Reports

For further information please contact pensions@city.ac.uk

Pensions Institute Practitioner Reports

"A healthier way to de-risk: The introduction of medical underwriting to the defined benefit de-risking market" was published on 4 February 2013. The report shows that the trustees of defined benefit pension schemes could secure savings of 10% or more when they de-risk their pensioner sections, thanks to the introduction of health and lifestyle underwriting techniques in the bulk purchase annuity market. The publication of the report coincides with news of the first ‘enhanced’ buy-ins to be completed in a market estimated to be worth up to £380bn.
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"An Evaluation of Investment Governance in London Local Government Pension Schemes" was published on 12 November 2012. The report identifies fundamental flaws in the investment governance of the majority of London’s 34 local government pension schemes (LGPS). It also paints a grim picture of the way the funds that support these gold-plated defined benefit schemes are managed and argues that the future of the schemes is potentially blighted by weak oversight of investment governance on the part of the Department for Communities and Local Government (DCLG) which regulates LGPS.

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"Caveat Venditor: The brave new world of auto-enrolment should be governed by the principle of seller not buyer beware" was published on 11 October 2012. It is a landmark study on auto-enrolment which examines - through a qualitative and quantitative evaluation of market practice - the likely outcomes for private sector employees saving in DC default funds - the funds used by up to 97% of members. The report identifies serious problems with the potential widespread use of older high-charging funds, particularly among smaller employers, which are not considered viable for advice due to the unintended consequences of both the Retail Distribution Review and auto-enrolment rules. We suggest that there is time to address this issue, given that smaller employers have a later staging date for auto-enrolment. However, we also suggest that the government, regulators and industry need to act now to make sure that employees passively auto-enrolled into an employer scheme (and who are therefore not active purchasers of a financial services product) are not disadvantaged.

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"Treating DC scheme members fairly in retirement?" was published on Monday 6 February 2012 jointly by the National Association of Pension Funds and the Pensions Institute. The report found that around half a million people retiring each year are being short-changed by up to £1bn from their total future pension income, because overwhelming obstacles stop them getting the best deal. The report also uncovered evidence of sharp practice and murky pricing in the annuity market, putting unsuspecting consumers at a huge disadvantage.

Press Release
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"Ending compulsory annuitisation: Quantifying the consequences" was published on Wednesday 29 September 2010, as a companion to an earlier report "Ending compulsory annuitisation: What are the consequences?" published in July 2010. This second report provides a quantitative assessment of the issues raised in the first report, the aim of which was to stimulate the debate about the proposal to end the mandatory requirement to purchase annuities in pension schemes as formally announced in the Budget Statement on 22 June 2010 and subsequently expanded upon in the HM Treasury consultation document "Removing the requirement to annuitise by age 75" released on 15 July 2010.

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"Ending compulsory annuitisation: What are the consequences?" was published on Wednesday 28 July 2010. It is designed to stimulate the debate about the proposal to end the mandatory requirement to purchase annuities in pension schemes as formally announced in the Budget Statement on 22 June 2010 and subsequently expanded upon in the HM Treasury consultation document "Removing the requirement to annuitise by age 75" released on 15 July 2010.

Press Release
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"Saving Britain: A White Paper on Rebuilding Britain’s Savings Culture" was published on Thursday 27 May 2010. The report sets out what a savings culture is. It proposes some practical ideas for policy development, which are based on today’s technology, infrastructure and legislation, and could therefore be done quickly. But at the same time it identifies an entirely new approach to the issue, which is much more likely to work because it is based on how real people think and behave.

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"Increasing Longevity and the Economic Value of Healthy Ageing and Working Longer" was published on Monday 20 July 2009. One of the UK's great achievements is that people are increasingly living longer. One consequence is that the number of older people in society is increasing steadily as a proportion of the working age population. In addition to this, the 'total support ratio', the ratio of the number of workers to the number of both young and old people, peaked in 2007 and is now in decline. The significance of this is that a high total support ratio is often associated with periods of rapid economic growth as has occurred in the UK over the last decade or so, and which has also occurred, but on a much greater scale, in Asian ecnomies such as China, India and Korea. In Japan, the first Asian country to develop economically after the war and currently the most advanced ageing country in the world, the total support ratio peaked some time ago and its economy has been relatively static since. In the light of these demographic facts, this report investigates the economic challenges of an ageing UK population and considers it to be at a demographic crossroad. It estimates the potential downside of getting outcomes 'wrong' i.e. doing nothing based on current trajectories, but it also estimates the potential economic upside of getting outcomes 'right'.

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"Financial Planning Through Retirement" was published on Monday 29 June 2009. This landmark study from the Association of Independent Financial Advisers (AIFA) and Prudential UK, outlines changes required by Government, retirement product providers and independent financial advisers to ensure people in the UK maximise their income and wealth in retirement. The study was overseen by an Editorial Board that included Rt. Hon John Gummer MP, Independent Chairman of AIFA, Lord Lipsey, ex-Chairman of the Financial Services Consumer Panel and Professor David Blake, Director of the Pensions Institute at Cass Business School. The report calls for fresh thinking about the retirement market: the decumulation market needs to be viewed as a market in its own right, there should be an onus on individuals to make adequate provisions for retirement income, independent financial advice in the workplace should be better promoted and funded, and there should be clearer guidance for those advising individuals in and at retirement.

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"And death shall have no dominion: Life settlements and the ethics of profiting from mortality" was published on Monday 7 July 2008. The report is the first major independent study of the ethics of investing in US life settlements (also known as traded life policies or TLPs). It analyses the potential benefits of this secondary market for policyholders wishing to sell and for investors seeking to diversify risk but it also raises concerns over current inconsistencies in the regulation of the market. It concludes that there would appear to be no particular ethical issues associated with investing in this asset class that distinguish it from well-established pensions and life market investments, which are also based on mortality projections, provided that products and processes are fully transparent to all parties, including the original policyholder and the end investor, and provided that the privacy of the policyholder is safeguarded.

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‘Apocalyptic demography? Putting longevity risk in perspective’ which was published on 29 April 2008 has been funded by, and produced in association with, the Chartered Institute of Management Accountants (CIMA), the only international accountancy body with a sole focus on business. This report and checklist allows finance directors to put longevity risk in perspective by focusing on issues such as current life expectancy, projected life expectancy and the types of longevity risk to which their organisation may be susceptible. It will also help them when discussing, with their actuary, the basis of mortality assumptions used in estimating their scheme liabilities.

Press Release
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Longevity Risk Checklist
‘An Unreal Number. How Company Pension Accounting Fosters an Illusion of Certainty’ was published on 31st January 2008.This research paper, funded by the ICAEW's charitable trusts, is intended to be a 'state of the art' review of the ways in which companies account for their pension obligations. It explains how pension accounting has evolved both to reflect changing views of the nature of the pension promise and to help fulfil the accounting objectives of stewardship and decision-usefulness. The paper contends that the most useful information that accounts can provide about a defined benefit plan’s funded status is the market, or fair, value of its assets and the amounts, timing and uncertainty of its projected pension payments. By reducing this information to a single number, pension accounting standards create an 'illusion of certainty' which supplementary cash flow projections and sensitivity analyses do not dispel.

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'Are Customers in Closed Life Funds Being Treated Fairly?' was published by the Financial Services Consumer Panel on Wednesday 19 September 2007. The lead authors of the research were Debbie Harrison and Alistair Byrne of the Pensions Institute at Cass. The report identifies a serious problem for about 8m with-profits policyholders, who do not have access to independent advice to review their policies, many of which have changed dramatically in terms of asset allocation since the date of purchase. The report also identifies a significant governance gap, whereby there is little or no policyholder representation in the financial management of many with-profits funds run by proprietary companies. The report calls on the FSA to address these critical issues that go against the grain of the FSA's 'treating customers fairly' regime and can lead to considerable customer detriment.

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'Dealing With the Reluctant Investor: Innovation and governance in DC pension investment' was published on Monday 23 April 2007. The report is the first major study of DC investment strategies used in UK defined contribution pension schemes. It is critical of ‘traditional’ arrangements and urges employers, trustees, and pension practitioners to consider innovative strategies for the default fund, in which the majority of members invest. It also calls on the regulators to introduce ‘safe harbour’ rules to enable parties to the scheme with relevant expertise to provide much clearer advice to ‘reluctant investors’, who are unable or unwilling to make active investment choices.

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"Annuities and Accessibility: How the industry can empower consumers to make rational choices" was published on Thursday 16 March 2006. The report calls on the Financial Services Authority, specialist annuity advisers, trustees, and employers to respond to key recommendations that could transform the way consumers in the mass market buy their lifetime annuities from insurance companies.

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"Pyrrhic Victory? The unintended consequences of the Pensions Act 2004" is the first independent study of its kind on the early impact and unintended consequences of the Pensions Act 2004. The report warns that the government may win its battle with employers to ensure they pay employees the defined benefit pensions they have promised to date but it will be a Pyrrhic victory. Employers will pay up - and then leave the battlefield, turning their backs on trust-based occupational pension provision

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"Delivering DC? Barriers to participation in the company-sponsored pensions market", reveals that finance directors often oppose greater employee participation in company pension schemes. This strong implication of this is that the governments's policy objective of switching the balance of state to private sector pensions provision from 60:40 to 40:60 by 2050 has virtually no chance of succeeding.

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Reports

For further information please contact pensions@city.ac.uk

Pensions Institute Practitioner Reports

Pensions Institute Special Reports