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The Pension Protection Fund (PPF) is consulting on its draft levy determination for the 2022/23 levy. The PPF currently has a strong funding position. It therefore intends to set the 2022/23 levy estimate at £415 million, £105 million less than in 2021/22. Around 82% of schemes that pay the risk-based levy will see a levy reduction. The consultation closes on 9 November.

Continue Reading Pension Protection Fund levy – lower levies expected in 2022/23

The Pension Schemes Act 2021 introduces a framework for a new type of pension scheme – collective money purchase schemes. Also known as collective defined contribution or CDC schemes, this type of pension scheme offers a middle path between traditional defined benefit (DB) and defined contribution (DC) schemes.

Employer and member contributions are fixed, as in a DC scheme. However, investment and longevity risks are borne collectively by the members, rather than being borne exclusively by the employer (as in a DB scheme) or exclusively by the individual member (as in a DC scheme). Members are promised a target retirement income, but this can be adjusted up or down to reflect the scheme’s investment performance and other risks as longevity experience.

The government is currently consulting on draft regulations setting out further detail of the legal framework for CDC schemes. The consultation closes on 31 August.

Continue Reading A third way – collective money purchase pension schemes

The government has set the automatic enrolment earning figures for the 2021/22 tax year as follows:

  • Earnings trigger: £10,000
  • Qualifying earnings band: £6,240 – £50,270

The earnings trigger is the level of earnings that a jobholder must receive in order to be eligible for automatic enrolment. The level of the earnings trigger has remained unchanged

The Pensions Regulator (TPR) is the body responsible for regulating workplace pension schemes in the UK. Where an employer operates a defined benefit trust-based pension scheme for its employees, legislation requires it to notify TPR if certain events occur. Some events must always be notified, while others only need to be notified in certain circumstances.

Defined benefit (DB) pension schemes promise their members a pension for life. However, while one member may live to age 75, another might live to age 95. When working out how much money a DB scheme needs to fund the benefits it has promised members, trustees (or rather their actuarial advisers) therefore have to make an assumption about how long, on average, members will live – a longevity assumption.

If that longevity assumption proves to be incorrect and the scheme has to pay benefits for longer than expected, the trustees will need to find additional money to fund those benefits. And usually they will look to the scheme’s sponsoring employer for that money.

Finding ways of managing a scheme’s longevity risk is therefore beneficial for both the trustees and the employer. One way of doing this is a transaction called a longevity swap. Between 2009 and 2018, nearly 50 pension schemes entered into longevity swaps, including schemes sponsored by Astra Zeneca, AkzoNobel, BA, BAE Systems, BMW, BT, Heineken, ITV and Rolls-Royce.

Continue Reading Managing pension scheme longevity risk – a good thing for schemes and employers

On 6 April, the quality requirements that pension schemes being used for automatic enrolment (“qualifying schemes”) must meet are changing.

DC schemes – what’s changing?

At present, for a DC scheme to be a qualifying scheme:

  • The employer must make a contribution of at least 2% of the worker’s qualifying earnings.
  • The total contributions paid