chance that a 65-year-old man will live beyond age 86. Given that increased life expectancy, retirement savings have to last...
