The first longevity risk model to look at future medical advances to predict mortality rates has been broadly welcomed by the insurance industry.

Aviva has admitted its active member discount (AMD) of workplace pension products could land deferred members with a 1.5% annual management charge on leaving their employer.

The government’s decision to extend CPI indexation to private sector pension schemes has divided the industry – and the arguments continue to rumble on.

Param Basi, technical pensions director at AWD Chase de Vere, can see no justification for the move and claims it will only harm pensions’ already tarnished name further.

“It is grossly unfair to those who have contributed in good faith toward their retirement to now change the measure by which their income in retirement will increase,” said Basi.

“The argument that CPI is a more appropriate measure does not stand up when you consider that pensioner inflation is recognised as being higher than RPI anyway.

The Pensions Regulator faces being pushed to the bounds of legality in its bid to help Uniq find a way of filling its funding gap.

The Department for Work and Pensions (DWP) has more than halved this year’s budget for implementing the National Employment Savings Trust (Nest).

law & regulation

Firms are rushing to urge deferred final salary scheme members into defined contribution (DC) arrangements, on the back of proposed changes to the law.

The bulk annuity market looks set to generate £15bn worth of business in 2010, according to research from Pensions Management.

Despite the relatively quiet start to the year, buyout and buy-in providers predicted transaction levels would return to the heyday of 2008, with a surge of deals expected by the end of the year.

However, cost-cutting led Prudential not to write any new bulk annuity business in the first half of 2010, citing a “disciplined approach of only participating in [bulk annuity] transactions that meet strict return on capital requirements” in its Q2 report.

A capital market solution for derisking longevity is possible, if only participants would accept existing mortality indices as benchmarks, according to Swiss Re.

Two “well known” companies’ schemes are close to securing a first-of-its-kind derisking deal, offered by Prudential.

Independent pensions consultant John Ralfe will open this year’s UK Leadership of Pensions summit.

Investors seeking diversification and alternative sources of returns are gradually increasing allocations to emerging and frontier markets, which are currently underrepresented in some pension fund investment portfolios. While there is a clear investment case for emerging markets (EM), there are some potential risks that investors should consider as the EM story gains momentum.

Changes proposed by the coalition government to end compulsory annuitisation at age 75 have been warmly welcomed by industry commentators.

John Moret, sales and marketing director at Suffolk Life, said it was good news for investors in general, and in particular the wealthier client.

“There is more flexibility for the middle market and a chance to structure income in retirement so it more accurately reflects likely expenditure patterns,” he said.

James Hay is embroiled in a dispute with customers blaming the provider for not securing sufficient income from an investment it administers for them.

scheme news

Cuts to government departmental spending could affect billions of pounds worth of pension funds administered by firms like Capita Financial.

Over the past two months, the phrase ‘libertarian paternalism’ has crept into the national press. This Orwellian-sounding term dominates the theory of Nudge economics – the idea that markets are fallible because they are run by human beings, and can be influenced or nudged in a certain direction using behavioural triggers.

GoCompare is planning a move into annuity evaluation, the first major price comparison site to do so.

Without setting a timeline, the website has expressed a strong interest in the market and told PM it believes it can “add value to consumers” by taking advantage of open market option (OMO) rules.

GoCompare, which currently gives two million general insurance quotes a month, is also toying with personal pension price comparison.

Business development director John Miles said: “We don’t have a date, but we will definitely look to promote consumers’ use of the OMO.”

Solvency II will prompt a raft of asset-backed annuities to hit the market, with Legal & General (L&G) preparing the release of its own product.

Lifetime annuities will remain the most popular retirement option over the next five years, according to research from Xafinity Paymaster.

The administrator’s research – which polled 50 insurers, service providers and annuity influencers – showed 90% believed lifetime annuities will be chosen by the majority of retirees, despite the increased range of annuity products available.

Respondents claimed most annuitants will have small pots and need to secure a retirement income, but the more flexible products were also seen to be “too expensive” and “too sophisticated” for many consumers.

Industry commentators have welcomed the government’s consultation on removing the obligation to annuitise by age 75, but warn the proposals for a minimum income requirement (MIR) must be exercised fairly.

It’s that time again. The awards season is almost upon us.

And for Pensions Management, that means the Technology, Administration and Service Awards has opened to entries for 2010.

The awards recognise those providers who have delivered excellent service to their financial adviser clients.

The ongoing row over the fairness of active member discounts (AMDs) escalated last month after Scottish Life claimed some structures fell foul of treating customers fairly (TCF) principles.

Following the news that Aviva charges some deferreds as much as 1.5% for their pension following their departure from an employer (see p4), Scottish Life has questioned whether the high, and often poorly explained, charge increases could fall foul of regulations designed to protect consumers.

The insurer believes some AMDs offered by rival life offices run “an unacceptably high risk of not meeting the requirements of the TCF principles”, given the opaque nature of the structure.

The government's latest plans of abolishing the default retirement age (DRA) from 2011 have received a mixed reaction. We have welcomed the changes, but have above all made it clear that we believe there are some issues around abolishing the DRA that need to be fully considered.

The not-so-subtle move from defined benefit (DB) schemes to defined contribution (DC)schemes is concentrating the minds of trustees and their advisers on their responsibilities to retiring members who have some or all of their pension entitlement built up under DC arrangements. This leads to the question of what responsibilities do trustees have for ensuring a retiring member obtains the best possible annuity rate?

I’ve just been reading about a two-year-old who’s decided to retire. I know, but it’s true and what’s more you know who he is. Well, when I say ‘know’, what I mean is you’ve heard of him. I know you’ve heard of him because I wrote about him in this very column just last month, and he’s been all over the worldwide media, so he’s a pretty famous toddler. When I also add that he’s a cephalopod you’ll guess straight away that I’m talking about Paul the psychic octopus.

The current wave of pensions market consolidation is no coincidence. Providers are finding it increasingly difficult to make existing business models work. New business is incentivised by the search for new clients rather than building on existing relationships – which, in turn, has led to major churn within the industry.

To add to the current economic woes, the future impact of changing regulation such as the retail distribution review (RDR) will continue to erode margins if current business practices don’t adapt to today’s requirements.

Steve Webb is in a fidgety, excitable mood. The new pensions minister has clearly been relishing the opportunity to get his hands on the UK’s beleaguered pensions systems, but that’s not to say he doesn’t recognise the scale of the challenge before him.

It was not that long ago that the standard answer to many of the problems faced by private clients was “use a trust”. However due to changes in their taxation, trusts are not the panacea they once were.

This article reviews the some of the key features of the current tax regime for trusts, and outlines some ideas of where trusts may still be of use.

EU commissioner Lásló Andor’s green paper on pensions states the doubling of the ratio of pensioners to workers in Europe over the next 50 years will result in financial armageddon if the union fails to work together to address the situation.

Q How long have you been manager of the fund, and what were you doing before?

A This fund was launched at the beginning of November 2007. I joined Axa Investment Management (Axa IM) 11 years ago and at that time I was in the European small-mid cap team. I’m now responsible for the equity SRI (social and responsible investing) funds in Paris. Before joining Axa IM I worked for several French brokers and analysts.

For too long pensions were kept in the backyard of British politics. Complicated, problematic and expensive – pensions were largely ignored.

The state pension system grew more and more complex – a knotweed-like tangle of three separate elements with multiple parts. Without an earnings-linked basic pension, the state pension’s value shrunk so low that for those on the lowest incomes, the government has been forced to top it up by an extra £35 a week with pension credit just to give a decent income. Meanwhile almost two million pensioners remain in poverty.

The world of buyout and buy-in has changed drastically in the past year. Some providers have dropped out of the market altogether (Aegon, Paternoster), while others have excelled in developing innovative longevity solutions. And despite the continued turbulence in the markets, all of the providers remain upbeat about the future of bulk annuity business.

The Marine Pilots case was extremely complicated. It involved a multi-employer defined benefit (DB) scheme, and looked to clarify 39 separate issues. Most of those relate solely to the Pilots National Pension Fund (PNPF), but there are three key areas that can be applied across the board:

In March this year, Axa commissioned an online survey of 2,000 people to assess what they thought about public sector pensions compared with those available to the private sector. Two-thirds of those surveyed believed it is unfair that pensions for those in the public sector are generally better than those in the private sector. As if backing up this research, an initial report into public sector pensions by Sir Alan Budd, under the auspices of the Office for Budget Responsibility (OBR), is expected to deliver what the press refers to as “a dose of economic reality on the state of Britain’s pensions”.

John Moret: It’s nice to see some proposals that go a long way to both simplify and offer greater flexibility. Having said that, there are some issues that will need ironing out. Although superficially it looks as though things will be simpler, some of the proposals could get quite complex to operate and cause advisers a few headaches.

Projecting what pensions illustrations will look like in 10 years is fraught with danger. Suffice to say the industry never moves as fast as you expect. Inevitably, as our financial lives become more complicated, so too will our requirements of retirement planning products. More importantly, people are going to increasingly demand more holistic and dynamic views of their financial status in the round.

Government bonds are among the most basic and liquid instruments available for investors to trade. However, all too often, fund managers are content to use an outdated system of portfolio management that reduces the potential for them to generate alpha for their clients.

The Superannuation Arrangements of the University of London (Saul) has appointed a full-time investment officer.

Specialist pensions law firm Sacker & Partners has promoted Emily Forrest and Zoë Lynch to partner.

Forrest has been at Sackers since 2002. Her knowledge covers a broad range of areas, with a particular focus on assisting clients with employment-related issues within the pensions arena.