With current and expert opinion that the days of the Final Salary Scheme are numbered, Archer Bramley Limited asks “Is it now time to explore other options and choices for future retirement provision?”

News of the closure of some of the largest final salary schemes has been avidly reported in the press, and tabloid statements quoting pension scheme shortfalls amounting to millions of pounds will do little to dampen a growing fear amongst Employers, Employees and Company Decision Makers.

In addition some companies have been quoted as already making extra contributions into their schemes in an attempt to stem the shortfall tide.

The Cause?

Increasing legislative and compliant intervention, low interest rates, fund underperformance, increasing longevity of the workforce, accounting standards, and company desire for cost stability.

The Symptoms?

Increased cash injection requirements to ensure the pension scheme remains in surplus is driving many employers to close their schemes to new entrants, increase member contributions or ultimately wind up their schemes (if feasible)

Onerous duties placed on Scheme Trustees, and their real fear of fines or legal action for failing to comply.

Legislation from successive governments added layers of extra costs, which were not part of the original deal (regulatory compliance, MFR, index-linking, removal of ACT relief)
Asset allocation placed too great a reliance on equity returns

The Cure ?

Archer Bramley Limited can offer the right professional advice and guidance to companies and/or pension scheme trustees by:

• Examining where necessary the existing scheme liabilities and the adherence or relevance to industry developments.
• Assisting in the preparation and control of pension scheme accounts, which are subject to increasingly complex accounting standards, thus leading to increased profitability and improved financial planning.
• Integrating pension schemes with other benefits and Employee reward structures.
• Balancing investment management with individually appropriate investment strategies to migrate away where relevant from the defined benefit structure in favour of defined contribution arrangements, as the need for high-level consultancy advice reduces.
• Reducing operational costs using Insurance Based trustees, auditors, accountants
• Offer trustee training

Future Resistance to the Cure?

The Pensions Act 2004 and Finance Act 2004 have placed increased responsibilities on the trustees of these schemes in the hope of improving security for pension scheme members. This code of practice was laid before Parliament by the Pensions Regulator to promote:

‘knowledge and understanding trustees of occupational schemes
must have of trusts and pensions law and the
principles of funding and investment.’

The main principles of the code are that all trustees will need a good understanding of such matters as:

• Their duties, responsibilities and powers
• When they might be in a position of conflict of interest and
• The risk/reward concerns governing the choice of asset classes

The Department of Social Services has stated that the rules that followed the MFR will give greater protection to members and prevent solvent companies from winding up pension schemes and walking away from their promises to provide pensions.

Linked to the Myners Report, the new standard will require all employers to meet all the contractual liabilities to employees including pensions.

This commitment could result in the schemes costs becoming disproportionate to the value of the scheme's benefits and even assets.

There are possible employment law implications here in favour of the employee, for in the absence of any definitive replacement benchmark for the MFR, this may leave scheme trustees and the company exposed.

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