The government is examining how best to restrict alternatively secured pensions (ASPs) to their original limited purpose of individuals who have a religious objection to annuitisation.

The government’s decision to issue more long-dated gilts has been met with a lukewarm reaction from the industry.

Dave Prentis explains why government actions over the Local Government Pensions Scheme benefits has developed into the biggest organised industrial action since the General Strike 80 years ago

The chancellor has finally unveiled the government’s proposals for real estate investment trusts (Reits), due to be introduced from January 2007.

The Institute of Chartered Accountants in England and Wales (ICAEW) has backed the Pensions Commission’s call for auto-enrolment in pension schemes coupled with compulsory employers contributions.

The Actuarial Profession, or the Faculty and Institute of Actuaries, has welcomed the government’s announcement that it will consult on a new statutory framework of principles that underpin the calculation of transfer values from defined benefit schemes.

Tighter regulation of final salary pension schemes could harm the UK’s economic performance, delegates at the National Association of Pension Funds’ (NAPF) annual investment conference were told last month.

Individuals need to be given more help in getting value for money when buying annuities, according to a new report from the Pensions Institute at Cass Business School.

The long-awaited report from the Parliamentary Ombudsman, which was finally published last month, made for uncomfortable reading for the government.

Defined contribution (DC) schemes have increased the number of funds available to members in the last year, despite a very low take-up of fund choices, and up to 73% of schemes with empty funds.

A jump in the value of UK equities last month is improving the funding situation for pension schemes, according to many consultants.

Have you been keeping up to date with the Trustee Masterclass series produced as a joint initiative between PM’s sister title, Pensions Week, and Merrill Lynch Investment Managers (MLIM)?

Now, and at the risk of this column finally going to the dogs, I’ve got yet another strange canine tale to tell this month to add to last month’s revelations (you remember, the one about the dog learning to read sign language). This time I’ve been reading about some bosses at a firm in Bradford who’ve added a dog to their staff to cheer other employees up.

Pension scheme trustees and employers are going to have to make sure that their schemes are compliant with the new age discrimination legislation that comes into effect later this year.

Clerical Medical has announced it will adopt the role of practitioner for its pension schemes, including its executive personal pensions (EPPs).

From April 6, 2006, employers are not able to make major changes to their occupational or personal pension/stakeholder schemes without first consulting the current and prospective members, and their representatives.

With just days to go until A-day, an atmosphere of cynicism and pessimism has settled across the simplification changes, with many industry experts concerned about the huge delays in receiving the final regulations.

At last advisers are now able to concentrate fully on the new ‘simplified’ post A-day world, rather than concerning themselves with any actions that needed to be completed at the last minute prior to April 6.

Inadvertent errors caused by the time pressures of delayed A-day legislation should not attract penalties on pension companies or schemes, an industry expert has said.

Winterthur has unveiled its A-day pension product range, which includes executive personal pension and section 32, personal pension, self-invested personal pension, trustee investment plan and income withdrawal.

Now that April 6 is almost upon us advisers need to start focusing on the planning opportunities that will exist post A-day.

All you need to know about being a Pension Fund Trustee (Longtail Publishing, £24.95) - By Andrew Freeman

It is now only a month until the winners of the PM Provider Awards 2006 are announced at a swanky London hotel among the great and the good of the UK pensions industry

Propelled to the role of shadow secretary of state for work and pensions just last December, Philip Hammond has targeted political consensus and greater public debate as vital for effective future provision. He now has to prove whether he is the man to deliver, writes Ruth Emery

The Pensions Regulator’s trustee toolkit is up and running, with two modules now available. Terry Clayworth explains the benefits for trustees

Long a bastion of stability and strong returns, with geographic spread and diversification, residential property continues to offer a winning combination of capital growth and healthy profits, says Peter Phelan

Britain could do worse than look to Sweden for innovation in pensions, where a structured solution has succeeded in bringing government and the individual together, says Ruth Emery

1. The key to this question is what is LDI?
   The concept of setting investment strategy with reference to liabilities, is one that has been around for some time in the UK pensions industry and has been embraced to various degrees. Our advice on investment strategy setting has used liabilities as a reference point for over a decade. LDI with a relatively low risk budget (less than 1% per annum), which we consider to be cash flow matching of sorts, has been a talking point in the industry. However, it has not been taken up with as much enthusiasm as it has generated in conversation.
2. Given that LDI, as we define it, involves building an investment strategy with reference to a scheme’s liabilities, and each scheme has a unique set of liabilities, it becomes clear that a unique strategy is required for each one. This uniqueness is further compounded by the fact that different fiduciaries and sponsors have different risk tolerances and consequently will set different risk budgets, which are related to the specific circumstances. Return targets for each scheme will differ depending, among other variables, on the funding basis. The common factors that can be applied within an LDI approach include the decision-making framework within which to set the investment strategy as well as the investments to populate it.
3. Given the way in which the term LDI has been used and abused, almost all managers seem to have a product that fits this description. This is unfortunate in that the clouding of the meaning of the term is resulting in increased confusion across the market.
   There are a limited number of managers that have the ability, and product set, to take a benchmark consisting of a series of cash flows and construct an overall investment program within specified risk and return parameters relative to this benchmark. There is a larger group of bond managers who are able to manage a portfolio relative to such a benchmark with a risk budget of, say, less than 3% per annum.
4. We expect to see more constructs that allow investors to vary the sources and/or levels of risk and return in these products relative to the specified benchmark. Increasingly, managers are acknowledging that an open architecture type of approach is likely to be relatively attractive to clients. The challenge is how to balance customisation and costs. These solutions will likely be applicable to larger funds. A related challenge exists at the smaller end of the market in terms of providing useful product on a cost effective basis.

1. The industry has embraced this to the extent that clients have always been aware of their liability structure when putting an asset strategy in place.
   So LDI is not a new concept at all. What is new is the increased availability of instruments to move this onto a new level. We are seeing far more focus on the short-term volatility of funding levels. To this extent, LDI products can allow far greater stability to funding levels from interest and inflation rate changes. Some clients and some consultants have embraced this but these remain in the minority to date.
2. Clearly each scheme is different in terms of benefit structure, funding level and current investment strategy. That’s the enjoyment of our job. However, increasingly important is the role of the employer (often their desire to de-risk and accept a higher but stable cost) and trustees’ measurement of that sponsor covenant.
   What is more difficult is for providers to meet the majority of clients needs from pooled solutions. For anything but the largest schemes the market cannot expect providers to meet every single permutation, but even with the products to date it is possible to significantly reduce investment and inflation risk.
3. LDI is at a fascinating crossroads in its development. It is possible to reduce risk in asset portfolios, but liabilities themselves will always be uncertain in magnitude and timing, not least due to mortality change. Some managers are at risk of portraying a zero-risk solution in terms of funding levels, which is incredibly dangerous.
   Managers with strong fixed income capabilities will undoubtedly be at the forefront. However, LDI will require many clients (and still some consultants) a significant amount of time in education and understanding before implementing any form of LDI strategy. The successful LDI provider must be prepared to assist in this and be patient for business.
4. The reaction of the consultants to LDI will be interesting given the closer relationship of client/consultant/manager and typically longer term mandates. Many consultant business models require fees from manager review and implementation. Further, how will consultants independently monitor risk positions of these LDI strategies?
   In terms of LDI itself, I expect product development in two areas – for the non-bond area, the availability of diversified growth funds replacing the traditional equity models. Second, further development of geared or leveraged funds where these provide disproportionate protection arising from interest and inflation changes. The big area however must be the further education of the industry.

1. The concept of LDI is starting to take off. It was implemented about five years ago by some big clients who made use of the instruments available. However, fund managers and investment banks are now better equipped to implement LDI and given the importance that the pensions agenda has now to boardrooms, LDI is being investigated closely by trustees either on their own steam, or as a result of employer encouragement.
2. In my experience, LDI strategies do vary by client. In many ways they carry the same characteristics, but are different enough to warrant different solutions. The answers differ depending upon how strong the employer is, how well funded the scheme is – hence the need to generate performance above liabilities – and how comfortable the trustees are with derivatives. However, they are similar enough for a number of off-the-shelf solutions to have been designed and launched.
3. The simple answer is no. If you are talking about LDI in its most pragmatic form, any manager with a strong bond capability can deliver. However, the closer the strategy is to a cash flow matched strategy, the greater the use of derivatives and derivative capability is required. Some strategies use other forms of investment and other asset classes to generate outperformance, and in this case skill in the asset classes used is essential. If you do not possess either a skill in bonds or derivatives then you won't play a part in LDI, but may have a part in the rest of the portfolio.
4. I anticipate that those managers with potentially good offerings will spend more time on their derivative capabilities. The current expense of purchasing long bonds will give pause for thought and trustees time to be educated on LDI, so a lot of education will take place. The flip side of LDI is that pension schemes will look for their non-LDI portfolio to generate returns that outperform liabilities, so there will be a continued move to alternative styles of equity management and other asset classes. Finally, a lot more schemes will implement LDI to some extent as it becomes as easy to implement LDI as any other bond mandate.

1. We are seeing increased activity in this area, most of which has been focused on reducing the levels of interest rate and inflation risks that a scheme’s assets have versus its liabilities.
2. Strategies break down into two broad categories of risk reduction and risk exploitation. Risk reduction includes investing in traditional assets but in a more liability-conscious manner – a bond-based strategy with a derivative overlay to align the assets versus a given set of liabilities, for example.
   Risk exploitation strategies employ the use of a variety of market risks to produce performance relative to range of different liability benchmarks (RPI+5% and Libor+4% strategies are two that we are currently managing to).
   Currently there are a wide variety of techniques used to define a liability benchmark and hence an individual approach is the norm.
3. Successful managers will need strong fund management capabilities, an integrated derivative platform as well as a dedicated team focusing on LDI solutions.
4. We expect to see a continuation of the trend for schemes to better align their liability and asset interest rate profiles.

The questions

1. To what extent has the UK pensions industry embraced the concept of liability-driven investment (LDI)?
2. To what extent can it be said there are particular strategies that can satisfy many types of schemes? Is every scheme completely different and therefore requires bespoke LDI investment services?
3. Given the proliferation of managers offering LDI strategies, is it something that all managers can deliver? Are there particular styles of managers for which it is a more suitable offering?
4. What developments do you anticipate within the LDI arena over the coming 12 months?

Hot off the catwalk, liability-driven investment is the key look for pension funds this season. Available in a variety of colours and sizes, it won’t be long before the high street is flooded with strategies, says Gregor Watt

In an era of uncertainty and low yield, the asset/liability gap becomes even more significant. Malcolm Jones examines whether liability-matching asset strategies are a valid alternative to traditional tactics

More and more companies are turning to contingent security arrangements to fund their pension liabilities, says Watson Wyatt’s Hemal Popat

Passionate about delivering the highest service levels to the industry, the RSPA’s poor take-up in the industry should be ringing alarm bells, writes its chairman John Reeve

John Lawson answers this month’s questions regarding tax-free cash recycling for people nearing retirement who want to borrow money to put into their pension

Although providers have spoken of the potential for Sipp within the group market, many considered it to be the usual industry hype, But there are strong signs of demand for this kind of solution, says Pádraig Floyd

The world of corporate pensions with its default defined contribution scheme now has a wealth of options opening up, including both standard and group Sipps. Hyman Wolanski ponders the choices available

With pensions pooling for multinational companies now imminent, Ted Hall looks at the potential benefits of this first step towards a unified pan-European pensions market

While the new pensions flexibility looks set to boost investments across the board, the ultimate winners will be those that truly grasp the realities of the new environment, say Andy Cherkas (pictured) and Anton Davies

A House of Lords ruling last month had major implications for part-time workers following a TUPE transfer. Harold Lewis (pictured) and Jason Shaw explain

In the first of a two part article^*, Stuart Bayliss examines the difficult conception, gestation and delivery of alternatively secured pension (ASP)

Dirk Frikkee looks at the growth of corporate hybrid bonds and explains some of the reasons for their popularity among investors

The first chief executive of the pension protection fund (PPF), Myra Kinghorn, has resigned after less than two years in the job.

Buck Consultants has made two senior appointments in the shape of Alan Gibbons and Fraser Smart.

David Williams has joined the board of Royal London as a non-executive director.

Nick Fitzpatrick, former head of global investment consulting at Hewitt, is the latest high profile recruit to join the Bestrustees team.

A-day is here and you’ve read the book, seen the film, bought the T-shirt.

1. Rolling eight different regimes into one set of rules for all was never going to be easy and to a large extent, I feel we, as independent financial advisers (IFAs), should applaud those who have directly helped shape this legislation by consultation as we need to provide a reliable framework and set of rules which we can trust.
   Essentially, public confidence is very low in the pensions sector and it will be up to us to promote simplification to a sceptical public as a way of building up trust and, more importantly, encouraging thrift via a return to the savings culture. Although the issues surrounding enhanced or primary protection, together with outstanding concerns on IHT do, at first sight, seem daunting and complex, the key will be to communicate these changes as soon as practicable, which, in fairness, is easier said than done on a large scale.
2. Simplification will bring to the table much more choice, both in regard to funding and flexibility and in regard to timing and purchase of benefits, as well as increased investment freedom (albeit restricted). We will, in our opinion, see growing demand from the corporate market for group self-invested personal pensions (Sipps), which allow access to syndicated property purchase, specifically now the third-party restrictions on pre-owned commercial property have been lifted.
   Simplification will greatly assist in providing more choice and flexibility to those fortunate enough to capitalise on the funding rules and will provide greater transparency and contribute towards a more flexible approach to shaping benefits.
3. I am not sure the simplification rules will have a huge impact on those individuals who, for whatever reason, do not wish to annuitise their pension funds; essentially, I feel that the same objections, be they on grounds of religion or be they a moral objection, will still exist and will remain, regardless of the new rules on ASP/USP. As we can already utilise the pension withdrawal rules, the introduction of the ASP perhaps is a further step forward to providing choice on this much debated subject.
   Any absence (at this late stage) of a clear and workable regime in relation to how both post drawdown and annuities will be regarded for IHT is unwelcome. The decision of whether to annuitise or stay in deferral should be driven by both the individual’s appetite for risk, together with his or her overall financial situation and level of sophistication. I do not believe the IHT angle should drive the decision whether to annuitise or defer.
4. There will be a number of developments emerging after A-day, specifically within the area of pension administration and the levels of service standards IFAs can expect to receive.
   Essentially, if we look at the likelihood of increased demand for efficient and transparent wrappers in which to hold retirement savings (such as Sipps), we will need to ensure that the partners we choose to do business with have the process and capability to get things right first time and make full use of technology.
   We hope we will see regulation of Sipps and responsible practice in regard to promotion and governance and expect to see continued investment and capital expenditure on back office support over the coming years.
   Finally, we expect to see more financial products geared towards providing total returns being launched to cater for increased demand for lower risk investment mandates.

1. Two or three years ago, the simplification mantra was that government would prioritise simplification of the pensions rules over legislating against tax breaks for the wealthy.
   As expected, what started out as a bold statement of principle has been eroded by politics and HM Revenue & Customs (HMRC) pragmatism.
   Removing eight previous tax regimes and replacing them with one is a good idea, and the first time I can recall HMRC changing pensions tax rules retrospectively. Grasping this nettle is a big deal. Who this all benefits though is debatable. Consumers benefit in the long term as long as HMRC doesn’t start to tinker with the rules in the future, adding layers of new regulation.
   However, in the short term, there is a risk that consumers may be turned off by the transition from old rules to new. Regulators and advisers should find life much simpler and cost effective in the future now that they don’t have to keep up to speed with eight sets of pensions tax rules.
2. Arguably, the greatest benefit of pensions simplification is the flexibility it has brought in retirement. The pension rules now start to support the modern way of life by accepting that the process of moving from the workplace into retirement may last for many many years. Simplification supports a third middle phase between accumulation and decumulation.
   It can only be hoped that HMRC regulations designed to prevent tax-free cash recycling and loss of IHT do not constrain flexibility or inadvertently add complexity.
3. While unsecured pension (USP) will increase in popularity, the majority of people with smaller funds will continue to annuitise. Holders of smaller funds may be tempted to extract tax-free cash prior to their planned retirement age, and defer the annuity purchase. ASP is likely to be used by those with little or no pension income requirements, and its popularity will depend significantly on HMRC’s approach to taxing such funds when they are inherited after death.
4. Simplification is driving, and will continue to drive a re-evaluation of existing products, and how they will respond to the new regulatory and market environment. Investment flexibility and general product capability will be a key part of this re-evaluation.

1. The ‘simplified’ regime is simpler in as much that it replaces a number of different regimes, and there will be full concurrency, no contribution limits and no need to retire to take benefits. For the majority of members who do not contribute anything like enough, the new regime will mean little change.
   Because of the different treatment of defined benefit and money purchase benefits, there will still be complications in calculating benefits, particularly tax-free cash, where there is a mix of benefits. The complications of the transitional rules will be with us for some time to come.
2. For the majority of members, the new regime will have little effect, if any. In a money purchase environment, flexible retirement is a dubious benefit. While it sounds good to be able to take part of one’s benefits while still working in a lesser capacity, individuals should be encouraged to leave their pensions invested as long as possible, and not to start it until they really need it.
3. Yes, we believe it will remain a strategy for the very few. Some are saying that alternatively secured pensions (ASP) should only be appropriate for those with funds of at least £250,000. And, of course, there is still uncertainty over the inheritance tax (IHT) position.
4. Oddly enough, we have already seen products getting more complex. Because of the transitional features of the new regime, providers are busy adding bells and whistles to their offerings, such as income drawdown, ASP, phased retirement, partial vesting, etc. Instead of getting simpler, the reverse is happening.

The questions

1. To what extent is the much awaited ‘simplified’ regime actually anything but simpler?
2. What will be the effect of simplification on benefits?
   Will it allow greater access to flexible benefits and will it assist the development of flexible retirement?
3. What will be the impact of simplification on those who do not wish to annuities? Is ASP/USP now a viable alternative or will fears over IHT mean it remains a strategy for the very few?
4. What developments do you expect to see in the pensions and retirement planning market as a direct result of simplification?

1. Simplified set of tax rules

With A-day almost here, Pádraig Floyd looks at what impact the pensions reform tsunami has had on the average man in the street

A-day’s simplification label has been refuted many times over, nevertheless, April 6 will create more options for those soon to draw a retirement income, says Iain Oliver

Product information from providers has never been greater, yet few firms of advisers are using electronic data feeds to transform their businesses. Will Hadfield discovers how willing IFAs can use these tools

Jeremy Ward highlights the key issues surrounding lifetime allowances for pensions professionals and individuals in the run-up to A-day