Fca Overhauls Listing Rules To Boost Stock Markets Growth (2024)

In rules published by the Financial Conduct Authority (FCA), they have set out a simplified listings regime with a single category and streamlined eligibility for those companies seeking to list their shares in the UK.

The overhaul of listing rules better aligns the UK’s regime with international market standards. It also ensures investors will have the information they need to make decisions about their money, while maintaining appropriate investor protections to hold the management of the companies they co-own to account.

The new rules remove the need for votes on significant or related party transactions and offer flexibility around enhanced voting rights. Shareholder approval for key events, like reverse takeovers and decisions to take the company’s shares off an exchange, is still required.

The changes to listing rules follow extensive engagement across the market. The FCA has been clear that the new rules involve allowing greater risk, but believes the changes set out will better reflect the risk appetite the economy needs to achieve growth.

The new rules will apply from 29 July 2024.

Sarah Pritchard, Executive Director, Markets and International, at the FCA said: “A thriving capital market is vital in delivering investment to growing companies plus returns and choice to investors. That’s why we are acting to make it more straightforward for those seeking to list in the UK, while retaining vital protections so investors can help steer the businesses they co-own.

“Regulation is only part of the answer in helping the UK achieve sustainable growth. Other factors also play a significant role in influencing where a company decides to list. We’re committed to continually working together with all those who have a part to play in supporting a thriving UK capital market and thank everyone who has contributed to this work so far.”

Chancellor of the Exchequer Rachel Reeves said: “The financial services sector is central to the UK economy, and at the heart of this government’s growth mission.

“These new rules represent a significant first step towards reinvigorating our capital markets, bringing the UK in line with international counterparts and ensuring we attract the most innovative companies to list here.”

By Barbara-Ann Thompson, Partner and Christine Kerr, Principal and Senior Pension Management Consultant at Barnett Waddingham

Planning

TPR expects trustees to develop and implement plans to ensure their scheme operations can be maintained in the event of a disruption to scheme activities. To do this effectively, trustees need to identify, evaluate and record all risks affecting their scheme’s operational resilience, including where those risks belong to service providers, and make sure key areas of scheme activities, including member data and general scheme administration, are included.

So while trustees need to ensure they are satisfied all key businesses related to the scheme have robust plans in place so key functions can be maintained after an emergency or major disruption such as a cyber-attack, fire or flood, this is only one element; trustees need to also ensure their own governance is sufficient to enable all of their key scheme activities to continue.

Priority should be given to the key scheme activities that will need to continue in the event of an emergency or disruption. Examples of these could be receiving and monitoring contributions, pension payments, retirement processing and minimising the risk of pension scams.

Risks to scheme operations
But it shouldn’t just stop there – it’s not just these big-ticket items that can derail your scheme activities. What would happen if your chair (or another key individual) is taken ill just before the main board meeting and is unable to attend, or unexpectedly becomes seriously ill for a substantial period of time? Does any other trustee (or adviser) have the knowledge to carry out the required day-to-day activities?

Do you have an up-to-date contacts list for all your fellow trustees, company contacts and key advisers? If not, what would you do in the event of an emergency where you are unable to contact the person(s) who retains the contact information?

It’s Saturday and you are contacted by one of your third parties to advise you about a cyber breach – do you know the process you need to follow and the actions you need to take? Do you have contact details for your other trustees/company contact(s)/legal adviser and is there a specific order in which they should be notified? Could you access this information if you are locked out of your network?

Are your signatory lists, delegations, and authorising procedures up to date so you can act quickly in the event of another LDI crisis or equivalent?

Is key scheme documentation, including relevant procedures, filed online and accessible? Relying on a sole pensions manager/secretary to manage your scheme processes and retain your scheme documents is risky, and key scheme knowledge can be lost if that individual is unable to work or retires. You need to ensure processes are documented so the scheme can continue to operate in their absence.

The ability to be able to act quickly can be crucial in many emergency circ*mstances; some situations have time-critical reporting obligations to regulators that need to be met and you don’t want to lose valuable time trying to work out what needs to be done by who or scrambling around to obtain signatures. Failure to act quickly could also put the payment of members’ benefits, or the funding position of the scheme, at risk. Schemes that are well governed and have processes in place will weather any storm better than those that don’t.

Remember, governance doesn’t need to be cumbersome and costly – it should be proportionate to the size, nature, scale and complexity of the activities of your scheme and, importantly, add value. You may not need a full-blown policy - a short checklist may suffice, or just more information from your advisers about their processes in the case of an emergency.

What documentation do I need?
As with all aspects of governance, there isn’t a one size fits all solution; each approach will differ depending on scheme circ*mstances. However, in terms of the basics, you should consider the following:

Key third-party control reports – such as Business Continuity Plans, AAF Reports, Cyber plans. Ensure you have adequate oversight of your key third-party control reports and interrogate these regularly. We suggest at least annually or after any material change/event.

Succession planning – outline who will assume responsibility for any key roles, such as the chair and/or scheme secretary (and don’t forget your advisers!) Any deputy chair could also be copied in on day-to-day matters so they can step up at short notice if required.

Key contacts list – a list of all trustee, company contacts and key advisers' email addresses and telephone numbers, should be shared with the appropriate group. This should be recirculated following any update, and, where possible, held in accessible locations such as on the trustees’ governance platform, on desktops or hard copy.

Escalation plan – document trustee and key contact details, the order in which they should be contacted (if any), and the process to be taken in the event of an emergency. Again, where possible, this should be held in an accessible location such as on the trustees’ governance platform on desktops or hard copy.

(Dis)investments signatory list – schemes with up-to-date signatory lists in place, including authorisation limits where necessary, were generally able to act faster during the 2022 LDI crisis and tended not to be as negatively impacted as those having to rally around and update documents. Don’t forget AVC and annuity policies!

Delegations list – document the appropriate process for each type of decision and where the powers for making discretionary decisions (or recommendations) lie, to ensure decisions made are valid.

Need a hand? Don’t worry, we can help
Completing and documenting the review and actions of your ESoG is one key to making sure trustees have all these areas covered. BW CORE (Calendar, ORA, Risk Register, ESOG) can help you manage your scheme’s governance from ESOG to ORA. Our governance experts can support you with any aspect of demonstrating your compliance with the General Code. Please contact us to find out more.

Our?General Code knowledge centre?is a good place to visit for information. This hub is continually being updated with new material as and when available, so keep checking in to avoid missing out on the latest developments. Our online?Trustee Meeting Handbook?is a great resource for effective meeting management and bringing new trustees up to speed. We’ve had fantastic feedback from trustees since we launched it in 2020 and it’s currently being reviewed to allow for the General Code.

Research contribution made by Wendy Round, Senior Pension Management Consultant

On 11 July 2024 at a plea and trial preparation hearing at Southwark Crown Court, Holly Thompson, Chris Biggs, Jamie Clayton, Lauren Goodger, Rebecca Gormley, Yazmin Oukhellou and Scott Timlin each pleaded not guilty to 1 count of issuing unauthorised communications of financial promotions.

Emmanuel Nwanze pleaded not guilty to providing advice on buying and selling contracts for difference (CFDs) while unauthorised to do so and 1 count of unauthorised communications of financial promotions.

Eva Zapico did not enter a plea at this time. A further plea hearing for her case was fixed for 26 September 2024.

Due to court availability, trial dates were fixed for 1 February 2027 and 15 March 2027 at Southwark Crown Court. These dates were the earliest the Court could accommodate this case.

Anyone who believes they have suffered loss in relation to this matter should call our consumer contact centre on 0800 111 6768 (freephone).

In May, the FCA announced charges against 9 individuals in relation to an unauthorised foreign exchange trading scheme promoted on social media.

The defendants’ dates of birth (DoB) are as follows:
a. Emmanuel Nwanze (DoB 07/01/1994)
b. Holly Thompson (also known as Holly Zucchero)?(DoB 25/05/1990)
c. Biggs Chris (DoB 15/05/1992)
d. Jamie Clayton (DoB 18/11/1991)
e. Lauren Goodger (DoB 19/09/1986)
f. Rebecca Gormley (DoB 18/04/1998)
g. Yazmin Oukhellou (DoB 03/05/1994)
h. Scott Timlin (DoB 26/04/1988)
i. Eva Zapico (DoB 23/07/1998)?

Mr Nwanze faces 1 count of breaching the General Prohibition under Section 19 of the Financial Services and Markets Act 2000, and 1 count of unauthorised communications of financial promotions under Section 21 of the Financial Services and Markets Act.

Ms Thompson, Mr Chris, Mr Clayton, Ms Goodger, Ms Gormley, Ms Oukhellou, Mr Timlin and Ms Zapico each face 1 count of unauthorised communications of financial promotions under Section 21 of the Financial Services and Markets Act 2000.

Breaching the General Prohibition is an offence under Sections 19 and 23 of the Financial Services and Markets Act 2000 punishable upon conviction by a fine and/or up to 2 years’ imprisonment.

Communicating unauthorised financial promotions is an offence under Sections 21 and 25 of the Financial Services and Markets Act 2000 punishable upon conviction by a fine and/or up to 2 years’ imprisonment.?

Contracts For Difference (CFDs) are high-risk derivatives. The FCA has previously said that 80% of customers lose money when investing in CFDs because of the risks. They are often highly leveraged, which means they use debt to try and amplify returns, which can result in investors losing more than they invested. In the UK, the FCA has imposed?restrictions?on how CFDs and CFD-like options can be sold and marketed to retail customers. The FCA has been carrying out?work?to address consumer harm in the UK in this sector.?

The FCA has published?finalised guidance?on financial promotions on social media to clarify our expectations for when firms and influencers use social media to communicate financial promotions, and to address emerging consumer harm that we’ve seen arising from use of social media.?

Acknowledging the two trade associations’ shared interest in making sure the UK insurance industry remains at the forefront of technology and innovation, the agreement recognises their continued commitment to promote co-operation, exchange views and share information on matters of common interest.

As the voice of the UK’s insurance and long-term savings sector, the ABI represents more than 300 member companies including most household names and specialist providers.

Representing over 100 insurtech businesses and partners, InsurtechUK is the largest formal insurtech alliance in the world. It aims to transform the insurance industry through the use of technology and make the UK a global leader for insurance innovation.

From AI to Open Finance, and data ethics to operational resilience, there are many issues where the two trade organisations’ interests intersect. By signing this MoU they have agreed to bring together their shared understanding and experience on such topics, co-ordinate views and liaise on event opportunities.

Hannah Gurga, ABI Director General, said: “Innovation and harnessing the best of technology is crucial to maintaining our sector’s competitive edge. This MoU will bolster our working partnership with Insurtech UK so that we can continue to drive growth in the UK insurance industry to the benefit of our members and their customers.”

Melissa Collett, Insurtech UK CEO, said: “We are delighted to have signed this MoU with the Association of British Insurers, continuing our ongoing working relationship together. Technology is clearly at the heart of all insurtech start-ups. Equally, the desire for greater innovation and collaboration between insurtechs and insurers is a core focus for Insurtech UK; which will help drive up the consumer experience and choice available in the market. We look forward to working closely with ABI to leverage our collective resources, to create opportunities for our members and to help deliver innovation to our ecosystems.”

Sarvesh Ramachandran, UK Country Manager at Lemonade, member of ABI and Insurtech UK said: "I am pleased to see this initiative between the ABI and Insurtech UK. As an insurtech and authorised insurer, we believe it's important to create a pathway for players to become fully licensed carriers. There's still much to do to accelerate the growth of an innovative insurance sector, and the cooperation between the ABI and Insurtech UK is a key part of this."

Kelly Hurren, partner and head of member options and support at Aon in the UK, said: “This year’s survey brought the encouraging news of the increasing trend of UK pension schemes providing more information and better support to their members at retirement. It is a trend that has increased steadily over the seven years we have conducted our survey and one I expect to continue. This means that members are better informed at a key time in their own personal financial planning.

“As well as a rising number of schemes providing members with access to education and support, we are also seeing an increased trend for providing flexibility in how members can take their benefits at retirement. We found that 30 percent of schemes offer a Pension Increase Exchange (PIE) and/or Bridging Pension Option (BPO) to members at retirement.”

Kelly Hurren continued: “Schemes with additional options in place are factoring this into their longer-term planning. In some cases, if they are expecting a significant proportion of their non-pensioner population to retire in the short- to medium-term, they are choosing to run-on their scheme for a period of time.

“That said, our survey showed that 54 percent of schemes are targeting buyout as their long-term objective. A significant 65 percent of these schemes plan to offer additional options and/or support to members as part of the journey to buyout, with 30 percent planning to communicate to members in bulk, prior to the options and support changing as part of an insurance transaction. Where schemes have already carried out a bulk annuity transaction, over a quarter have retained member options or support after the buy-in has taken place - and we expect this trend to continue.”

As the member experience becomes a focus for UK schemes on a journey to buyout, this year's survey also asked six of the leading insurance participants for their views on member options and support. These were the key findings:

• One insurer is making IFA advice available to all annuitants, while a further two insurers are actively looking at their offering.
• The remaining three are not proactively looking but would consider continuing with an existing IFA for larger schemes.
• Most insurers are planning or already have some digital capabilities for member self-service.
• Fifty percent of insurers would consider making additional options (such as BPO) at retirement available for a scheme of any size.

Kelly Hurren said: “Historically, bulk annuity insurers have not provided IFA support or additional options after buyout – but that’s changing. It’s great that insurers are recognising their responsibilities to members and adopting similar approaches to those followed by schemes. But it is still early days and to continue driving this change we believe that trustees and sponsors should be engaging with insurers at an early stage to signal the importance they place on addressing the underserved members and giving them the best possible support.”

By Joe Condy, Chartered MCSI Investment Consultant at Quantum Advisory

Climate change is an enormous challenge and threat globally. Large investors, such as pension schemes, can have a significant influence in addressing this challenge.

NetZeroWeekTM provides a reminder of the risks we face and actions that can be taken. In this article, we aim to answer two important questions:

• Do pension schemes have a duty to address the threat of climate change; and
• What role can pension schemes play in addressing the challenges faced?

As long-term investors, trustees of pension schemes should consider the potential risks of climate change on their ability to meet their fiduciary duties.

NetZeroWeekTM - What is it?
NetZeroWeekTM is about bringing people together who can ultimately make changes, plan, invest, inspire and solve one of the world’s biggest problems; the threat of climate change. These people include national policy makers, business owners, technologists, academics and more relevant to our industry, asset managers and investors.

Climate Change and Net Zero
Before addressing the role that pension funds can play, it is worth reminding ourselves of what these terms mean. Climate change is the long-term shift in Earth’s average temperature and weather patterns. According to the Intergovernmental Panel on Climate Change, human activities are causing world temperatures to rise, mainly through the widespread use of fossil fuels, such as oil, gas and coal. These release greenhouse gas (“GHG”) emissions into the air when burnt, which leads to the warming of our planet.

Net zero essentially means achieving an overall balance between the greenhouse gases we emit and the greenhouse gases we take out of the atmosphere. Think of it like achieving balance on a weighing scale. At the moment, we emit far more emissions than we remove. Therefore, the weighing scales are tilted, and the planet is warming.

The consensus among scientists is that this could have many detrimental impacts on our planet and societies over the long term. This ultimately prompted the Paris Agreement, an international treaty adopted to combat climate change. The main aim is to limit global warming to well below 2 degrees Celsius above pre-industrial levels, ideally aiming for 1.5 degrees Celsius. So, we have established that climate change is a problem which needs addressing somehow but…

How do we balance the “scales”?
There are actions that we can take individually and collectively that broadly fall under two headlines:

1. Reduce emissions
The most intuitive, and perhaps somewhat obvious, action is reducing our greenhouse gas emissions. This can be achieved by transitioning away from energy sources that emit greenhouse gases, like the ones referenced earlier, by using more sustainable and renewable energy sources like wind and hydropower.

We can also improve our energy efficiency. This might include retrofitting and decarbonising buildings, increasing the use of public transport, decarbonising the manufacturing processes of widely used materials (cement and plastics for example), adopt circular economy habits (reduce, reuse and recycle) and more.

2. Remove emissions
The second action, and perhaps less intuitive, is removing carbon dioxide from the atmosphere. Planting trees is one way of achieving this, as they remove carbon dioxide from the air naturally. Other removal techniques include biomass carbon removal and storage, soil management and direct air capture. The stark reality is that in order to limit temperature rises to 1.5 degrees Celsius, reducing and removing emissions are equally crucial.

But you may be wondering – what does any of this have to do with the pensions and investment industry?

Do pension schemes have a “duty” to address the problems posed by climate change?
To fix the problem, it requires significant co-operation and action by governments and other “actors” globally. At the core, it requires significant capital and financing to achieve the aims of the Paris Agreement.

However, the reality is, government budgets worldwide are “stretched”, to put it lightly. Therefore, they are increasingly looking towards the private sector, including pension schemes, for support in implementing their “green/climate change policies”. Not least here in the UK. Why? The pensions sector is a major allocator of capital. As at the end of September 2023, the market value of UK pension scheme assets alone totaled c.£1.8 trillion. To some, it may come as no surprise that governments, particularly in the UK for example, are encouraging pension schemes to invest in a way that helps governments meet their policy objectives and to consider the risks that climate change poses not only on the scheme itself but on the wider economy.

But what duties do trustees have exactly?

Some might argue that the only responsibility that pension schemes have is ensuring that member benefits can be paid as they arise (in the case of Defined Benefit schemes) and ensuring that members have access to investments that will meet their investment objectives, allowing them to save for their future retirement (in the case of DC schemes). Therefore, investment strategies should be designed in a manner which optimises these outcomes, regardless of the knock-on effects on the wider economy.

On the other hand, whilst they agree that these are their main duties, they may also argue that climate change poses significant risks to the ability to fulfil these duties. Therefore, we should be actively considering the potential risks and seeking to mitigate/minimise them as far as possible.

Both arguments have their own merit and like many things in life, the answers are not black or white.

It is near impossible to predict exactly how climate change will impact stewards of capital to fulfill their duties over the long-term. We can take educated guesses and try to quantify the risk in some way, like many trustees have been required to do so through their Taskforce for Climate-Related Financial Disclosures reporting obligations. However, there has been much debate about the usefulness of the quantitative modelling and analysis provided in these reports and it’s not always about the numbers…

In February this year, the Financial Markets Law Committee issued a paper which sought to clarify the legal position, the uncertainties and difficulties that exist over what trustees’ “fiduciary duties” demand from a sustainability and climate change perspective. Whilst the conclusion was not as instructive as some may have hoped, the main message was as follows:

• Trustees must first and foremost balance return against risk, considering financially material factors followed by non-financial factors.
• Pension schemes should take sustainability factors, like climate change, into account, assuming they consider them to be financially material.
• If pension schemes do not consider them financially material, then non-financial factors may be considered if trustees have good reason to think that scheme members would share the concern and the decision should not involve a risk of significant financial detriment to the pension scheme.

This implies that trustees should explore how material climate change risks are to the scheme, by using both quantitative data and “narrative” based considerations. Should they conclude that the risks are financially material, or if they think the scheme members are concerned about this issue, then trustees have an obligation to take these considerations into account when setting investment policies and strategies for the pension schemes that they govern. Furthermore, omitting the subject of climate change from consideration because of its uncertainty is not a viable option.

This extract from the paper sums this point up nicely:

“In constructing strategy, principles and policies, and throughout the management of the (pension) fund, it is proper for pension fund trustees to situate their pension fund within the wider economy. In doing so, sustainability and the subject of climate change, can, along with other factors, be considered by pension fund trustees when seeking to achieve the purpose of the scheme.”

What role can pension schemes play in addressing the problem (or mitigating the risks)? From a governance perspective, the new General Code of Practice which came into force in March this year introduces new requirements for all trustees of pension schemes to consider climate change risk. This includes formally disclosing their policy on climate change, which is a now a requirement under the General Code and ensuring that climate change risk is being fully considered when the investment strategy is set. Whilst the latter is not a requirement, it is recommended by the Pensions Regulator. We would always advocate having the proper governance structures in place to review all risks faced by pension schemes, and adding climate change to the agenda sounds reasonable.

On the assumption that trustees deem the risks posed by climate change to be financially material or meet the criteria to be a non-financial factor to consider, there are actions that trustees can take to address the problem and/or mitigate the risk within pension schemes.

There is some debate in the industry between reducing the scheme level carbon footprint and actually influencing real world decarbonisation.

1. Reducing scheme level carbon footprint
This method is fairly simple in practice. For example, pension funds can invest in funds that have a lower carbon footprint relative to: a) its current position or; b) the benchmark they are seeking to track. Low-carbon and climate-aware index funds are now widely available. The theory here is that if you exclude high-emitting and unstainable sectors, then the scheme’s overall carbon footprint is lower and naturally your investment portfolio is less exposed to the transition risks of climate change, such as change in government policies and stranded assets to name a few examples.

On the first point, investing in new and emerging technologies through private market or infrastructure funds is now achievable for many pension schemes. This might include investments in natural capital, renewable energy projects and private companies who are pioneering new technologies.

The second point, which is somewhat controversial to some, is “transition” investing. This recognises that without certain high-emitting industries, the goal of achieving net zero is far more difficult. The reality is, some crucially important sectors are notoriously difficult to decarbonise (for example, cement and steel) and so supplying the capital that will help them achieve this over time, and engaging with these types of companies, is critical if we are to achieve the net zero target. In reality, all of these approaches are intertwined. A pension scheme may have an allocation to passive equity funds which track a “climate-aware” index, whilst also having an allocation to private market assets.

Some trustees might take the view that investing in the entire economy and ensuring that the asset managers they employ use their voice to encourage change across the board is the most effective solution to the “big” problem. It is difficult to argue against this case.

Conclusion
Despite some pushback from certain governments and industry players, we think the issue of climate change is here to stay over long-term. NetZeroWeekTM serves as a reminder to us that the actions we take today can have an impact, whether that is positive or negative, over the long-term.

To answer the question: “Do pension schemes have a duty and a role to play in addressing the threat of climate change?”, whilst we do not think that trustees have an explicit duty to address the problem, we do think they must consider the potential risks that climate change may pose on their ability to achieve their fiduciary duty.

Dan Gilmour, Trustee Director at IGG says: “IGG has acted as Trustee of the Scheme since 2008, and we are very pleased to have secured members’ benefits with Just Group. I’d like to thank them and the excellent First Actuarial team for facilitating such a smooth process.”

Steve Higginbottom, Risk Transfer Consultant at First Actuarial, says: “We knew it would be challenging because few insurers will take on a small scheme with deferred members. However, once we received an indicative quotation from Just Group – which showed that buy-in could be secured without any additional contributions required – we knew we had something to work towards.”

From that point, the Scheme Actuary, First Actuarial’s Sam Purves, worked collaboratively with Just Group, the Scheme’s legal advisers Pinsent Masons, and IGG to progress the buy-in as efficiently as possible.

Kishan Radia, Business Development Manager at Just Group, commented: “The Defined Benefit de-risking market is buoyant, it continues to offer opportunities for schemes of all sizes, and our commitment to working with schemes, big or small, is demonstrated here. We are very pleased to have secured the benefits for the Scheme members and to have met the needs of both the Trustee and the Scheme sponsor.”

First Actuarial then took over the administration of the Scheme, preparing the data and clarifying Scheme rules and benefits to ensure a smooth and successful buy-in.

Steve concludes: “We all enjoyed working with IGG – they’re a responsive, positive and pragmatic team. In such a busy market, it’s never easy matching small schemes with insurers and it’s good to celebrate that when it happens.”

The PMI welcomes the appointment of Emma Reynolds MP as the new Minister for Pensions. As the new Minister takes office, a poll of PMI members suggests that there are some reforms to the pension system that are considered to be of particular importance. The poll, which was open until the afternoon of 4 July, asked respondents to rank a series of proposals in order of preference.

Five proposals were ranked highly:
• Implement changes to auto-enrolment to reduce the eligibility age to 18 and to remove the lower earnings limit for contributions
• Increasing the minimum rate of auto-enrolment contributions
• Improving financial education across the workforce
• Simplification of the pensions tax regime
• The creation of a standing Pensions Commission

Tim Middleton, PMI’s Director of Policy and External Affairs, commented: “We congratulate Emma Reynolds on her new role and wish her every success. The appointment comes at a time when there is much crucial work to be done. It is clear that our members are keen to see reforms introduced by the new Government. Some proposals could be achieved over the short term, but others would involve major changes that would take years to enact.”

The most obvious changes called for are to the auto-enrolment regime. The 2023 Act received Royal Assent, but the Regulations required for their implementation have yet to be laid before Parliament. Many in the industry have been calling for an increase to the minimum statutory rate of contributions for years.

Middleton added: “What is also striking is the desire for the Government to commit to longer-term projects. Financial education is clearly important to PMI members. There is also a desire to reform the tax regime, which ironically has complicated a system it was introduced to simplify. A standing Pensions Commission would allow pensions policy to be formed for the long term without being compromised by the short-term constraints of the Parliamentary system.”

Middleton concluded: “There is much to consider here. We welcome the opportunity to meet the new Minister for Pensions to discuss these proposals. We are sure Emma Reynolds will rise to the exciting challenge of her new position and confirm that we would be delighted to offer our support.”

David Lane, Chief Executive of TPT Retirement Solutions, said: "One of the most pressing priorities for Emma Reynolds as the new Minister for Pensions is the expansion of automatic enrolment to ensure more people build up more savings for retirement. Auto-enrolment has already been incredibly successful in helping people to grow their pension pots, but raising minimum contribution levels would lead to a substantial increase in pension savings for millions of workers. We also need to consider how those aged under 22 and those in part-time work are brought into the fold.

“A renewed focus on innovation in the pension consolidation space would also be welcome from the new Minister. Reform in this area could allow pension schemes to benefit from increased scale to deliver better returns for savers.

“Finally, the new Government should consider legislation to allow the creation of multi-employer Collective DC pension schemes. Employers, scheme members and the wider economy could all profit from their introduction, and we hope to see their increasing adoption in the coming years.”

Commenting on the need for rapid action from the new Pensions Minister, Calum Cooper, Head of Pensions Policy Innovation, Hymans Robertson says: “Pensions should provide financial independence in later life however long someone lives. Yet this will only be sustainable if the new pensions minister recognises the need to develop opportunities for the young to save while at the same time continue to provide decent pensions for the elderly. It’s simply not sustainable right now and that needs to be fixed. If pensions are viewed as an exchange of gifts between generations where in turn for an adequate pension, older generations leave behind jobs and opportunities, it’s clear that this ‘gift’ is getting smaller.

“The biggest pension challenge facing UK workers is the rapidly emerging division between those with DB and DC pensions. This is a difference between older generations with generous DB pensions and younger generations who have DC pensions that, at current rates of saving, will provide insufficient retirement incomes for most people. Current workers are likely to receive pensions that fail to meet their income needs when they retire and at the same time there is a lack of long-term certainty about the state pension.

”Emma Reynolds must embrace what’s already underway to help pensions savers – that's where the rapid action is required – whether that’s finally ensuring the pensions dashboard succeeds or the work to ensure greater contributions through Auto Enrolment (AE). It’s important for them to recognise and utilise the collective industry wisdom that’s been pooled through many pensions consultations over the last few years and drive action forward.”

Calum Cooper’s pensions priority list for Emma Reynolds is:

An independent pensions review. We are fully supportive of the new Government’s planned pensions review which is needed to create meaningful change that will last a generation. An independently led review, with cross party support, would give us the best chance developing a UK pensions system to be proud of.

1 Commit to improving pensions equity: There’s a 35% gender pensions gap to close. We believe that the introduction of Auto Enrolment (AE) credits during work absence due to carer responsibilities can help fill this gap. We’d also like to see employers mandated to disclose their gender pension savings gaps to promote equitable pension provision.

2 Support adequate open DB to thrive: With almost 200 open schemes TPR’s statutory objectives must be reprioritised to ensure improved pensions for current workers. Support for open schemes would give employers and the pension industry confidence to innovate options that require longer term productive investment and deliver better retirement incomes for millions.

3 Empower DB to create value. The £100bns of surplus capital that lies in DB pensions could be used to re-invest in sponsoring employers and improve pensions outcomes for both DB and DC scheme members.

4 Make Productive Finance work: It’s already clear that the new government will be identifying where investment is required to provide the most meaningful stimulus to UK productivity. To support this the pensions industry needs a practical road map and attractive opportunities to do so at scale. Practical and tangible targets and goals will be vital to engaging for investors. The pension and financial services industries will then mobilise attention where it will have impact aligned with their long-term goals.

5 Stimulate CDC and broader innovation in DC: According to our analysis, risk sharing options like CDC can increase an expected pension by over 20% for the same cost. We’d like the new government to encourage CDC regulations that stimulate a range of retirement risk sharing designs in DC. These would create a larger pool of assets which can be used to invest productively over longer time horizons alongside providing greater incomes in retirement. These would result in a larger pool of assets which can be used to invest productively over longer time horizons alongside providing greater incomes in retirement.

6 Build on the success of auto enrolment:

a. Improve and expand AE: An average earner with the AE minimum of 8% has only a 1 in 3 chance of PLSA’s moderate standard of living, based on our analysis. We’d like to see an increase in contributions to gradually take the AE minimum from 8% to 12% from 2026 through auto escalation of 0.5% p.a.
b. Expand AE to self-employed. Only 1 in 7 self-employed save into a pension. Emma Reynolds should find a way to auto-enrol self-employed people into pensions e.g. via HMRC. We must not leave vast swathes of the population behind, especially gig economy workers.

7 Preserve confidence in the State Pension. We remain supportive of the Triple Lock for now to combat pensioner poverty. But it isn’t sustainable forever. The new government must set a sustainable target for the state pension to give workers confidence that it will exist when they retire. Then they can plan for what they need to save.

8 Introduce decumulation defaults. Legislation is needed to encourage new thinking and innovation around at retirement choices. This should include sophisticated "straight through” retirement propositions to help people navigate from work into retirement safely and successfully.

BW has secured a contract for up to ten years with the fund, which is operated by Hertfordshire County Council.

The Hertfordshire Pension Fund has over 500 participating employers, resulting in over 130,000 members and an asset value of over £6 billion. BW’s Public Sector Team, which supports and advises around 25% of LGPS funds across the UK, was chosen following a competitive selection and tendering process.

Outlining its key objectives for the new Government, NOW: Pensions believes an AE Roadmap will play a crucial role in supporting pensions adequacy. To deliver a Roadmap, a collaborative approach across industry and government is needed to agree and put in place the future changes. NOW: Pensions believes that a Roadmap should include reviewing the adequacy of AE contribution levels and the scope of AE, as well as an approach to implementing the AE Extension Act during the next Parliament.

Fairness for all

It is critical that the necessary evolution of the pensions system achieves fairness for all. In particular, addressing the challenges of the underpensioned and gender pensions gap. In addition, on existing policy areas such as small pots and value for money, it is vital that these work for lower earning members and provide value for all cohorts of saver.

Ensuring focus on member outcomes

NOW: Pensions also calls on future pensions policy to be focused on delivering the best outcomes for members. With a number of policy projects already in motion, a review of these current projects is needed in order to assess the cumulative impact, efficiencies and sequencing. This is to ensure key policy objectives are met in the most efficient way, and that there is a real value gain for members.

NOW: Pensions also looks forward to engaging with Labour on the productive finance and growth agenda to make certain that it serves the best interests of members.

Commenting on the future direction of pensions policy under the new Government, Patrick Luthi, CEO of NOW: Pensions said: ““We welcome the plans from the new Government to undertake a pensions review. This provides a great opportunity to revisit the role of productive finance and ensuring members best interests are front and centre. We believe any review must also consider a strategy to secure the ongoing success of AE.

“We are also keen to explore with government the approach to pension strategy and policy under a new joint HMT/DWP pensions Ministerial portfolio. In particular we are keen that this should see a focus on member outcomes, a deep understanding of the importance of automatic enrolment and the key role of workplace pensions in the landscape .

“Developing a clear roadmap for auto-enrolment is crucial and will provide business certainty and stability for employers and the industry in the long term – including preparing for implementation of the AE Extension Act and beyond.

“We look forward to working with the new Pensions Minister and Government and support plans that are focused on delivering a pensions system that is fairer for all and provides better outcomes for a member’s retirement.”

At present, many areas of pension policy are split between the two Departments. For example, regulation of trust-based occupational pensions comes under DWP and the Pensions Regulator, whereas regulation of contract-based pensions provided by insurance companies comes under HM Treasury and the FCA. Having a single minister in charge of both could mean that policy is more coherent and fully considers the many different types of pension arrangements which UK workers currently use.

Another potential advantage is the fact that pension tax relief is a policy area which falls firmly within the remit of the Treasury but clearly has huge implications for the whole pensions landscape. Any reform of pension tax relief would need to fully involve DWP for consideration of how changes could affect occupational pensions, and this will be easier with a minister who serves in both departments.

Although subject to final confirmation, it is assumed that the joint Treasury/DWP role announced over night will cover the pensions brief and therefore that Emma Reynolds MP will be the pensions minister. Emma was first elected to Parliament in 2010, representing Wolverhampton NE and served for 9 years before losing her seat in 2019. But she stood again at the 2024 Election, this time in Wycombe, and returned to Parliament with a majority of just over 4,500 votes.

Commenting, Steve Webb said: “There is much to be said in favour of a ministerial role which spans both HM Treasury and the Department for Work and Pensions. In the past, the two departments have not always been ‘joined up’ when it comes to pensions policy, with Treasury changes to pension tax relief sometimes undermining DWP efforts to boost pension saving. With a combined appointment there is the opportunity for decisions on pensions to take full account of the whole pensions landscape. One risk however is that the Treasury desire to see pension assets used to promote economic growth at a macro level could mean that the individual member perspective gets less attention than it should. This is something that the new minister will have to guard against”.

By David Robbins, Retirement Director at WTW

This article outlines how pensions policy might feature in the new Parliament. A more comprehensive summary of the possible changes will be published shortly, analysing comments made previously by Labour spokespersons.

Pension investments: Like her predecessor, the expected new Chancellor, Rachel Reeves, has suggested that pension funds are not investing in the right ways, particularly when it comes to financing start-up businesses looking to scale up. A review promised by Labour would aim to “identify and tackle barriers to pension schemes investing more into UK productive assets – including cultural and regulation-induced risk aversion”. Labour wants “greater consolidation of all types of schemes”. What this will mean for private sector DB schemes has not been spelled out, but the new government inherits plans to create a public sector consolidator, which would allow government to influence how a chunk of DB assets is invested. It is unclear whether, or how, Labour will take forward potential changes to rules around how DB surpluses can be accessed. For DC schemes, Labour proposes “an opt-in scheme…to invest a proportion of their assets into UK growth assets”, guidance on default investment approaches and new powers to force consolidation.

Automatic enrolment: Labour has not proposed a timetable for automatically enrolling 18-21 year-olds into workplace pensions, or for abolishing the lower qualifying earnings threshold so that contributions always start from the first pound of earnings. This might reflect concerns about the cost of living and the fact that Office for Budget Responsibility (OBR) forecasts assume the changes do not start being implemented before 2029; earlier implementation would reduce forecast tax revenue.

Pensions tax (general): Labour has set out a few limited tax rises (not affecting pensions directly) and its manifesto ruled out increasing income tax rates, National Insurance, VAT or the main rate of Corporation Tax. Beyond that, its general stance during the campaign was that it had “no plans” to change other taxes, that Labour spending plans did not require additional revenue and that a Labour government would focus on trying to generate extra resources by growing the economy. Invitations to rule out other specific tax rises were generally declined. Cutting higher-rate tax relief, which the incoming Chancellor advocated before having responsibility for Labour’s tax policy, is in the “no plans/not needed” category rather than the “ruled out” category, but implementation would be challenging. After Sir Keir Starmer mistakenly gave the impression that the option to take a 25% tax-free lump sum would soon expire, Labour said it had a “firm commitment” not to change the system; it is unclear whether this extends to not cutting the maximum £268,275 in cash terms.

Lifetime Allowance: Labour’s manifesto said nothing about restoring the Lifetime Allowance, which an Opposition spokesperson once promised to do “immediately”, and the party’s fiscal plans at the election did not include any revenue from doing so. Not committing to bring the LTA back is not the same as committing not to bring it back, but there have been hints that Labour will not restore it.

State Pensions: Labour is committed to applying the Triple Lock throughout this Parliament. OBR forecasts suggest that the 2.5% underpin will bite in three years of the new Parliament, in which case the Triple Lock will produce bigger pension increases than would be due under the earnings indexation required by statute. A review of when State Pension Age should rise to 68 is due by 2029; Labour has not said when this will be conducted.

As ever, speculating on the policies of an incoming government is fraught with risk. Time will tell whether the new government will feel compelled – either by preference or the country’s economic situation – to introduce more substantial changes.

Evaluates the impact on global equity values of different greenhouse gas emissions trajectories under multiple climate and economic scenarios.

Identifies aggressiveness of emissions abatement, location of climate tipping points, and ability and willingness of central banks to lower rates during economic distress as key impact factors of equity valuation.

Indicates that prompt and robust abatement action is needed to keep losses below 10%. Conversely, over 40% of global equity value is at risk if decarbonisation efforts do not accelerate, with losses exceeding 50% when climate tipping points are factored in.

In a new study, , EDHEC-Risk Climate Impact Institute addresses key limitations of current climate-aware valuation approaches to produce novel insights. The paper, conducted within the research chair established by EDHEC Business School and Scientific Beta, reveals that the impact of climate risk on global equity valuation can be significant, especially in scenarios with limited climate action.

Key Findings:
• The uncertainty of climate and economic outcomes and the state dependence of discounting are two key and much neglected contributors to changes in equity valuation.
• The magnitude of losses depends on the aggressiveness of emission abatement policy; the presence or otherwise of tipping points; on the extent of Central Banks' willingness and ability to lower rates in states of economic distress.
• Severe impact on equity valuation can be obtained with very plausible combinations of policies and physical outcomes; and there is considerably more downside than upside risk - over 40% of global equity value is at risk unless decarbonisation efforts accelerate and losses could exceed 50% with near climate tipping points.
• Prompt and robust abatement action is needed to keep losses below 10%.
Methodological Innovations:
• Fully Probabilistic Approach: incorporating climate and economic uncertainties into a probabilistic framework for a more realistic and comprehensive evaluation of potential outcomes.
• State-Dependent Discounting: recognising that physical damages from climate change impair cashflows in a state-dependent manner and allowing discount factors to be determined by economic conditions and damages, which highlights the neglected role of state-dependent discounting.
• Joint Analysis of Transition Costs and Physical Risks: upgrading a popular integrated climate economics assessment model to estimate the effect of transition costs (associated with regulatory measures to curb greenhouse gas emissions) and physical damages on the value of global equity stock, providing a unified view of climate-related financial risks.

Frédéric Ducoulombier, Director of EDHEC-Risk Climate Impact Institute states: "The research team led by Professor Rebonato has upgraded mainstream integrated assessment models to incorporate the progress of climate science and make them fit for financial applications. By modelling the considerable uncertainty in the physical and economical dimensions of climate change and linking it to top-down equity valuation, this study debunks the notion that the value of financial assets may be immune to climate changes and provides additional support for bold climate action."

Professor Ricardo Rebonato, Scientific Director of EDHEC-Risk Climate Impact Institute, adds: "These results ? obtained with mild assumptions ? underline the importance of uncertainty and state-dependent discounting for climate-aware equity valuation. Our approach shows that it is possible and fruitful to integrate climate risks into financial analysis and we will be working further to develop theoretically solid and practically implementable tools for climate-aware investment management."

A copy of the full paper can be downloaded here

By Matthew Ferone, Associate Consultant, and Ed Harrison, Partner, from LCP

What data are we talking about and how useful could it be?
Our digital footprint includes a wide range of data including spending habits, location data, interactions with websites and apps, content we share and engage with on social media and more.

This data is already being used for purposes such as targeted adverts. However, socially, it feels like we are a long way from being comfortable with such data being used to price insurance.

Currently GDPR significantly limits the scope for insurers or tech firms to use our digital footprint in this way, so we simply don’t know what potential value it holds. That said, in an ultra price-sensitive and competitive landscape like the UK home and motor market, it’s not hard to imagine that additional insights into customer behaviour could lead to a competitive advantage for firms with access to this data in the future. For example, social media interactions or spending habits may reveal higher-risk behaviours, which could be relevant for some types of insurance.

Will there be a big-tech takeover in general insurance?
If tech firms have the data to understand customers’ risk better than insurers do, why aren’t they using this advantage to dominate the market with better risk selection and easier access to insurance products?

One reason is that there is much more to providing insurance than just data. Claims handling expertise, loss assessment and mitigation, and strong relationships with suppliers (eg car repair networks) are also critical components of meeting customer needs at an affordable price. The importance of these areas is frequently undervalued by new market entrants and remains a significant competitive advantage to established insurers.

The FCA investigates big-tech competition risks
In April 2024 the FCA published feedback statement FS24/1 considering the possible competition effects of big-tech firms’ entry into financial services.

The FCA says there is no evidence of harm to consumers at present, but identifies three areas of risk for the future:
• Access to our data could give big-tech a competitive advantage in the market, reduce market competition and increase barriers to entry.
• These firms could gate-keep access to the consumer market through their devices and digital platforms.
• Financial services firms’ dependence for services such as cloud computing could lead to big-tech’s increasing bargaining power.

The FCA is interested in exploring use-cases for the data that big-tech holds in a way that benefits consumers, using platforms such as its digital sandbox, which allows firms to collaborate on a proof of concept using anonymised financial data.

Ethical considerations
Insurers already use sophisticated data sources such as credit ratings to help price personal lines risks. Because this data provides such a strong proxy for risk, and because markets are so competitive, it would be nearly impossible for an insurer to survive without using it.

However, the use of credit rating and other such data is believed to be one of the drivers of the so-called poverty premium and ethnicity premium, where insurance appears to cost more for people with lower incomes or from ethnic minorities. There is no suggestion that insurers would do this deliberately, but it appears to be a by-product of very sophisticated premium rating systems.

Data from our personal digital footprint may intensify these issues, with insurers having to use the data in order to remain competitive but with more consumers potentially finding that they cannot get affordable insurance.

Where next?
It’s positive to see the FCA engaging with the challenges that big-tech could bring to the insurance market. Insurers need to be alert to evolving consumer sentiment around how rating factors are perceived, whether based on existing data or information that may be sourced from big-tech. Balancing the desire for better risk selection with careful management of reputational risk will be a challenging tightrope for firms to walk.

By Kim Durniat, FIA, Partner and Head of Insurance & Longevity Consulting at Barnett Waddingham

"But where there are challenges, they are often also opportunities - artificial intelligence (AI), significant increases in long-term interest rates, and changes in the work environment are all sources of exciting new prospects for the insurance sector."

Let’s look in more detail at the challenges and opportunities in each area.

The aftermath of covid-19 on mortality and morbidity rates
The years leading up to the pandemic saw fairly steady mortality rates, with only modest improvements. 2020 saw mortality rates increase dramatically at all ages, but since then there has been a sharp difference in experience by age. At pre-retirement age mortality remains high but post-retirement rates have fallen close to pre-pandemic levels.

While mortality projections have always been a source of debate, the split in views between pension consultants and insurers seen in the recent Continuous Mortality Investigation (CMI) consultation is wider than ever. Consultants are typically attaching greater weight to the post-Covid experience when projecting mortality rates, resulting in them assuming lower life expectancies which poses challenges for Bulk Purchase Annuities (BPA) business.

The disruption of the pandemic means that traditional models, based on all-cause mortality, are struggling and the CMI has announced yet another review of its methods. More than ever, insurers should look at underlying causes of mortality to understand what might come next.

The outlook can seem bleak, however there are promising developments on the horizon that could provide opportunities including anti-obesity drugs, universal flu vaccines, and treatments for cancer and dementia.

Economic and geopolitical uncertainty
Geopolitical risks posed by elections, polarisation and conflicts have inevitable knock-on effects on the economy, including interest rates, both globally and for individual countries. In addition, the impact to the global supply chain presents challenges for general insurance business.

This economic environment raises a plethora of opportunities and challenges:

Unprecedented growth in the BPA market - The BPA market is booming like never before. Higher business volumes are attracting new market entrants and global capital, whilst at the same time attracting greater supervisory scrutiny (if that’s possible!). This is driving higher regulatory expectations across a range of insurers’ key risk management areas such as reinsurance, counterparty risk, assessing illiquid asset risks and planning for unexpected exits.

The positive impact of soaring interest rates - Higher long-term real rates make all forms of long-term savings more attractive and viable. Could this environment foster greater innovation in the defined contribution (DC) market, and the emergence of new forms of lifetime income solution from life assurers? Higher interest rates could suddenly make what was previously loss-making general insurance business more palatable due to better investment returns, and offer a temporary reprieve for businesses to turn things around.

Tightening credit spreads - Whilst rates have increased, credit spreads have remained tight or tightened further. Will DB schemes’ preparations for buyout result in more buying of corporate bonds and further compression of spreads? Could this motivate insurers outside the BPA sector to increase their illiquid asset appetite in a search for higher spreads?

Capital models – Across general insurance, capital models have got used to performing in an environment with low investment returns. Insurers should consider how they can best allow for these returns while ensuring that market downside risk remains adequately captured.

Increasing general insurance premiums - Particularly in the consumer insurance sector, inflating premiums have largely been attributed to inflation. Whilst it’s fair from the insurer’s perspective, these increases have been scrutinised particularly with the recent consumer duty legislation. The suspension of the sale of Guaranteed Asset Protection (GAP) insurance by the Financial Conduct Authority (FCA) suggests that regulators are taking these issues seriously and will not hesitate to crackdown on practices that they consider to be unfair for consumers.

Regulating the financial sector
A recent focus on the impact of Brexit is how the UK financial sector will be regulated without a guiding hand from Brussels.

Solvency UK has not had much impact on general insurance business. On the one hand, the lower cost of NOT changing regulation alongside maintaining equivalence with Europe has its appeal. On the other hand, is there a missed opportunity that would allow UK general insurers to evolve and stay at the forefront of the insurance market, considering Solvency II was first made into law in 2009? Even if the Solvency UK changes were not material for some sectors, it does not stop insurers from assessing their Solvency II processes to ensure they remain fit for purpose, given the maturity and understanding of their stakeholders.

Climate change
Insurers must consider their impact on the environment and how this effects their policyholders. Climate change will also inevitably become an important theme in the regulatory agenda, both in the UK and globally. Is climate change a new form of forward-looking risk that is absent from our historical data and that requires special attention and adjustments in our models, risk assessments and attestations?

The increasing pace of technology
New technology and AI comes with risks of spurious results, plagiarism, and cyber risks.

We are seeing more firms looking to move from traditional actuarial modelling systems to opensource solutions such as Python or R, to improve flexibility and reduce costs. However, this move also increase model risk – a big area of focus for the regulators of banks. Moving to any new tech will require a key focus on model risk governance and policies to ensure it captures any new risks that may exist.

"Although embracing new tech comes with risks that insurers need to be mindful of, it will also improve learning, increase productivity, enhance decision making, streamline processes and optimise customer experience. If the risks are mitigated effectively and ample time is given to adapt to new processes, tools and workflows, AI provides huge opportunities for insurers."

Leveraging opportunities
So, all in all there are lots of opportunities for insurers. Risks are becoming more complex, and the increasing interconnectivity of risks is often difficult to manage and comprehend, but taking the time to understand risks more and manage them appropriately will ultimately lead to more opportunities for insurers.

While delivered by the monarch, the Speech is written by the government, setting out its priorities and including a number of proposed laws and other announcements. The King’s Speech is then debated in the House of Commons, followed by a vote. This vote is normally seen as symbolic, and the government is highly unlikely to lose due to its majority.

Ahead of the King’s Speech next week, Kate Smith, Head of Pensions at Aegon, comments on what could be included from a pensions perspective, although suggests it may be too early for a complete Pensions Bill:

“King Charles will deliver his second King’s Speech on 17 July – the first since, and only two weeks after, the UK General Election. This will set out the new government’s priorities for the year ahead.

“It seems too early to include a new Pensions Bill at this stage. It’s more likely to be one for next year, once the Labour government, with a new Pensions Minister, has had time to undertake its promised ‘pensions review’, alongside considering other policy initiatives already in flow and decided which to continue, change or cancel.

“One big change, already legislated for by the previous government, but not yet implemented, is the enhancement of auto-enrolment. This will see the minimum age reducing from 22 to 18, and calculating minimum pension contributions on earnings from the first £, so removing the £6,240 salary offset. No further primary legislation is needed here, but other initiatives the government may want to revisit include the Value for Money Framework, which may require new legislation.

“Rachel Reeves, in her first major speech as Chancellor (8 July), has given some indication of what we may expect in the King’s Speech, including its use of pension scheme assets to support the UK’s growth agenda. This, perhaps linked to a new National Wealth Fund, is one to look out for, although further consultation will be needed with the pensions industry before legislating.

“The new Chancellor also has a big focus on building more houses. Housing policy is becoming increasingly intertwined with pension policy and people’s finances in later life, with the assumption that most people will be mortgage-free homeowners by the time they retire, now sadly outdated. The lack of supply and affordability of housing means more people are likely to be renting in retirement, and as such, are less likely to have a financially comfortable retirement.

“So far the government has been silent on social care and how this is to be funded. This also has a big bearing on people’s finances in later life, especially for those who need or will need care. Additionally, it has a big impact on wider families and on the likelihood of being able to pass wealth down through generations. We’re waiting to see if there will be any mention of this in the King’s Speech and possibly a re-commitment to – or review of – the previous Conservative government’s reforms, which were due to be implemented in October 2025.”

A scheme’s s179 liabilities represent, broadly speaking, the premium that would have to be paid to an insurance company to take on the payment of PPF levels of compensation. This compensation may be lower than full scheme benefits.

Highlights

The former Labour politician, who was UK Shadow Pensions Minister 2011-15, joins at a pivotal time for pensions, with all sides of politics committed to a greater role for pension funds in supporting UK economic growth.

McClymont is currently an Executive Director at IFM Investors, the top five infrastructure investment manager created and owned by 17 Australian pension funds. He joined IFM from the People’s Partnership, where he was Group Director of Policy and External Affairs.

McClymont also spent three years as Head of Retirement at Aberdeen Asset Management after leaving Parliament. Before entering politics, he was a Tutorial Fellow at St Hugh’s College, Oxford.

McClymont will join the Board following the PLSA’s October annual general meeting. He served previously on the PLSA’s Policy Board, when he also chaired the PLSA’s Master Trust Committee. His NED experience includes previous roles at the PLSA’s Pensions Quality Mark (PQM), TISA and the Pensions Scholarship Trust.

Emma Douglas, Chair of the PLSA, said: “I am pleased to welcome Gregg back to the PLSA. His experience as a former Shadow Pensions Minister, and in senior policy forming roles in the pensions and investment industry, strengthens an already formidable PLSA Board. Throughout his career he has been a prominent campaigner for improved pension outcomes and an advocate for public policy that helps everyone achieve a better income in retirement.”

Julian Mund, Chief Executive, PLSA said: “Gregg is an ideal fit for the PLSA, bringing with him senior parliamentary and industry experience and, in his current role with IFM Investors, a track record of supporting pension funds to invest in productive finance assets globally. His skillset will significantly boost the policy and advocacy work of the PLSA and help us achieve our goals beyond the General Election. I look forward to welcoming him to the Board.”

Charlotte Fletcher, Business Development Actuary at Standard Life, part of Phoenix Group: “Funding positions for UK defined benefit schemes remained encouragingly stable at the end of June. The aggregated surplus of the 5,050 schemes in the PPF 7800 index increased from £468.6 billion at the end of May, to £473.6 billion at the end of June. The aggregate section 179 funding ratio for the 5,050 schemes remained at 149.4 per cent at the end of June, compared to the same figure at the end of May[1].

“DB schemes are maintaining steady surpluses with Barnett Waddingham research showing that for the first time, contributions paid by the FTSE 350 companies into DB schemes was lower than the amount paid by these companies into Defined Contribution (DC) schemes[2]. For those employers with both DC and DB schemes, there may be interest in considering whether any DB surplus can be used to top up DC schemes, importantly, without impacting buyout affordability.

“For the wider de-risking market, funding levels mean that there will continue to be high levels of demand and it is unlikely that the change in Government last week will significantly change this. For trustees looking towards their own endgame strategies preparation remains a key priority.”

Sion Cole, Head of European Institutional OCIO at BlackRock, said: “The aggregate surplus of schemes continued to rise in June, from £468.8 billion at the end of May to £473.6 billion at the end of last month – this marks a nearly £45 billion increase in surpluses since the start of the year. The continuation of a supportive market environment in June reinforces the opportunity for trustees to secure the long-term fully-funded status for their schemes.

“In this market environment where rates remain higher for longer, trustees are increasingly focusing on their long-term strategy and identifying innovative ways to continue utilsing their surplus to improve member outcomes.

“The progress central banks have made on inflation is becoming increasingly clear. At the same time, the downside risks to growth have become more pronounced across developed markets. With that in mind, we expect major central banks, including the Bank of England, to cut rates before the end of the year. This presents further opportunities in fixed income for schemes. It also opens the door for schemes to review their positioning in traditionally high risk assets such as emerging markets debt and equities. It will be key for schemes trustees to align their risk-appetite with their exposure and long-term objectives.”

By Christine Kerr, Principal and Senior Pension Management Consultant at Barnett Waddingham

The Department for Work and Pensions (DWP) has published guidance on a staged approach to connection for Pensions Dashboards, with the revised timeline from April 2025 to October 2026. The Pensions Regulator (TPR) has also updated its guidance to urge the industry to adhere to the revised staged connection timeline.

The Pension Dashboard Programme (PDP) is responsible for designing and implementing the central digital architecture that will make Pensions Dashboards work and setting out various ‘standards’ for providers to adhere to.

The PDP has set out its goals which include connecting people with their pension savings and showing their retirement income, signposting to impartial guidance and empowering pension choices.

Your role as a trustee
While administrators play a key role in the management of this activity, trustees must take action to ensure they are meeting their responsibilities under the Pensions Dashboards Regulations 2022. They need to be satisfied their advisors and stakeholders are engaged in the process. Failure to comply could result in compliance notices and penalties from TPR.

Action points

Establish governance
Trustees should assess if the required governance structure is in place with appropriate stakeholders having oversight. Effective decision making and processes being agreed early will put you in the best position to deliver to the agreed milestones.

A delivery plan should be agreed with providers and progress should be regularly reviewed to ensure the connection date is met. Trustees should check their connection date using TPR’s connect by calculator.

You should:

Decide who will oversee implementation (full board, sub-committee, or subset).

Set up a clear reporting structure.
Use TPR's checklist to monitor progress and make Pensions Dashboards a standing agenda item.
Engage with administrators to agree a project plan – you may have multiple administrators to engage with – defined benefit and defined contribution teams and don't forget the AVC providers!
Agree how decisions made will be recorded and communicated – decide the matching policy and criteria used, plus any changes to this, which need to be kept for a minimum of six years.

Focus on technology

TPR has said compliance and enforcement with the Pensions Dashboards programme will be principles based, data led and pragmatic. It recognises trustees are highly reliant on third parties for delivery, however, the trustees are ultimately responsible for compliance. Therefore, it’s important trustees keep a clear audit trail and detailed decisions log throughout the project.

The Pensions Administration Standards Association (PASA) has also provided useful information to support the implementation of Pensions Dashboards, in particular in relation to the administrative requirements and impacts.

Data and technology are key to the success of an individual’s Pensions Dashboard experience and getting it wrong will result in a lot of additional work, and possible cost. Trustees need to give this careful thought.

Trustees need to have a digital interface to connect their scheme to Pensions Dashboards that meets the Money and Pensions Service (MaPS) standards. This interface could be:

built by the scheme’s third-party administrator or software / IT supplier;
built by the trustees; or
provided by a third-party service provider.
Agree a plan with your administrator(s)/ software / IT suppliers for connecting your scheme to the Pensions Dashboards.

Review and improve 'find data' accuracy
Find data are the data items the Pensions Dashboards ecosystem will send to providers when an individual submits a find request, such as first name; surname; and National Insurance number. It is essential this data is correct on members’ records. The PDP lists all the find data elements that can be used and trustees are responsible for deciding which of the find data items they will match to, so it’s important to understand your data and choose the matching criteria that you are most confident is correct.

Further data considerations include:

Understanding how you will connect and which interface you will use.
Establishing how each provider will connect.
Considering find data accuracy for members and agreeing steps to address any gaps.
Considering aligning any ongoing data cleanse work with any data gap work for efficiency.
Agreeing approach to data matching, including:
what find data you will use;
how you will manage partial matches;
how you will monitor your find data accuracy; and
if you have multiple providers and approaches, understanding the impact on member experience.
You should engage with your administrator(s) / software / IT suppliers to agree an approach.

Consider the member journey
Trustees should engage with their administrator(s) to understand the post-launch member experience, allowing them to shape communications accordingly. Providing information setting out what members can expect will help if there is more than one provider involved in the scheme.

The day-to-day administration team are likely to experience increased member engagement and enquiries. Preparing a member communication plan which supports this may help to ease the transition. The administrator(s) will also experience an increased workload because of partial matches or increased member engagement, or they may need to start producing additional member calculations to meet the required return output. Understand what steps your administrator has in place to ensure there is no impact on day-to-day service delivery.

Address contractual implications
Trustees should proactively engage with administrators to understand any contractual and cost implications as a result of process changes and/or administrators use of a third party to supply data to the Pensions Dashboards.

The average quoted price of car insurance rose by 34% in the year to May, but the worst could be over with quoted premiums falling in the past three months, the latest Consumer Intelligence Car Insurance Price Index ¹ shows.

The three months to May saw average quoted premiums fall by 1.3% - the first quarterly drop since the last three months of 2021. The previous quarter recorded increases of just 0.5% - the lowest quarterly rise since November 2021.

Almost all regions saw falls in quoted premiums with the biggest in Wales at 3.9%, followed by London and Yorkshire & The Humber with 2.1% decreases. The South West, however, saw price increases of 0.8%.

Data shows that in May this year, drivers most commonly received a quote between £500 and £749, with 21% of quotes falling in this price range. Around 58% of quotes were below £1,000, with around one in five (18%) under-25s received quotes for less than £1,000, compared with 84% of over-50s and 58% of those aged between 25 and 49.

“The escalation of car insurance premiums may finally be at an end, with insurers now reducing premiums and jostling to get to the top of screen on the price comparison website results pages,” says Max Thompson, Insurance Insight Manager at Consumer Intelligence.

“Insurers are making their pricing efforts more visible to consumers. There are now more price cut offers visible on quotes than messages relating to cover benefits, which is the first time this has been the case since July 2022.” adds Thompson.

Long-term view
Average overall quoted premiums have risen 122.7% - more than doubled - since October 2013 when Consumer Intelligence first started collecting data.

They have increased the most over this time for the over-50s with a rise of 165.1%, and the least for the under-25s at 36.5%. Drivers aged between 25 and 49 have seen average increases of 142.6%.

Age differences in the past year
The under-25s have experienced the biggest increases in quoted premiums at 44.2% while for those aged between 25 and 49 quoted premiums have risen 33% since May 2023 and over-50s have seen increases of 28.1% last year.

Telematics
Telematics providers have become slightly more competitive offering 16% of the rank one to five quotes in May compared with 15% in February, which was the lowest level for five years.

Younger drivers are benefiting with 40% of the top five quotes for under-25s coming from telematics policies, compared with 36% in February. The proportion of rank to five quotes from telematics for other age groups was unchanged at 5% for the over-50s and 13% for those aged 25 to 49.

Regional differences
Average quoted premiums have risen the most in the past 12 months for drivers in Scotland, the West Midlands and London, with increases of 39.1%, 37.8% and 37.7% respectively. The lowest rise was in Wales at 25.6%.

But almost all regions recorded reductions in quoted premiums over the past three months with the biggest drops seen in Wales at 3.9%, followed by London and Yorkshire & The Humber with 2.1% decreases. The South West was the only exception with an increase of 0.8%.

The report, Cyber's Sleeper Threat: Business Email Compromise, was published in conjunction with Marsh McLennan’s Cyber Risk Intelligence Center and investigates the threat and impact of BEC attacks – sophisticated forms of phishing that exploit human vulnerabilities rather than technical weaknesses. In these scenarios, attackers impersonate trusted entities to deceive employees into transferring funds, making it difficult for traditional security measures to detect and mitigate the risk effectively.

An analysis of Marsh’s proprietary claims database over the last five years found more than 550 successful BEC events impacting Marsh clients with either a cyber or crime insurance policy in place. Of these events for which loss data is available, the report reveals the greatest number have a loss around 0.1% of the company revenue. For a company with $1 billion in revenue that amounts to a $1 million loss.

Despite the considerable financial threat, commercially available cyber vendor models have mixed approaches as to whether BEC claims should be accounted for in their catastrophe event catalogue, the report says. The report found that only one industry-leading vendor has incorporated BEC as an explicit cyber peril into its models.

“Cyber threats such as ransomware attacks, zero-day vulnerability exploits, and cloud service provider outages dominate the headlines. The consequences of a successful BEC attack, however, can also be devastating for an organization and create large losses for cyber (re)insurers,” said Erica Davis, global co-head of cyber, Guy Carpenter. “By driving awareness of the right cybersecurity measures, we can collectively improve the resilience of organizations against BEC threats and mitigate its impact on underwriting profitability.”

You can access the full report here

Trustees are eager to understand industry governance best practices, but many find themselves constrained by time. A significant 71% of trustees stated they are too busy to research and learn about best practices, leading 77% to seek support from external advisors, such as the Pension and Executive Management Services team at Barnett Waddingham.

And while DE&I is a high priority for 42% of trustees, other strategic priorities for the next 12 months are demanding their attention, potentially diverting focus from successful DE&I implementation.

These priorities include:
• Strategy setting, including end game planning (43%)
• Adviser reviews and/or replacements (38%)
• TPR's New General Code, including Effective System of Governance (ESoG) & Own Risk Assessments (ORA) (34%)

A number of insurers have launched dedicated streamlined propositions, to meet the needs of smaller DB pensions schemes and increase their capacity to provide quotations, transact and onboard more small schemes. In its latest Risk Transfer Spotlight report: Insurers step to the plate: The new era of small scheme risk transfer, Hymans Robertson provides a comparison of each insurer’s small scheme proposition, and the key considerations for schemes considering these offerings.

Commenting on the changes to the DB market and how insurers are responding, Iain Church, Head of Core Transactions, Hymans Robertson says: “The use of streamlined propositions by many insurers is now the norm for smaller schemes seeking quotations. This is a welcome development for both small DB schemes and insurers, as streamlined services which make the process of insuring more efficient, and quicker, can only be a welcome change.

“At our recent webinar aimed at pension schemes under £200m, almost half of those attending said they see generating sufficient insurer engagement as the biggest challenge to insuring their schemes. These streamlined propositions make it easier for insurers to provide quotation and therefore remedy the engagement challenge that many trustees are facing. For instance, in the last month alone, we completed streamline transactions under £20m with each of Aviva, Just and Legal & General, evidencing the choices available and competitiveness from insurers at the smallest end of the bulk annuity market.

“Whilst streamlining the process is a positive step, Trustees should remain mindful about the lack of flexibility that may arise from such offerings and must be aware of any restrictions that these offerings bring. Working with a well-established risk transfer adviser is therefore crucial to ensure transactions best meet scheme’s objectives. We look forward to seeing the bulk annuity market develop and grow as more insurers look to follow this trend.”

Neil Bull, TPR’s Executive Director of Market Oversight, told an audience of master trust chairs of trustees, trustees, scheme strategists and scheme funders at a TPR event the move would see master trusts become the 'gold standard for pension provision'.

Speaking at the London event, Neil said: “Value has to be the guiding light for all that we do. For our engagement with master trusts that means: A focus on investments. A focus on data quality and standards. And a focus on innovation at retirement.”

He explained the shift follows the success of the master trust authorisation and supervisory regime, which resulted in high levels of governance and administration for master trusts.

Neil added he wanted master trusts to see their relationship with TPR as a partnership, which mitigates harms, identifies opportunities for savers and delivers value.

And he called on master trusts to candidly share their thoughts so TPR can explore their concerns and build sophisticated evidence bases to understand the bigger picture.

He added many master trusts will have already seen a difference in how TPR engages with them on investments. This includes expert-to-expert conversations where a multi-disciplinary team from TPR engaged with a master trust’s investment and strategic experts as well as its trustees.

He said TPR would:
• probe and challenge more on how a master trust’s approach to investments delivers for savers
• investigate how a master trust is seeking the best possible long-term risk-adjusted returns
• look more broadly at master trust investment governance practice and investment decision making
• request deep dives into the systems and processes of master trusts.

Neil added: “Our visits need not be cause for concern but seen instead as a learning opportunity for us both. This will mirror the activity we see in the private sector when master trusts showcase their offer to employers explaining their operations.”

Mike Ambery, Retirement Savings Director at Standard Life, part of Phoenix Group said: “Pensions, retirement and savings is a complex brief so it’s great to have a Minister in post who has been following the issues so closely through the Work and Pensions Committee. Having the context around challenges like the lack of savings adequacy, the need to implement auto-enrolment reforms, the pension dashboard and small pots to name just a few of the issues, will be incredibly important to ensuring the government is able to move matters forward at pace.”

Kate Smith, Head of Pensions at Aegon, says: “We welcome Sir Stephen Timms back into a Ministerial role in the Department for Work and Pensions. If confirmed as the new Pensions Minister, it will be his third time in this role.

“Timms is well-known and highly respected in the pensions world, and with his wealth of pensions knowledge, he’ll be able to get to work quickly. As recent chair of the influential Work and Pensions Committee, Timms is used to asking the challenging questions and we expect this to continue as the DWP and Treasury, hopefully with input from the pensions industry, identify and take forward the new Government’s pension priorities.

“Top of the agenda will be the all-important pensions review referred to in Labour’s manifesto. It will be particularly welcome if this is led by an Independent Pensions Commission, making recommendations to Government. The new Labour Government also need to get to grips with how and where their pension priorities fit into the long list of ‘work in progress’ initiatives inherited from the outgoing Conservative Government. Aegon stands ready to work with Sir Stephen and the new Government.”

Pension freedoms expanded the options available to DC savers, offering huge opportunities to shape a retirement income to meet individual income needs. But it also created what William Sharpe, Nobel Prize winner and professor of finance, described as “the nastiest, hardest problem in finance” – the risk of running out of money during retirement.

We know that when faced with a choice, human behaviour kicks in. The present bias or hyperbolic discounting is where people choose smaller and more immediate rewards – such as a cash lump sum, rather than larger later rewards – such as an income for years to come. Unlike an annuity, drawdown income might be deferred for a decade or more, making it difficult to relate to a future-self who is older and no longer working.

Herd mentality might also lead pension savers to believe the most popular option must also be the right one for them. While an actuary looking at a solution for a large pension population can approach the problem based on long term averages, the average is not always useful to an individual. For example, savers might make a retirement income choice based on the average life expectancy. However, half the population lives longer than the average person. Among women aged 65-years-old the average life expectancy is 87 but one in four will live to 94 and one in ten to 98.

When it comes to investment returns both the level and volatility of returns are difficult to predict at an individual level. The average return over the past 20 years might be very different to an individual’s experience.

It is for these reasons that decumulation options are currently evolving at pace and defaults are being discussed.

There are proponents of collective defined contribution as a default decumulation option. Pooling of investment and longevity risk provides opportunities to deliver higher pension returns on average. Although the potential need to forgo a death benefit might mean it is not appropriate for everyone.

Pension freedoms allow people to access their tax-free cash lump sum and defer their pension income. This can be hugely valuable because triggering taxable pension income also triggers the Money Purchase Annual Allowance. It effectively rules out any immediate pension as a default.

Drawdown is the de facto default for savers who have it as an option within their scheme. Crystallised benefit not paid as a tax-free cash lump sum is designated to provide flexible drawdown. It remains invested, to be withdrawn when the saver chooses. This seems like a worthy candidate for a default but leaves the question of how to align investments with the needs of savers who might plan to take an income at any point and how to deliver a sustainable level of income.

Hybrid options have the advantage of nudging savers toward a dependable income for life without committing them to it. Just as some savers would not want to be defaulted into an annuity at 65-years-old, some might not want the same to happen at 80.

Tom Selby, director of public policy at AJ Bell, comments: “With a stonking Parliamentary majority, new prime minister Keir Starmer has a serious mandate to pursue the reforms set out in Labour’s manifesto. The party has been crystal clear throughout the campaign it will prioritise economic growth and ‘wealth creation’ in government, although details of exactly how these will be achieved, or what it might mean for people’s pensions and investments, have been relatively thin on the ground.

“The pledge not to increase National Insurance, income tax or VAT led to feverish speculation of exactly what might be in new chancellor Rachel Reeves’ fiscal crosshairs, particularly if growth remains as elusive as it has been for the past two decades. And if there is a vacuum for speculation about potential revenue raising tax measures, it is inevitable the prospect of a potential pension tax raid will rear its ugly head. It is vital savers and investors ignore the noise ahead of Reeves’ first major fiscal set-piece, likely in September or October, and focus instead on their long-term goals.

“This is not just about tax, however, with a series of reforms already in train, issues requiring attention from different government departments and reviews promised. For millions of savers and retirees after years of constant chopping and changing of rules and limits, Reeves’ commitment to stability will have been welcome. Brits will be hoping the chancellor practices what she preaches when it comes to retirement policy by delivering at least some certainty over the next five years.”

Five key personal finance policy priorities the new government should address

1. Labour’s pensions review and the need for stability

“Although Labour’s manifesto was relatively light on detail, its ‘Plan for Growth’ document published in January provides an insight into what the key areas of focus are likely to be for the new government.

“A review of pensions has been promised, with the aim of improving outcomes and encouraging greater levels of investment in UK Plc. The latter will likely mean a continuation of the ‘Mansion House’ agenda started by the previous government, which has placed a particular focus on boosting private equity holdings in occupational pension schemes.

“According to Labour, at the turn of the century, UK pension funds and insurers held 39% of shares listed on the London Stock Exchange. By 2020, they held just 4%. In the US, pension schemes hold 50% of their assets in equities, compared to 27% in the UK. Staggeringly, a single investment of £300 million by the Canadian Pension Plan into a UK company exceeded the total amount of all UK pension investment in private equity and growth capital in the same year.

“Clearly any shift in asset allocation by these schemes will need to be done in a way that doesn’t harm member interests, but given the amount of money sloshing around in defined benefit schemes in particular, even relatively small changes could make a sizeable difference to the UK economy.

“While ensuring the investments held by auto-enrolment default funds are appropriate is clearly important, ultimately the biggest driver of retirement outcomes is contribution levels. It is therefore likely the next government will need to think carefully about the question of pension adequacy and how to scale up minimum contribution rates beyond the current level of 8% of qualifying earnings.

“Any new chancellor will always have the temptation to tinker with pensions taxation, particularly during a challenging fiscal environment. While the current regime of allowances is ripe for simplification, it is crucial any reforms in this area are focused on the long term and encouraging more people to save and invest for their future.

The decision by Labour to ditch plans to reintroduce the pensions lifetime allowance, a reform that would have added complexity and discouraged investment risk, is hopefully a positive indication that Labour will take a pragmatic approach in power. Given people saving in a pension are often committing to lock their money up for decades, some stability in pensions policy, particularly around the tax rules and limits, would be welcome.”

2. Simplifying and supercharging ISAs

“A new government with a fresh mandate post-election will have a huge opportunity to deliver lasting reforms for the benefit of savers and investors. The fact Labour has committed to ISA simplification is a huge positive, but to deliver genuine benefits to millions of Brits the new government needs to be radical.

“AJ Bell has long campaigned for the ISA landscape to be simplified by combining the best features of the existing six types into a single ‘One ISA’. As a first step, the next government should look at merging Cash and Stocks and Shares ISAs, the two main ISA products used by investors.

“This move would make it simpler for investors to shift between cash and investments and move us towards a world where investments are simply a feature of ISAs, rather than a defining characteristic. Platforms could then build a more flexible ISA with the ability to move freely between cash and investments – something that would tie in with wider efforts to boost the number of people investing for the long term, including in UK Plc. Increasing the overall ISA allowance to £25,000 would help support this agenda without the complexity of the proposed ‘British ISA’, an ill-thought-out policy that should be binned by the new administration.

“As part of this review of ISAs, policymakers should also consider super charging the Lifetime ISA by scrapping the exit penalty and increasing the minimum property limit from £450,000.”

3. Maintaining the Advice Guidance Boundary Review momentum

“Making ISAs and pensions easy to understand is just part of the challenge – it is also vital to improve the help available to people, both by improving guidance and encouraging more people to take regulated financial advice.

“The Advice Guidance Boundary Review initiated by the Treasury and the FCA, in particular proposals to enable more personalised ‘Targeted Support’ guidance, has the potential to be a game-changer. More useful guidance, higher take-up of regulated advice and simpler products could provide the foundation for a saving and investing revolution in the UK.

“The fact Labour has already explicitly stated its support for the Advice Guidance Boundary Review is extremely encouraging and should mean that, regardless of the outcome of the general election, these plans are pushed through without serious delay.”

4. Connecting people with lost pension pots

“Automatic enrolment has been a success story so far, dramatically boosting the number of people saving for retirement. Those reforms require an upgrade to boost minimum contributions post-election, but there is also the mounting issue of ‘lost’ pension pots to tackle.

“Around £27 billion of retirement money is estimated to be ‘lost’ in the UK, in part because each job move can create a new auto-enrolment pension pot. Reforms to create pensions dashboards, which will allow people to see all their retirement pots in one place, should make a big difference. The timetable has been delayed multiple times, so it is crucial the new government presses ahead with the introduction of dashboards as planned.

“In the meantime, anyone who needs to find pensions from previous employers can try AJ Bell’s free pension finder tool, which can take the hard work out of tracking down old pensions. AJ Bell has also created a simple, value-for-money Ready-made pension to take the hassle out of combining your pensions.”

5. Tackling HMRC’s tax troubles

“Over a decade on from former chancellor George Osborne’s bombshell pension freedoms announcement at the March 2014 Budget and the tax system that governs flexible retirement withdrawals remains faulty.

“The latest official figures reveal over £1.2 billion has now been repaid to savers who were overtaxed on their first withdrawal and filled out the relevant HMRC form to claim their money back. In the 2023/24 tax year alone, a record £198 million was repaid to people who had been clobbered with an unfair – and often unexpected – tax bill.

“Depressingly, the true over-taxation number will likely be substantially higher. In particular, people on lower incomes who are less familiar with self-assessment might be less likely to go through the official process of reclaiming the money they are owed. As a result, they will be reliant on HMRC putting their affairs in order.

“It is simply unacceptable that the government has failed to adapt the tax system to cope with the fact Brits are able to access their pensions flexibly from age 55, instead persisting with an arcane approach that hits people with an unfair tax bill, often running into thousands of pounds, and requires them to fill in one of three forms if they want to get their money back within 30 days. The new government needs to urgently review this approach and deliver a solution that taxes withdrawals correctly.

“More broadly, HMRC desperately needs some serious investment. A recent National Audit Office (NAO) report revealed taxpayers spent an astonishing 798 years on hold to HMRC in the 2022/23 tax year, and the situation is likely to become even more strained as frozen thresholds and cuts to dividend and capital gains tax allowances drag more people into the taxman’s clutches.

“HMRC’s burgeoning waiting room is down to both the growing number of taxpayers needing help navigating the UK’s labyrinthine tax system and longer hold times waiting to speak to someone. A freedom of information request by AJ Bell shows that the average wait time to talk to someone at the tax office has quadrupled in a decade, from four minutes in 2012/13, to well over 16 minutes in 2022/23.

“Waiting times have absolutely soared in the past few years. In 2019/20 the typical wait time was 6-7 minutes, but the average hold time taxpayers now endure has rocketed since then. Of course, many will have waited far longer if they had to contact the taxman at peak times.

“HMRC’s own performance statistics showed a record number of calls last tax year, despite phone lines having been shut over the summer months. There was also a significant uptick in use of its webchat and digital services. The new government will face difficult choices with regards to how it spends its limited resources, but ensuring the tax office is fit-for-purpose must be a priority.”

Isio assessed the state of ESG integration across various asset classes to provide insights into firm and fund-level practices. It explored positive developments and areas for improvement in asset managers’ ESG commitments, investment approaches, risk management and reporting.

Strong firm-level ESG adoption
Isio found that nearly all (98%) the asset managers it surveyed have a dedicated sustainable investment team supporting ESG risk management and stewardship, while three quarters (75%) have set firm-level net zero commitments. Over two thirds (65%) of firms are signatories to the UK Stewardship Code and a similar proportion (63%) are part of the Net Zero Asset Managers initiative (NZAMI).

Scope for improvement at fund level
Isio found ESG integration is well established among active equity strategies assessed, with four fifths (83%) having fund-level ESG objectives in place. Over two-thirds (67%) of these strategies have fund-level ESG exclusions in place, while another two-thirds (67%) identify ESG-related opportunities at fund-level.

Similarly, Isio found the majority of real assets strategies assessed have set explicit ESG objectives and also offer growing innovative opportunities to access sustainable and impact assets, with their physical nature aligning well to impact investing within such areas as renewable infrastructure, social housing and natural capital. Over four fifths (85%) of real assets strategies assessed identified ESG opportunities at fund-level, with a further three quarters (75%) implementing fund-level ESG objectives, and over half (52%) having fund-level ESG exclusions in place.

Assessed strategies performed well across the board. ESG specialists feed into the risk management process for a significant majority of funds assessed, including all active equity strategies, nearly all real assets (93%) and private credit (88%) strategies, and more than two thirds (68%) of public credit strategies.

While Isio expects support for these initiatives to grow, it is encouraging asset managers to engage further with evolving frameworks and standards and continue to raise the bar on sustainable investing in line with market developments and regulations.

Cadi Thomas, Head of Sustainable Investment at Isio comments: “Sustainable investing is dynamic and has evolved significantly over recent years, especially when it comes to good practice across different asset classes. At Isio, while we’ve been assessing asset managers for several years, this is our first annual Sustainable Investment Survey, which aims to shine a light on where we see ESG opportunities across asset classes and how investors can seek to ‘green’ their strategies further.

“Real assets strategies in particular offer growing opportunities to access sustainable and impact assets, with the physical nature aligning well to impact investing within areas such as renewable infrastructure, social housing and natural capital. Within credit products, we see significant disparity between sub-asset classes, with 'buy and hold' public strategies leading the way, while funds invested in such assets as asset-backed securities, as well as private credit strategies, lagging due to challenges with data accessibility.

“We’ve seen industry-wide improvements in climate-related reporting but continue to see a lag in social and nature-related reporting across all asset classes. It is however encouraging to see investors increasingly engage with environmental and social frameworks, such as the TSF and the TNFD.

We will continue to review asset managers and products on an annual basis so we can raise the bar in line with industry advancements.”

As Head of Private Sector Actuarial Services, Alec will oversee the continued development of the firm’s actuarial propositions, including trustee actuarial services, corporate actuarial services, risk transfer and wind-up transition services. He replaces Susan McIlvogue who moves to a newly created role which recognises the unique challenges facing, and opportunities available, to large DB pensions schemes. Both Alec and Susan started at the firm in 2014.

Commenting on his appointment, Alec Day, Head of Private Sector Actuarial Services, says: “The past few years have seen a period of unprecedented change for the pensions market as a whole, and in particular for DB schemes. I look forward to taking up this role at such an exciting time for pensions. It’s a privilege to work with such a talented team at Hymans Robertson, which is completely focused on continuing to deliver market-leading services for the benefit of our clients and their members.”

Commenting on her newly created role, Susan McIlvogue, Head of Large DB Scheme Solutions, says: “I am thrilled to be taking on this new role at a time when fresh thinking has never been more paramount to large schemes and an innovative approach is key. Hymans Robertson works with, and advises, some of the largest pension schemes in the UK including my own appointment as Scheme Actuary to the BAE Systems Pension Scheme. I look forward to using my experience to help Hymans Robertson shape and provide solutions for the benefit of more large schemes, their sponsors and their members.”

Commenting on what Alec and Susan’s new roles will bring to the firm and to clients, Richard Shackleton, Head of Pensions, Hymans Robertson says: “The appointments of both Alec and Susan are an exciting addition to our pensions leadership team. In a rapidly changing market, this will further strengthen our mission to deliver better outcomes for DB scheme members. Their experience will enable us to bring our innovative thinking to all our DB clients, whatever their size, for the benefit of all stakeholders, trustees, sponsors and most importantly members.”

‘Given the size of the majority for the Labour party, Keir Starmer will be the most powerful leader since Tony Blair. He will be able deliver significant change for the country and push through many reforms. But the election was won for Labour on basically a ‘change’ vote, being the anti-tory vote rather than an enthusiastic endorsem*nt for a labour mandate, which we can see in the vote % rather than the number of seats. In the election campaign we did not see Labour offer a significant shift in major policy areas, especially economic policy. We may look back in 5 years time and recognise the impact of this result had on the UK and the economy but right now we simply don’t know what that will be.’

Matt Tickle, Partner and Chief Investment Officer
"Yesterday’s general election has produced a substantial majority for Labour, which is expected to result in the largest majority achieved by any UK Government since 1935. This outcome has been predicted in the opinion polls for some time and therefore was already largely priced-in to markets. As markets opened this morning; UK gilt yields, UK equities and the sterling exchange rate have remained largely unchanged.?

We would also encourage the Government to introduce a legislative regime for capital-backed consolidators.?While interim guidance from The Pensions Regulator (TPR) has allowed the first such transactions to be completed, a proper framework is still needed for these vehicles, and would provide greater confidence to trustees who believe them to be in the best interests of their members.

This is a sensible strategy. Those schemes could deliver economies of scale and improve asset returns. Many pension schemes are already doing this and will move over £200 billion to the buy-out insurance market over the course of the next parliament. If the new Government really wants to plan ahead, it must look at how insurers can use that capital for long-term infrastructure and investment in UK markets.

Melissa Blissett, Senior Consultant and Pay Gap Analytics Lead
“The new Government sees a woman holding the position of Chancellor for the first time in UK history. With a promised fair pay manifesto pledge this could be the catalyst needed to shift the stagnant reduction in the gender pay gap seen in recent years.

For employers, we are expecting a mandatory requirement for clear pay gap action plans, an expansion into ethnicity and disability reporting and a wider focus on policies that support women in the workplace, enhancements to flexible working and childcare support.

They need to deal with a two-pronged issue. Firstly, an aging workforce that is not adequately prepared for retirement, leading to healthcare issues within the workforce. This problem could be exacerbated by bias and discrimination in the workplace. Employers need to ensure they have adequate insurance and policies in place, the issue needs to be addressed before it escalates into a larger problem.

Secondly, they need to tackle the challenges faced by the younger generation, particularly in the wake of Covid-19. Flexible working and lack of social interaction in the workplace have led to an increase in mental health issues. The Government needs to acknowledge these real problems and support businesses in tackling these issues. A smarter approach is needed, one that acknowledges where the real issues are and addresses them before they become problems.

Unfortunately, there is no fresh indication of these issues being addressed in any of the parties’ manifestos. The same old stories persist, and promises made have not come to fruition, particularly in relation to workers’ rights."

By Catherine McFadyen, Head of LGPS Consulting at Hymans Robertson

The 2022 valuations marked the start of a new era for the LGPS, as the scheme on average in England and Wales moved into surplus, revealing an average funding level increase to 107%, and a fall in the average employer contribution rate from 21.9% to 20.8% of pay. However, this transition happened in a period of considerable uncertainty, with the aftermath of the pandemic leading to both a strained economic outlook and fluctuating mortality rates.

Funding dynamics since 2022
Funding levels are a useful summary statistic, but the calculation is complex and depends on multiple factors. Two key drivers are how many assets you have and the return you expect to earn on those assets through investing them. A 100% funding level might suggest that the fund holds all the monies they need to meet their members’ pension obligations. However, 100% funding level means that the assets held, together with the future returns expected, will be enough to pay the benefits. Usually, the expected returns make up about 40% of the necessary funds. So even in 100% funding – there’s a lot of work to do.

Funding level vs. assumed future return

Source: Hymans Robertson Analysis

This chart shows the relationship between funding level and assumed future asset return for the LGPS in England and Wales (as an average). Normally if you plot this chart at two different dates, you would have two different lines indicating more or less assets. But actually, we’ve had modest asset returns since 2022 valuations. There’s variation between funds but most are close to their central estimate or projection of asset returns so the lines are similar.

Since 2022, what has shifted is the consideration of what returns might be available on different asset classes. In 2022, a 107% funding level was based on a 4.4% pa expected return on assets, significantly above the 1.7% pa yield available on UK government bonds. In 2024, gilt yields have risen to 4.7% pa, surpassing the 2022 discount rate.

A higher potential future return means you need less money today to fund the same amount of pension. We’ve seen the impact improve both insurer annuity rates (how much capital you need to buy pension from an insurer) and private sector scheme funding levels. The LGPS will need to consider the extent to which this change in environment will further improve LGPS funding levels.

Mortality trends post-Covid-19
When funding pension schemes, we need to make a prediction of future mortality rates. After the excess mortality experienced through 2020 - 2022 there is an argument to say that 2023 mortality wasn’t far off pre-COVID trends (see chart below).

This is perhaps the first positive sign that we might be able to get back on track of the trend of modest mortality improvements that were seen during the 2010s. However, it is unlikely to meaningfully change the mortality assumptions most LGPS funds made in 2022, with no significant negative impact on funding.

Standardised Mortality Rates: Unisex, England & Wales, 2011-23

Source: CMI mortality monitor week 52 of 2023

Strategic opportunities in a surplus environment
With the LGPS moving into surplus, new strategic opportunities arise. Here are some considerations for funds and their stakeholders:

For Funds: Funds are rightly cautious about significant changes in contribution rates, focusing on long-term stability. For example, across Scotland at their 2023 valuations there was a surplus increase of c£14bn and about a third was allocated to reducing employer contributions over the next 20 years, meaning 2/3rds was kept by funds. The retained surplus may be used to rebuild prudence margins and address known risks such as climate change.

For Employers: A stronger funding position opens doors for employers to consider exits. But more affordable contribution rates may influence employers to consider the excellent recruitment and retention benefit and LGPS pension offers their employees.

For Taxpayers: The LGPS stands out as a success story, especially compared to the increasing employer costs of other unfunded public service schemes. The LGPS should not be shy in communicating the benefits of having invested assets and their positive community and global impacts.

Private sector dynamics
The LGPS is often shaped by trends, not only in local government service delivery, but by the wider pension market. In the private sector, defined benefit (DB) schemes are now rare, with most transitioning to defined contribution schemes with much lower levels of pension saving. This trend highlights a stark contrast: while public sector pensions like the LGPS remain robust, many private sector savers may not achieve an adequate pension.

Median average saved (£ pa)

Sources: The Pension Regulator’s 2023 DB Landscape analysis and The Gender Pensions Gap in Private Pensions - GOV.UK (www.gov.uk)

Private sector DB schemes have also seen significant funding improvements. In the three-year period to 31 March 2023, the average funding level was higher compared to three years earlier (by around 25%). As these schemes also move into funding surpluses, policy makers and scheme sponsors are reviewing whether buy-out is still the ultimate goal, or whether there are advantages in schemes running on.

There's been a shift in policy maker thinking, with focus on how DB assets (sitting at around £1.5 trillion) could be invested in ‘productive finance’ and used to stimulate the UK economy. The ‘Mansion House’ proposals are energising debate on running schemes on with more flexibility for surpluses. Run-off could become more attractive to some if proposed reforms come through.

How may the private sector changes impact the LGPS?
We believe the LGPS provides an adequate pension for its members, but the increasing gap between private and public sector pension provision may be a source of societal strain. The private sector should be encouraged to “level up”, not the LGPS to level down.

The new government is also likely to be interested in how pension scheme assets can support productive finance and the LGPS will be included in their proposals.

Given the positive state of funding health in the private sector, and a reducing number of schemes, might the Pensions Regulator have extra capacity to direct towards the LGPS.

For those navigating this landscape, the journey might not come with a concert ticket, but it offers its own form of opportunities and excitement for the LGPS.

David Brooks, Head of Policy at leading independent consultancy Broadstone, previewing where the new government is likely to take pensions policy.

He said: “With this morning’s General Election results confirming the long-expected news that Labour will form the next government, attention now turns to how it will deliver its pension promises and duties over the next five years.

“The manifesto contained a pledge to conduct a wide-ranging “pensions review” and we expect that this is likely to cover auto-enrolment given concerns over pension adequacy as well looking at ways consolidation can improve outcomes in the workplace pension market.

“Productive finance was another area Labour focused on in their manifesto but this push for comes with a caution warning as there may be a disappointing uptake from defined benefit schemes however an ongoing review into VFM may allow more schemes to allocate long-term illiquid assets to this space. We would counsel caution in this space as these assets are not a one way bet and the long-term interests of pension savers will need to be carefully balanced with the short-term needs of the country.

“With no mention of the Lifetime Allowance in Labour’s manifesto, we can probably assume it will not continue with previously announced plans to reverse the Conservatives’ abolition of this tax, but further detail will be needed around concluding the small print on its implementation.

“With a Pensions Minister to be appointed and a Kings Speech in just two weeks’ time, policy is likely to move quickly but we broadly expect continuity in the pensions market. There are already significant legislative processes underway which we anticipate will be continued – with the possible exception of the controversial pot for life proposals.”

Iain McLellan, Director at Isio, comments: “With Labour securing a sizeable majority their promised pensions review has the potential to be more radical and grasp some of the thornier pensions issues. The government may feel it has clear license to pursue the most ambitious form of its vision for UK pension schemes and their members. That could include sweeping changes to improve member outcomes, ensure schemes take advantage of consolidation and scale, and increase productive investment in UK markets, though it’s worth noting that the consolidation and productive investment themes are ones that were also being pursued by the previous government.

“In the meantime it will be interesting to see who is appointed as Pensions Minister and what existing pensions policy developments they look to accelerate, put on the back-burner or bin altogether. Labour has dropped its plans to reintroduce the Lifetime Allowance and has no current plans for further changes to pensions taxation. However, this falls short of an outright commitment to leave pensions tax alone, and pensions might be seen as a convenient target for ‘stealth’ taxes when fiscal circ*mstances are tight.”

After a landslide election win, the country will be looking to Labour to advance key priorities. For pensions, this includes a promise to ‘review the current state of the pensions and retirement savings landscape’.

Here, Steven Cameron, Pensions Director at Aegon UK, sets out how this review could deliver the greatest benefits for millions of pension savers.

“The Labour Government’s promised review of the pensions landscape could have far-reaching implications for all aspects of workplace and private pensions.

“To kick things off, we’re calling on Labour to set up an independent Pensions and Savings Commission within its first 100 days of office.

“With pensions being such an important long-term savings vehicle for millions, changes shouldn’t be rushed. And however ‘super’ the Labour majority, cross-party support can offer stability and certainty. We need a well-thought-through, logically-sequenced reform agenda, and the pensions industry stands ready to support this.

“Labour is likely to have its own list of ideas to explore, with rumours of reviewing the pensions tax system. There, completing the regulations to abolish the Lifetime Allowance is particularly pressing. Labour is also coming to power with many of the previous Government’s pension plans still under development. To allow progress, we need clarity on which will continue, change or be cancelled.

“Aegon believes the Government’s first priority should be the planned enhancements to workplace pensions auto-enrolment, which have already received cross-party support and would boost pension pots for millions of employees.

“Second, we’d urge Labour to push ahead with the ‘targeted support’ proposals from the FCA and Treasury, offering a new form of much-needed financial help to those unable or unwilling to pay for full financial advice.

“Our third recommendation is implementing pension dashboards. These could be a game-changing way for individuals to track and engage with all of their pensions, and we urge Labour to make sure these go live by the 2026 target date.

“Fourth for us is the Value for Money framework, which is currently under development. This will create a transparent means of identifying poorly performing schemes and of making sure all members have confidence they’re saving in a good-value scheme.

“We’d put other initiatives, such as small pots consolidators and the controversial pension ‘pot for life’, on the back burner for now – once the priority measures are in place, these may simply not be needed.”

While much of the groundwork for tackling the challenges in the pensions system has already been laid by successive governments over the last 20 years, LCP has identified five key themes that the government should focus attention on to deliver fairer and more sustainable financial futures.

• Inadequacy: Current savings levels are not sufficient to deliver an adequate retirement income for the majority of DC savers. The government needs to set out a clear roadmap for introducing the reforms in the 2017 Automatic Enrolment Review and increasing minimum contributions from 8% to 12%.
• Inequality: The DC pension saving system does not treat different types of saver equitably, with parents, ethnic minorities, and the less well-off groups often disadvantaged. It’s time to tackle these inequalities with targeted action to remove systemic barriers to DC pension saving.
• Irretrievability: Around one in four people have lost track of at least one their pensions and the problem of lost small pots is increasing exponentially. Working with industry, the government finally needs to deliver pensions dashboards and stop the proliferation of small pots by adopting LCP’s recommendation for ‘Magnetic Pensions’.
• Inefficiency: The quality of governance of DC pensions across the sector is mixed, with clear consequences for savers’ outcomes where it is not up to scratch. Labour should maintain the momentum behind the new VFM framework, finalising the required regulation as soon as possible, and consider going beyond it by integrating the principles of the FCA’s Consumer Duty.
• Insecurity: Savers have to make complex financial decisions in retirement that their experience of saving has not prepared them for. The pensions sector needs to do more to support them, in particular by requiring Master Trusts and providers to offer default retirement strategies that balance the typical needs of members in retirement and enhancing the pensions guidance the Money and Pensions Service is able to offer to make it more relevant to members’ circ*mstances.

Commenting on the key themes for DC pensions, George Currie, Senior Consultant at LCP, said: “A new government gives us the opportunity to renew efforts to tackle long-standing challenges in the DC pensions sector. Given Labour’s manifesto commitment to a full-scale review of the pensions landscape, it should use this opportunity as a ‘Beveridge moment’ to tackle the ‘five great evils’ holding back DC pension savers, namely: inadequacy, inequality, irretrievability, inefficiency, and insecurity. These are the themes that should be at the centre of any review, as the solutions to these issues will form the basis of a sustainable, equitable DC pensions system for all.”

Aggregate scheme assets increased slightly over June 2024, as equity markets continued their strong year to date, further boosting improvements in DB surpluses.

However, this increase in scheme assets was slightly offset by a small decline in long-term gilt yields of c.0.1%, leading to an increase in the value of liabilities.

Over June 2024, UK pension schemes’ funding positions fell by c.£1bn, relative to long-term funding targets according to new research from XPS Pensions Group. With assets totalling £1,463bn and liabilities of £1,276bn, the aggregate funding level of UK pension schemes on a long-term target basis remains extremely positive, at 115% of the long-term value of liabilities, as of 26 June 2024.

Following the outcome of today’s general election, attention will soon focus on the future Government’s timelines for getting the draft funding code passed through Parliament as well as other topical issues such as options on the uses of DB scheme surpluses.

In a rapidly changing world, the PMI intends to be more agile and to remain contemporary. As a consequence, the PMI will be strengthening its core offering around three guiding principles: always being forward-thinking, responding quickly to a changing world, and maintaining a steadfast commitment to its members' success.

While the PMI’s core proposition will continue to be the provision of world-class professional pension education, it will further strengthen its approach towards thought leadership, innovation, and new areas of development in pension fund management. Its mission will be to continue to deliver exceptional thought leadership, comprehensive education, advanced training, and recognised qualifications in pension management while fostering industry collaboration and driving innovation to enhance retirement outcomes.

A key pillar of this new strategic development is the launch of the PMI’s Global Innovation Centre. This new initiative will bring together international learnings and best practices that will encourage curiosity and innovation. Its agenda will not only focus on pension provision but will also extend to a broader range of Lifetime Savings – an example of which is its co-leadership, with Schroders, of the Lifetime Savings Initiative, an industry-wide collaboration.

The PMI work in partnership with the wider sector to ensure that members remain at the heart of the industry’s future direction and strategy to support a more structured approach to career development through the streamlined PMI Pathways programme. The strategic review process has helped the PMI refine three core business areas to centre its approach around:

Our Membership Community
As the largest community of pension professionals, the PMI is vital in shaping the future of pensions. Achieving Fellowship of the PMI signifies the highest standard of excellence and demonstrates commitment to the pensions industry and its ultimate beneficiaries, the scheme members.

The PMI will continue to uphold its initial objective: to help industry professionals develop their careers and elevate standards in pension provision.

The PMI Academy
The PMI will remain at the forefront of pension sector excellence with a focused curriculum delivering professional qualifications, specialised CPD training and essential leadership skills.

The Academy will focus on delivering the PMI Pathways programme, which will help to develop and nurture the next generation of pension professionals.

By James Jones-Tinsley, Self-Invested Pensions Technical Specialist at Barnett Waddingham

The reason for discussing it was because, in light of mounting criticism over the amount of income tax being deducted from the initial amount of pensions income being ‘flexibly accessed’, HMRC had carried out a review of their prevailing process to see if it could be improved.

Perhaps unsurprisingly, the outcome of that review determined that no changes were needed to their processes, and the reason given for that decision was that it prevented people from paying too little tax.

To my knowledge, despite seven years elapsing since that decision, no such review has been carried out again.

Instead, we have succumbed to a quarterly update in HMRC’s Pension Scheme Newsletters of how much overpaid income tax has been returned to individuals over the course of the preceding three months.

And, as each quarter passes, it makes for increasingly eye-watering reading. For example, in their second newsletter issued in April, more than £42 million of overpaid income tax was returned to individuals during the first quarter of 2024.

For the 2023/24 tax year as a whole, a record £198 million was repaid on flexible pension withdrawals.

And - provided you are sat down before reading the rest of this sentence - over £1.2 billion has been repaid by HMRC in overpaid tax on flexible pension withdrawals, since the dawn of the pension freedoms nine years ago.

If HMRC was a private sector business, it would quickly – and deservedly – be hauled over the coals for effectively generating an interest-free loan for itself through all the tax overpayments received, until such time as those overpayments were claimed and ultimately repaid.

And the process of claiming back those overpayments can only be described, by adopting my Yorkshire vernacular, as “a right faff”!

There are two options; either wait until after the end of the tax year in which you took the withdrawal, (which isn’t ideal if you needed all of the money urgently and withdrew the income amount shortly after 6 April), or go to the trouble of completing one of three HMRC forms – namely, a P55, P53Z or P50Z (depending on the type of withdrawal) – which allow individuals to claim back the overpaid tax during the tax-year of withdrawal.

To put this form-filling into context, the latest figures from HMRC showed that more than 13,000 claim forms were processed between January and March 2024 alone.

Surely, the time and effort expended by both the claiming individuals and the administrators within HMRC could be circumnavigated by adopting a different means of collecting the tax due on a pension income withdrawal?

Why does the overpayment arise in the first place? It’s because individuals are placed on an emergency tax code when they first flexibly withdraw income from their pension arrangement.

And until they – and their pension administrators - receive an updated tax code from HMRC, the underlying assumption made by HMRC is that the first withdrawal – regardless of quantum – is what they will be withdrawing each month for the remainder of the tax year.

In most cases, this assumption is incorrect, and results in too much income tax being deducted at source.

I don’t think the word ‘archaic’ does this prevailing situation justice, and I sincerely hope that, following the forthcoming general election, the new parliamentary administration swiftly implements a much-needed overhaul of this pitiful state of affairs.

By Matthew Edwards, Senior Director and Innovation Lead at WTW; and Arlen Galicia Carreon, Associate Director at WTW.

AI for code – the next big milestone
The use of generative AI for coding for in-house applications is set to be the next big thing in 2024 as the industry realises just how powerful the latest models have become and insurers find ways to leverage this power. In a recent conversation, a non-executive director in a major UK insurance firm revealed that they had already started using generative AI for a coding project to translate all the code from the insurer’s entire legacy box of business into their preferred code to sit more efficiently with their newer main block of business.

When looking at exactly how these technologies can positively impact our day-to-day work, the writing of computer code is a prime example of a core application of AI. For example, an AI coding system can help generate and test code, as well as assist in the debug process which many developers struggle with. AI can also significantly help to improve documentation and adherence to coding best practice.

AI technologies can also facilitate code translation, such as transforming an Excel macro file into an open-source code like Python or R, with the endgame of fitting such applications into a better governed process. There are many other applications of generative AI that can help the insurance industry, such as report drafting, checking the consistency of reports in large groups or compliance with group or professional standards, and process automation that requires collation and large numbers of documents to be inspected.

Insurance firms are also undertaking competitions internally to see who can come up with the best generative AI use case, such as feeding generative AI an insurer’s complete collection of training and underwriting manuals to create an expert ‘Bot’. This approach also benefits from avoiding the risk of any external interaction, which is sensible for insurers in 2024 that are considering how best to use generative AI, while a better understanding and a level of control are still being established.

AI regulation on the rise
The opportunities of AI do not come without risks, which means implementing AI must be approached with care. As AI becomes progressively more integrated into insurance industry practices, regulatory oversight is also on the rise. This means insurers need to make sure that their AI practices comply with relevant regulations.

With such a heavy reliance on data, protecting data privacy and maintaining ethical standards are crucial. For this reason, insurers will need to comply with data protection regulations and handle personal or sensitive data ethically when using AI.

There is also the risk of bias unfairness. AI models can unintentionally learn and produce biases presented in the training data, leading to unfair outcomes. As a result, a continuous monitoring for bias is essential, alongside a commitment for transparency and fairness in their AI applications.

A key question for regulators will be the extent to which their focus is on the internal use of AI by an insurer, as opposed to concentrating on the company’s actual outputs generated by AI. With the main focus of regulators to date having been on the outputs (for instance, whether premiums are fair and non-discriminatory), the hope shared by many insurers is that this approach will persist.

A further problem arises with transparency. All model users, stakeholders and regulators ideally require their models to be transparent. But this is not possible with generative AI, which is typically based around neural networks with a hundred or more labyrinthine layers, each containing thousands of ‘nodes’ (in effect, robotic neurons). So how can we learn to cope without transparency? Alternative criteria will need to be defined to allow use while retaining confidence in that use.

The AI takeover - redefining insurance
All too often, the insurance industry approaches risk from a one-sided perspective, only seeing the negative side. While this is a natural human instinct and typical of chief risk officers concerned with everything that could possibly go wrong, real-world risks tend to be two-tailed. That is to say, insurers also need to think about the commercial risks of being slow to harness the powers that generative AI offers and hence being left behind.

Looking ahead, the insurance industry is likely to accelerate the pace at which AI and human expertise are integrated. Insurers that invest in the necessary resources and capabilities to ensure the benefits of AI are effectively harnessed, while being mindful of its limitations and potential challenges, will be best equipped to thrive in this new era of insurance innovation.

Generative AI will be profoundly transformative and far more so than analytics and machine learning were predicted to be 10 years ago. Until very recently, industry leaders were sceptical as to how such tools could safely add value to their business. Given the record speed at which these tools are evolving, coupled with an increasing awareness of the technology’s scope and transformative potential, we should be flipping the default question from ‘show me how generative AI can help in this part of the value chain’ to ‘explain to me why you’re not using generative AI here’.

The data shows that the average car insurance policy costs £367 if purchased 26 days before the policy start date, while those who buy car insurance with a same-day start date could be paying 55% more - with an average policy price of £569.

While it’s possible to buy car insurance up to 29 days before you want your policy to begin, the research shows that the optimal time to buy is 26 days before your renewal is due. On average, policies bought 29 days before the start date cost £383, while those bought 26 days in advance cost £367.

Meanwhile, the most expensive time to buy car insurance is on the same day you need it - with these last-minute car insurance purchases costing £569 on average - a whopping 55% more than those bought 26 days prior.

Tom Banks, car insurance expert at Go.Compare, said of the data: “While many of us know the importance of shopping around for our car insurance, it’s less likely we’re aware of how the price might change depending on when we buy.

“Our data shows that the price of car insurance can vary a lot depending on how close you are to your renewal date, and it can pay to be organised - with policies bought 26 days in advance costing 55% less on average than those with a same-day start date. So, to get the most for your money, we recommend keeping a note of your renewal date and starting your car insurance search well in advance.

“It’s also important to remember that there are lots of factors that affect the price of your premium - such as your annual mileage and where your car is parked overnight

Cars equipped with advanced technology, such as keyless entry systems, are presenting new opportunities for criminals, according to new research1 from The Green Insurer, which is focused on helping drivers reduce carbon emissions and drive in a more environmentally friendly way. The findings reveal ”keyless technology”, where a physical key is not required to turn the ignition and start the car, is thought by 70% of motorists to make cars more vulnerable to being stolen via criminal activities such as key cloning.

Keyless technology and its potential to be exploited by criminals who are able to unlock and start vehicles without needing physical access to a key, was described by more than a third of respondents (34%) as making cars equipped with this innovation “much more vulnerable” to being stolen; a further 35% said they thought the technology makes cars “slightly more vulnerable” to theft. Only 10% believe that keyless car models were less vulnerable to theft.

The research highlights that four in five (80%) motorists believe that car manufacturers need to do more to make their cars more difficult to steal, with only 6% saying they did not believe car manufacturers had more work to do to make their cars less vulnerable to theft. The over 55s are more likely (85% of respondents in this age group) to believe that the responsibility of addressing car theft lies with the manufacturers, compared with 66% of under 25s who share this view.

The rise in car crime appears to be impacting people’s purchasing decisions, with one in eight (13%) saying that they have in the past avoided buying a particular model of car because they fear it is attractive to thieves. A further 33% of people stated that they will consider not buying a particular model of car in the future if they fear it is desirable to thieves, and therefore at higher risk of theft. Just over one in two people (54%) said that they didn’t take the vulnerability of a car brand or model being stolen into consideration when making a car purchase.

Paul Baxter, CEO, The Green Insurer, said: “Modern vehicles are equipped with advanced technology, including keyless entry systems and sophisticated infotainment units. While these features enhance convenience and connectivity for owners, they also present new opportunities for criminals.

“It’s clear from our research that the overwhelming majority of consumers believe car manufacturers have a pivotal role to play in reducing car crime. More worryingly, our findings indicate that if a particular model is deemed to be a high risk target for thieves, almost one in two purchasers will be put off from buying. By keeping one step ahead of the criminals and enhancing the security features of their vehicles, whether that is by integrating advanced encryption methods or investing in better vehicle tracking and recovery systems, car manufacturers can make significant strides in reducing car crime, thereby giving their customers peace of mind as well as protecting their brand.”

Claims costs are still largely rising faster than premiums, with UK auto CPI maintenance and repair up 8% in the year to June, as an example. The rollout of IFRS 17 accounting has the potential to sharpen investor focus on book value and the return on it, believes BI, but the uncertainty caused by the new accounting rules hasn't dampened sentiment so far in 2024.

BI recognises three key themes for 2024: inflation, high costs, and premium rates needing to rise. Claims inflation has characterized 2023 trading, and BI expects it to be a feature of 2024. Additionally, the cost ratio of most insurers remains too high, it is crimping returns and isn’t being helped by both inflation and claims inflation. This makes cutting costs difficult. This is key when top lines stall due to weak economies.

Upwards pressure on claims paid and costs driven by inflation means it is imperative that insurers continue to push premium rates up in 2024, in BI’s view. Margins are likely to remain under pressure as claims inflation always lingers longer than anyone expects.”

Kevin Ryan, Senior Insurance Industry Analyst at Bloomberg Intelligence, commented: “European P&C Insurers' concerns about crimped margins in 2023 as inflation and interest rates rise, combined with the continued war in Ukraine, didn't lead share-price returns to slow significantly. Premium rate increases in many cases appear to be keeping up with inflation. It's important the premium increases are maintained throughout 2024 to protect margins, which remain thin.”

European P&C Insurers’ Recovery Continues
The share prices of BI’s European property and casualty (P&C) insurer peer group rose 11.4% in euro terms (11% in dollars) year-to-date through Jun.28, outperforming the Stoxx Europe 600 Index's 10.7% increase amid concerns over the economic challenges posed by inflation and the ongoing geopolitical uncertainty.

This maintained the recovery from March 2020's lows, when shares plunged an average 44% vs. the start of the year – a trend that has steadily reversed. European P&C shares have moved up in 2024, outperforming the broader market. The group outperformed the benchmark by 6.8 percentage points.

Ryan added: “European P&C insurers' price returns have been supported by robust business models in 2024, under-pinned by strong capital bases. Recognition of that underlying strength doesn't appear to be giving way to concerns about economic stability, inflation and war in Europe. The demonstrable ability of insurers to run their businesses with staff working from home during Covid-19 helped performance in 2021, and the organizational strength this demonstrated has helped performance in 2022, 2023 with momentum continuing in 2024.”

By Hugo Gravell, FIA, Principal and Investment Consultant at Barnett Waddingham

The Government is clearly signalling a push towards bolstering investment at home. But why is this shift so crucial, what should the incoming Government (whichever party) focus on, and what does it mean for both individual and institutional investors?

UK equity allocations have declined in recent decades due to the UK’s underperformance compared to other regions and active decisions by investors to reduce ‘home bias’.

Both individual and institutional investors are reviewing their allocations to UK equities after the Chancellor set out measures incentivising higher allocations in the Spring Budget 2024 including:

An additional ISA allowance for individuals dedicated to investing in domestic shares.
Mandating DC pension schemes to publicly disclose their UK investments.
Consulting on PISCES, an “intermittent trading venue” to help investors trade shares in private companies.

This is a cross-party objective, with the Labour Party publicly committing to the British ISA and proposing its own measures such as a British 'Tibi' scheme to encourage DC schemes to invest in small-cap UK equities.

What is the current Government's position?
Companies are not forced to list in countries where they generate their revenue or base their production. Increasingly companies aim for those markets in which they can maximise their share price. This usually means the US, which has benefitted from strong performance in recent years, significant inflows from global investors, and a huge pool of domestic investors who do not invest outside the US.

For example, Arm, a UK-based semiconductor design company, recently chose to list on the NASDAQ exchange in New York, achieving a valuation that would have made it one of the five largest stocks in the FTSE 100.

For investors with exposure to global equities, the country of listing may not make much difference in the short-term. Returns are returns – and diversification of where revenues are generated matters more than listing locations.

However, for the Government this poses a significant problem. If growing companies choose to list overseas this will make listing in the UK even less attractive for investors, lowering valuations further and beginning a negative feedback loop. In the first instance, lower valuations reduce the amount of capital UK listed companies can raise to invest in their operations. Indirectly, UK financial services account for around 8% of GDP and more than one million jobs – with many tied to services that may move overseas alongside the listed companies. Moreover, the UK Government would lose a significant tool of regulatory control as companies follow US regulations for listed companies.

By encouraging investment in domestic shares, the UK Government is therefore aiming to protect the UK's position as a leading financial centre, support domestic access to finance, maintain its regulatory influence and encourage economic growth. The challenge of competing with the US is not specific to the UK. UK financial markets and services have arguably held up well compared to other non-US markets. This is true across public markets but also early-stage venture capital. Efforts to reduce the frictions involved in investing in the UK are positive. For example, implementing Lord Hill’s Listing Review Reforms, including the PISCES proposal. Even better would be to reduce the cost of investment by removing stamp duty on UK shares.

However, those steps will not be enough to solve the UK's poor track record on investment compared to international peers and stimulate higher levels of growth. We believe the next Government's focus should be on boosting business confidence when setting long-term plans. Consistent policy is more important than good policy. For instance, clarity over long-term plans for UK infrastructure and the transition to Net Zero are essential and would encourage more investment in the UK by both UK-listed and overseas-listed companies.

What does this mean for investors?
We support investors in public equity using a market capitalisation approach as a starting point. This would mean allocating around 5% to UK before considering controlled moves away from this to manage, say, climate risk.

Encouraging investors to increase their exposure to UK equities could lead them to divert funds from regions that have historically outperformed in terms of company fundamentals and valuations. With the UK market skewed towards more mature industries – such as energy, financials, and consumer staples sectors – keeping pace with the tech-driven growth seen in the US will remain challenging. We don’t believe the Chancellor’s recent announcements are enough to move the dial here.

Therefore, we don’t expect significant increases in pension schemes’ UK public equity allocations. DC workplace providers in particular are between a rock and a hard place – the budget simultaneously encourages investment in an underperforming region and sets out measures to stop providers taking on new business if they underperform.

However, we believe the opportunity to invest in UK private markets is more nuanced. While we continue to champion global portfolios, the next Government can help to build opportunities in this space by expanding on recent initiatives – from the Mansion House Compact through to the PISCES and LIFTS initiatives.

This article features contributions from Callum Smith, Senior Research Analyst, and Jack Solomons, Senior Investment Analyst.

The transaction is the largest completed buy-in announced to date this year. It follows the Plan’s first buy-in with PIC for £1.6 billion in 2014. PIC has now insured all £2.8 billion of the Plan’s defined benefit liabilities. The latest buy-in secures the pensions of over 2,000 pensioners and dependants and 3,500 deferred policyholders.

The Plan is sponsored by TotalEnergies (“the Company”), a global integrated energy company that produces and markets energies: oil and biofuels, natural gas and green cases, renewables and electricity. It employs more than 100,000 people and is active in around 120 countries.

Rob White, Chair of the Plan, said: “Securing the benefits for our members has been the aim of the Trustee for many years. We are pleased to have reached this milestone by extending our existing relationship with PIC. I would like to thank TotalEnergies, PIC, and our advisers for their collaborative and flexible approach in what was a complex and challenging transaction.”

Tristan Walker-Buckton, Co-Head of Origination at PIC, said: “It has been a pleasure working with the Plan and its advisers on securing this complex deal. Repeat transactions such as this rely on the excellent relationships fostered, in this case over a decade ago, with the aid of LCP. I would expect to see more schemes in the market complete repeat transactions, such as this, when pricing objectives have been met.”

Yadu Dashora, Partner at LCP and lead adviser to the Trustee and Company, said: “We are delighted to have helped the joint working group secure another buy-in. Much has changed in the last ten years since the Plan’s first buy-in was concluded. Whilst large transactions are more common now, they usually have their own intricacies – this one had unique structuring requirements and a complex benefit structure reflecting the legacy of the Company’s business. But as ever, a combination of good preparation and close collaboration between all parties, meant we were able to overcome these challenges and negotiate this sizeable transaction with PIC, achieving a really attractive outcome for the Plan.”

LCP acted as lead transaction adviser for the Trustee and Company. The Trustees received legal advice from Sackers and the Company received legal advice from CMS. PIC was advised by Addleshaw Goddard.

The full IFoA Board comprises five member non-executive directors (mNEDs) of which one is the President, three independent non-executive directors (iNEDs) of which one is the Chair, and the CEO. The new appointments to the IFoA Board are:

IFoA Board Chair Lord Currie said: “The calibre of applications for the board roles was excellent in what has been a competitive recruitment process. In assembling this board, our focus has been on appointing a team with complementary skills and experiences. I believe we have found the right mix, putting us in the best possible position to meet the needs of the IFoA and our members.”

IFoA President Kalpana Shah said: “Council is very pleased with the progress Lord Currie has made in recruiting such a high-calibre board. The formation of the new Board along with Council agreeing the new vision for the IFoA and making significant headway on shaping its own future means that as an organisation, we are making strong progress with our governance reform programme.”

PwC’s Buyout Index also shows that, on average, schemes continue to have sufficient assets to ‘buyout’ their pension promises with insurance companies, recording a surplus of £260bn in June.

In light of their sustained surpluses, sponsors and trustees now have an opportunity to make sure that they reap the benefits of advancements affecting the pensions industry, including Artificial Intelligence (“AI”) and Generative AI.

John Dunn, head of pensions funding and transformation at PwC UK, said: “With funding levels of the UK’s DB schemes remaining stable and strong, sponsors and trustees need to focus on forward planning and efficient running of their pension schemes. Technology has already played a critical role in the last few years to increase real time information and help schemes make decisions more quickly. But another wave of change is coming. AI is increasingly a part of our daily lives - from automation to augmentation and beyond.

“The key question for sponsors and trustees is - how can they harness AI’s power to benefit their pension schemes? Our research shows that, by 2030, AI will provide $15.7 trillion of global economic growth. Those pension schemes, both in the private and public sector, that take the lead now will ensure a share of this growth can benefit their members.”

Gavin Sharma, head of pensions technology and AI at PwC UK, added: “It’s clear that many people believe an AI related change is on the horizon. During our most recent pensions Virtual Ideas Exchange event, over 70% of respondents said they expect AI to substantially impact the pensions industry within the next five years.

“A recent PwC survey found that sectors with highest AI penetration are seeing almost fivefold (4.8x) greater labour productivity growth. We’re already seeing AI being used in pension schemes to increase operational efficiency - from automating data processes to drafting scheme documentation. And in the near future we can also expect to see AI being used to personalise the member experience and to bring insights that enhance decision making.

“It can be easy to get swept up in the excitement of AI opportunities, and being aware of potential risks and having the right governance processes in place are key - particularly given the large amount of sensitive data held by pension schemes. With most organisations being relatively early on in their AI journey, there is a lot for sponsors and trustees to consider - but the rewards on offer once they have harnessed its opportunities are likely to be considerable.”

The PwC Low Reliance Index and PwC Buyout Index figures are as follows:

The chart below shows that the number of transactions under £100m more than doubled in the last three years, from 77 in 2020 to 162 in 2023.?Buy-ins/outs between £10m and £100m contributed most strongly to the growth in activity seen over 2021 and 2022, but the growth in 2023 was almost entirely driven by deals under £10m.

In contrast, the number of mid-sized buy-ins between £100m-£1bn has been broadly static since 2020, and while transactions over £1bn more than doubled in 2023, they still made up a relatively small proportion of the overall number.

This transaction was completed in March 2024 and secures the benefits of over 3,000 members, including almost 1,400 pensioners and over 1,650 deferred members. The complex transaction included dovetailing the process with a secondary market sale of an illiquid asset and deferral of premium to enable the buy-in shortfall to be met by a continuation of the existing schedule of contributions.

LCP were lead pension risk transfer adviser on the transaction. Legal advice was provided to the Trustee by Brodies LLP Solicitors and to Just Group by Gowling WLG alongside Just Group’s internal legal team.

Just Group reported total Defined Benefit (DB) sales (including DB partner sales) in 2023 of £3.4bn, up 21% on the previous year. It completed 80 transactions which is estimated to be over one-in-three of all deals completed in the market in 2023, more than any other provider.

Kishan Radia, DB Business Development Manager at Just Group, said: “This deal is an example of how effective communication and teamwork enabled Just Group to deliver a bespoke solution for a well-prepared scheme to secure member benefits. Working closely with the Trustee and advisers, we developed an appropriate price lock and premium deferral structure that worked for all parties. This transaction is further evidence of a vibrant bulk annuity market that’s working for schemes of all sizes. At Just we’re able to help schemes, big or small, by tailoring solutions that meet their needs.”

Bob Hymas at BESTrustees and Trustee to the Scheme, added: “This was a collaborative process to achieve a positive solution tailored to the Scheme. Just Group worked closely and flexibly with all advisers to determine a suitable price lock for the Scheme’s circ*mstances alongside a premium deferral structure that dovetailed with the Scheme’s funding plan. We are delighted to have secured the pensions of the Scheme’s members.”

Ruth Ward, Principal at LCP, commented: “We are pleased to have advised the Joint Working Group on this transaction, which provides additional security for members’ benefits in a carefully designed transaction that locks in a favourable position for the Trustee and Sponsor. This transaction shows it is possible to build a strategy balancing the options available for a scheme across the insurance and secondary market for illiquid assets to give the Trustee a clear route to reaching their objective.”

Helen Morrissey, head of retirement analysis, Hargreaves Lansdown: “The inflation beast may have been tamed but that doesn’t mean it shouldn’t be a key factor in your retirement income planning. You could be retired for twenty years or more and even the most benign of inflationary environments can nibble away at your purchasing power over that time. A period of double-digit inflation as we have seen recently can bite huge chunks out of your plans, so it pays to be prepared.

If you are in the market for an annuity, then you need to bear this in mind. The market has enjoyed something of a revival in recent years, with rising interest rates contributing to higher incomes, meaning annuities are delivering great value.

The most recent data from HL’s annuity search engine shows a 65-year-old with a £100,000 pension can currently get up to £7,222 per year from a single life level annuity with a five-year guarantee. This is more than £2,000 more per year than they would have got just three years ago. However, the level of income you get from such an annuity doesn’t change over time and what may seem like a healthy income today may feel decidedly lacklustre in twenty years’ time.

You can of course get annuities that rise in line with inflation. An RPI linked annuity is currently delivering up to £4,540 per year for the 65-year-old with their £100,000 pension. One that rises by 3% per year will start you off at up to £5,157. Both are far lower than you would get with a level annuity, but the longer you live, the more you’ll value any kind of inflation link.

When deciding what your best option is, you will need to try and work out how long it will take for the income of your escalating annuities to catch up with the starting income from the level one. If the escalating one rises at 3% per year, then it would take 12 years to catch up. So, in other words, you would be 77 before you got the same income. It would also take around 21 years before you had taken the same overall amount of income (approx. £144,000) that you would have taken from the level product.

If you opted for the RPI-linked product and it rose at 5% per year, then it would take you ten years to make up lost ground and around 20 years before you would have caught up in drawing the same amount of income overall as you would have got from the level product. Of course, if RPI inflation were higher you would make up ground more quickly, but lower inflation means it could take you longer. You need to think carefully about how long you are likely to live to come to the best decision for you.

There are other options that are also worth considering. You don’t have to annuitise your entire pension at once. Instead, you could annuitise in slices over time securing guaranteed income as you need it while keeping the rest invested where it can hopefully grow. This way you also have the benefit of securing higher annuity rates as you age and if you develop a condition where you qualify for an enhanced annuity then you could get a further boost in income that can help you fight the impact of inflation over time. Shopping around for the best rates is vital in getting the best deal for your retirement.”

Isio launched to challenge the status quo in pensions, benefits and investment advisory. It has experienced significant growth over the past four years, more than doubling revenue, profit and headcount, and now employs 1,200 people across 10 UK offices.

Tim Easingwood, Partner at Exponent, commented: “Isio’s journey, from the original carve out and stand up of the independent business in 2020, to the powerful advisory business of scale today, has been hugely gratifying to be part of. During our investment, Andrew and the management team have created a market-leading proposition centred on exceptional client service and an entrepreneurial approach, resulting in strong growth and an exciting outlook. We are confident that Isio will continue to thrive with Aquiline’s investment and keep delivering on its ambitious goals. We wish the whole Isio team every success in the next stage of the business’ exciting journey.”

With a strong pipeline of deals, this appointment reflects Clara’s continued evolution as the business adds to its existing 20,000 members and £1.2bn of assets under management.

Reflecting this evolution, Luke Stratford-Higton will take on the newly created role of Chief Actuarial Officer, where he will continue to grow Clara’s pricing capability and transaction support through expansion of the actuarial team. Elsewhere, Chief Commercial Officer Dan Adams will be leaving Clara. Dan has been instrumental in the success of Clara’s first transactions and its strong growth trajectory to date.

Simon True, Chief Executive Officer of Clara-Pensions, said: “We are excited to welcome Matt to Clara. His expertise will be invaluable as we progress to the scale-up stage of our successful development and look towards our strong pipeline of transactions. And I am also delighted that Luke has taken on the role of Chief Actuarial Officer reflecting the huge contribution the actuarial team make to the success of Clara.

“I would also like to pay tribute to Dan Adams who has made an invaluable contribution to the establishment and growth of Clara, and wish him the very best in his new role.”

Matt Wilmington, Clara’s new Chief Transactions Officer said: “I am excited to be joining Clara at such an exciting time in their development. I’m very much looking forward to building on the fantastic work done by the team, working with them to accelerate the scale up of the business.”

By Jon Hatchett, Senior Partner at Hymans Robertson

But to really understand the pros and cons of different CDC benefit designs, we have to examine the roles of the different forms of collectivisation.

Collective investment

Most DC schemes effectively do this to some extent. Members are invested in collective investment vehicles and in trust-based schemes, the scheme assets are held in the name of the trustee.

So, what is the promise of collective investment in CDC? Largely, it’s that trustees would feel enabled to invest in riskier assets for longer, seeking greater returns over the lifetime of members. This potential for greater risk taking is based on the premise that the older members, with lower tolerance for risk, pass that risk on to younger members of the scheme. So, to believe in collective investment, you have to believe that younger members can tolerate more volatility than they do in today’s DC schemes. An important question then, is whether we can go further in traditional DC? In our view, the answer is yes, and the growing sophistication of the largest schemes and master trusts are already doing much more, including:

Pushing the envelope on default retirement pathways – although help from the incoming government would make a world of difference.

Broadening the investment universe using, for example, illiquid strategies – with the investment sophistication and ability to manage flows within the member base being key.

If you believe in the greater tolerance for risks provided by younger members taking on more risk, you can seek higher returns (at higher overall scheme risk in your default investment strategy).

Those playing devils advocate might argue that you can get some of the greater risk taking through using leverage to increase risk exposures beyond 100% in traditional DC. Clearly the risk/reward trade off is different to CDC, but it becomes more comparable.

Collective longevity
This is a clear gap for existing DC. Collective longevity solutions are available through annuities, but while annuity sales have risen as gilt yields have gone up in recent years, they’re still a minority rather than majority solution. And the lack of flexibility is unacceptable to some.

This is where the economic inefficiency of traditional drawdown comes to the fore. An individual member doesn’t know if they might live for three years in retirement or 30. And so individuals self-insuring this risk through their own drawdown pot is not an effective way to manage a pension income.

Collective longevity, through longevity pools in drawdown, provides a clear way to get income uplifts and reduce risks. As with any option, it won’t suit everyone. For those who would prefer to spend their pension income while they are alive rather than pass it on when they die, it may materially boost retirement incomes. However, passing on an inheritance from their pension is a priority for others, and so this clearly wouldn’t be for them.

Collective funding
Alongside longevity, pooling funding is the other major innovation in CDC. It comes with important pros and cons which is why we feel understanding the benefits of the different elements of collectivisation is important.

The pros and cons are related to the cross subsidies you get with pooling funding.

As set out above, CDC schemes generally mean that younger people take more risk, upside and downside, than older people. If asset out/under performance feeds through to pension increases before and after retirement, the impact of financial market volatility on the notional fund for a 35 year old might be 10 times that for an 85 year old.

Depending on your scheme design, these cross subsidies can impact:

The benefits earned each year in a whole of life scheme – do the younger active members “top up” pots for older active members?

They may, but may not, reap the benefits of that when they are older themselves.

Do active members “top up” or get “top ups” from deferred and retired members as market conditions shift?

In a multi-employer scheme, do employees from some employers “top up” benefits for employees of other employers?

In decumulation only schemes, do new retirees “top up” benefits for existing retirees?

All of these are design options that can be worked around. Doing so in a way that is simple to communicate to members is not necessarily going to be easy though!

It seems reasonable that the average 20 year old or 40 year old would have a higher risk tolerance for their expected pension to go up or down, compared to the average 80 year old’s tolerance for changes in their actual pension. So shifting risk to younger members, on the expectation they will be old one day, feels like the “free lunch” in collective funding. And what’s not to like about a free lunch? Building intergenerational bonds through the scheme is a positive societal benefit.

However, the other forms of intergenerational cross subsidies are more complex and can either benefit schemes or become their Achilles' heel. Particularly over generational lifetimes, where we know from experience, market conditions or longevity outcomes will change in ways we cannot predict today. Can we take members on a journey where they understand the sorts of things that might happen and feel ok about that when things do happen? And do they understand what they are paying for?

With the upcoming election, the consultation on regulations for multi-employer CDC has been pushed back. So we have to wait and see what will come. It seems to us that we can do a lot with all three forms of collective benefits, but finding the right mix will take creativity, time and energy. We look forward to playing our part in the industry in making this happen.

The report reveals that insurers generally achieved positive mid-year renewal outcomes, which included rate reductions for property catastrophe risk and improvements in terms and coverage. While a more competitive reinsurance marketplace was observed, the landscape remains somewhat dynamic due to volatility in secondary peril losses in property, heightened Atlantic hurricane season forecasts, social inflation and adverse reserve development in casualty.

In contrast to 2023, mid-year capacity for U.S. catastrophe-exposed business was more than ample to meet increased demand, with upwards of $10 billion of additional catastrophe limit purchased by U.S. insurers. Renewals on June 1 and July 1 continued to build on the positive momentum of the January 1 and April 1 renewals, with increased appetite from traditional reinsurance and ILS markets resulting in downwards pressure on pricing for both U.S. nationals and Florida specialist insurers – the latter experiencing rate reductions for the first time in three years.

Meanwhile, renewals in Latin America and the Caribbean were also broadly positive for insurers, with ample capacity to meet demand and risk-adjusted flat, to single-digit rate increases. Insurers in Australia and New Zealand also experienced stable market conditions, as around 80 percent of their property catastrophe reinsurance business renewed at mid-year.

The report, which aims to drive better business decisions, will reveal that total reinsurance capital reached a new record of $695 billion by the end of Q1 2024, increasing from $670 billion at year-end 2023. Capital increases were driven by retained earnings, recovering asset values and new inflows to the catastrophe bond market. Aon Securities estimates that overall ILS capital increased to an all-time high of $110 billion through the second quarter, increasing from $108 billion at year-end 2023, with a record $46 billion of catastrophe bond limit on-risk. For the first time, more than $8 billion of catastrophe bonds were issued in a single quarter.

The report will show that reinsurers are generating robust returns by historical standards, with annualized ROE averaging around 20 percent in the first quarter of the year.

Steve Hofmann, co-president of U.S. Reinsurance Solutions at Aon, said: “We are pleased to see the ongoing stability of the reinsurance market, which now presents profitable growth opportunities for both insurers and reinsurers. Over the past 18 months, we have advocated for this balance on behalf of our clients by introducing additional risk transfer capacity, and launching new technologies to enhance risk assessment and management.”

Kevin Traetow, co-president of U.S. Reinsurance Solutions at Aon continued: “Indeed, the ability to make quicker, data-driven decisions provides our clients with the clarity and confidence needed to navigate the market effectively.”

Aon’s Reinsurance Market Dynamics July 2024 report

This position was supported by the data. He proposed that based on current information under one million organisations have a standalone cyber insurance policy of a possible market of approximately 60 million companies across the US and EU.

Drawing attention to rollercoaster rate fluctuations in the cyber market in recent years, he said: “Typically, when we see rollercoasters like this in insurance, it suggests that the participants don't know what they're doing – which might actually be a valid criticism.”

So, with the US cyber insurance market forecast to reach USD 50 billion in the next few years, Motta posed a simple question – “How do we get there from where we are today?” His answer? The adoption of an active cyber approach. “We don't want to go on this rollercoaster anymore, and so our vision of the future is active insurance.”

Detailing the immense transformation of the business landscape resulting from the fourth industrial revolution – digital transformation, which he said was still in its relative infancy – he noted how from 1975 to today business assets have switched from being predominantly tangible to almost exclusively intangible.

Despite this, he said: “Most organisations continue to protect themselves the same way they did in 1975.”

Outlining the standard approach to risk management of ‘accept, mitigate or transfer’, he noted that: “The amount of cyber risk organisations today are accepting is enormous. They are almost completely unprepared and do not have the balance sheets, in some cases, to survive a cyber event.”

The insurance sector is also struggling to get to grips with this digital-based business environment, he believed. “Most of the P&C industry is focused on the byproducts of the last industrial revolution. That's how the industry evolved, covering mostly tangible things from fairly well-understood perils.”

Digital transformation, Motta said, “has made the world we once knew completely unrecognizable. And yet the world of insurance remains totally recognisable. In my humble opinion, you can't underwrite much less manage cyber risk in the same way as traditional insurance risk.”

He was quick to refute the widely used argument that there is not enough data to underwrite cyber risk and understand aggregation potential.

He argued: “There has never been more data to interpret cyber risk, to underwrite how it aggregates than there is today. It's just that most insurers don't have it, and certainly don't use it.”

“Cyber risk can be quantified,” he continued, “it can be predicted, and it can be actively managed. We don't have to wait around like a traditional insurance company for a claim to be filed, we can actually go out and do something about it.”

Active insurance Motta described as a process which involves assessing the vulnerability of an organisation to cyber attack and proactively spotting and fixing those vulnerabilities to prevent the risk of digital attacks. Further, through monitoring live data, it ensures that in the event of an incident there is immediate action taken to contain and limit any impact.

Such an approach creates a very different, deeper and more dynamic relationship between insurer and insured.

As Motta explains: “In the case of Coalition, I believe in probably 99% of cases, when a customer applies for cyber insurance with us, we know more about their cyber risk than they do.”

“That’s quite rare in insurance, right?” he continued. “Generally, it's the buyer of insurance that knows more than the seller. The best insurance companies in the world have been those that can avoid being adversely selected against. However, if you can reverse that information asymmetry, you can do something very rare insurance, which is positively select for risk.”

Stock market reaction

By John Bowers, Actuarial Product Director at RNA Analytics

Whether led by the actuarial or finance department; opting for integrated software (measurement engine plus accounting engine); or completing measurements in existing actuarial software and then outputting results to sub-accounts, achieving automated data flow between upstream and downstream systems is central to success.

Separately, the role of the upper-layer measurement model/measurement platform under IFRS 17 is such that the efficiency of the platform will directly determine the overall implementation effectiveness of any IFRS 17 project.

Moreover, in seeking to establish the impact of software on implementation, it is useful to consider the following:

Can the design efficiency of a model affect the efficiency of measurements? Is the upper-layer measurement model that complies with IFRS 17 requirements directly purchased as integrated software? Or is it developed in close collaboration with users using the standard IFRS 17 model within actuarial software, achieving compliance with IFRS 17, in the simplest way possible?

Does the measurement model support the revaluation and recalibration as required by the standard, such as YTD? IFRS 17 offers the accounting policy option of YTD, requiring that each period's financial statements within the reporting year be measured directly from the end of the previous year to the reporting date. Further, during the actual process of producing financial statements, it is often necessary to test and adjust the results, requiring the measurement results to be recalibrated and recalculated. If the built-in logic of the model or software cannot strictly support YTD or make recalibration convenient, it will inevitably consume a significant amount of time and effort with each recalibration, with potentially severe efficiency downsides.

Is the measurement process visualised? Visualisation of the measurement process is beneficial for users to understand the model, and analyse the reasons for changes in reports. It also helps the relevant departments comprehend the calculation process, and facilitates the work of auditors. Additionally, this aspect is often associated with one of the biggest challenges and pain points in the implementation of IFRS 17: that of identifying the reasons for discrepancies in reports. We believe that all project implementation stakeholders should have deep insights into this issue.

Does the measurement model/software require substantial hardware support? During the implementation of IFRS 17, if the choice of measurement model/software is not carefully considered, the cost of the hardware configuration required to support the measurement model, and even the corresponding datacentre equipment, could become significant.

Does it include sub-accounts? In the implementation of IFRS 17, some insurers choose not to present detailed sub-accounts. Others, in looking to satisfy internal controls compliance and meet audit requirements, opt to present both accounts and generate sub-accounts and detailed accounts. Naturally, there will be significant difference in the complexity, resource burden and the cost of each approach.

A note on predictive capabilities
An increasing demand for enhanced functionality and efficiency in the predictive aspects of actuarial models, driven not just by IFRS 17 but also by solvency regulations and valuation assessments, has exposed certain deficiencies in traditional life insurance actuarial models.

For instance, both solvency stress testing and quarterly solvency reports require solvency predictions. Despite the relatively short forecasting horizon for solvency predictions, regulatory provisions still allow the use of simplified methods, such as the risk carrier factor approach, under certain conditions. In the context of embedded value and new business value assessments, where the minimum capital prediction period is longer, the existing Embedded Value (EV) approach does not impose restrictions, allowing the use of methods for simplified calculations.

The permission to use these simplified methods is evidently associated with the limitations of traditional life insurance actuarial models in predictive functionality. This association leads to a situation where, for practical operability, a compromise may be necessary, sacrificing some precision and rationality in solvency predictions and value assessments.

Furthermore, the implementation of IFRS 17, which requires simultaneous prediction of future cash flows at the time of assessment, compels insurers to confront issues related to model predictions.

In its latest publication, the leading pensions and financial services consultancy, outlines the key considerations needed for each of the main endgame approaches - buy-out, run-on and flexible - when devising an investment strategy. Each endgame option should have a tailored investment strategy and all stakeholders should be aligned on this.

Commenting on the need for an investment strategy to take place once the endgame objective has been agreed, Ben Fox, Senior Investment Consultant, Hymans Robertson, says: “Agreeing investment objectives is a key part of the endgame approach a firm chooses to adopt. However the investment strategy must follow on from the choice of endgame, and it is crucial that all stakeholders are on board and willing to work together once in place.

“For firms that want to buy-out, the focus is very much on investing in assets that drive insurer pricing and holding highly liquid assets. The closer a firm is to targeting buy-out, the greater the level of liquidity and pricing alignment needed.

“For those choosing to run-on, there is an opportunity to consider a wider range of asset classes, including illiquids. The level of illiquidity in your strategy should be guided by your objectives. However, risk management remains crucial.

“Ultimately an investment strategy can only take place once the end-game strategy has been decided, and all involved must work together to ensure the plan is in place. Our guide can help firms work through their decisions in a chronological manner, giving trustees the greatest chance of achieving their objectives.”

The Hymans Robertson Excellence in Endgames insights hub and decision-making tree can be found here.

Longer investment time horizons mean the sector can benefit from the Mansion House reforms encouraging run-on of DB schemes, and can use surpluses to subsidise pension costs

Running costs need looking at to ensure schemes provide value for money – current costs average £700,000 per annum

Costs could be cut by as much as 30% through simplifying governance and improved use of technology and automation

New research from Spence & Partners (Spence), one of the leading providers of pensions advisory and data services to pensions schemes in the UK, reveals the DB pension schemes for UK universities non-academic staff are potentially each spending as much as £200,000 more than they need to each year due to inefficiencies in running costs.

For the research, Spence has analysed the current running costs of 30 DB schemes for pre-1992 UK universities. These schemes have a combined total of £6.5bn in assets. Most pension provision in higher education is through large multi-employer schemes such as the Universities Superannuation Scheme (USS). However, many of the pre-1992 universities then have their own DB schemes for non-academic staff.

The research shows that funding levels for the pre-1992 university DB schemes have improved dramatically in the last two years with rising Gilt and investment grade corporate bond yields. This has also shrunk scheme liabilities, often by as much as 40%, meaning many schemes are now less of a risk to university balance sheets. As a result, a required employer contribution rate of 30% of salaries two years ago is now likely to be under 20%. Past service funding levels may also be ahead of plan, meaning the current level of deficit contributions may no longer be necessary.

The analysis also shows that the running costs for these DB schemes are often high, with average running costs of around £700,000 each year. Whilst some of this is justified with data work such as the need to equalise GMPs, it should be possible to rationalise this by using the latest systems and a simplified governance model. Options to consider include reviewing service providers, shrinking trustee boards, and considering consolidation or packaged solutions. Spence has projected that by taking these actions scheme running costs could be cut by as much as 30% generating an average saving of c.£200,000 per annum.

70% of these schemes are still open to future accrual, of which 27% are also open to new hires. This contrasts starkly with the broader position in the UK where 56% of DB schemes are now closed to future accrual (source: PPF Purple Book 2023). The sector therefore has a longer time horizon and can benefit from Mansion House reforms encouraging schemes to run-on, but needs to get the running costs under control to ensure schemes provide value-for-money.

Alistair Russell-Smith, Head of the Public Sector and Not-for-Profit Advisory Practice at Spence & Partners, comments: "With the big-ticket USS pension costs, risks and benefits stabilising in the last year, now is a good time for universities to focus on the running of their Self-Administered Trusts for non-academic staff pensions. Our research shows running costs have built up in these schemes, and there are substantial savings available through simplifying governance and updating operating models. The long-time horizons of these schemes, with 70% still open to future accrual, means these changes should be looked at to ensure the schemes are delivering value for money for the long term.

“The good news is there are already a range of newer, more efficient operating models available. Options include using bundled services, switching to a sole professional trustee or using consolidation models to drive economies of scale. Most of these solutions have had significant investment, use technology effectively, and in some cases rely on just one system to manage all data flows. Our calculations show that a careful consideration and implementation of these solutions could generate £200,000 a year of savings.”

The full Spence DB Scheme Running Costs Report is available here

Some employers provide the option of buying extra days of holiday each year as part of a benefits package, but for those looking for the potential of additional years rather than days, a pension may provide the answer. Topping up pension contributions by just 2% over the course of a career could enable you to retire three years earlier, with nearly £20,000 more in your pot, compared to saving the minimum auto-enrolment rates new analysis from Standard Life, part of Phoenix Group reveals.

The analysis demonstrates the long-term impact that changing pension contributions can have on retirement outcomes. For example, someone that began working full-time with a salary of £25,000 per year and paid the minimum auto-enrolment contributions (3% employee, 5% employer) from the age of 22, could amass a total retirement fund of £434,000, not adjusted for inflation, at the age of 66* – the current state pension age.

However, if they were to increase their monthly contributions by 2% (7% employee, 3% employer) from the age of 22, they could amass a larger fund value (£453,000) by age 63 – gaining £19,000 and the option to retire three years earlier.

*assuming 3.50% salary growth per year, and 5% a year investment growth. Figures are not reduced to take effect of inflation. Annual Management Charge of 1% assumed. The figures are an illustration and are not guaranteed. Earning limits not applied.

Planning for a longer retirement
The challenge of contributing more and retiring earlier comes with a trade-off however and people choosing to retire earlier might need to make similar retirement pots last longer and spread their savings over more years.

For those looking to maintain a higher income in retirement, the figures show that paying in an additional 2% into your pension over the course of your career right up to the current state pension age would generate a pension pot of £597,000 or £163,000 more than based on standard contributions.

This next batch of results has looked closely at members’ own decisions and views on their retirement funds, and how these may have changed from the 12 months previous.

Despite experiencing a pick-up in 2022 (31.7%), respondents’ confidence in having enough money to retire has returned to 2021 levels (30.9%). Whilst a relatively small drop, it still marks the end of the improving shift towards people feeling they would be able to meet their retirement needs and goals. On top of this, the number believing they have much less than they need has increased from 44.6% to 47.8%.

The group was also asked whether they felt they would be able to retire at their Normal Retirement Date, earlier, or whether they would have to retire later in order to meet their needs. Taking all the responses into account the majority (53.7%) feel they will either need to retire late, never, or they simply don’t know.

Statistics have also shown that confidence among members in their own decisions remains higher than their belief in the role of the industry and others. Confidence in their choice of where their pensions are held has risen from 63.4% to 64.6%, confidence in their investment choices from 57.9% to 58.4%, and the confidence in the level of charges that apply to their pension from 45.9% to 46.7%..The only variant came from members’ feelings about the amount they have saved, which fell slightly from 53.5% to 52.2%.

Daniel Taylor, Client Director at Trafalgar House, commented: “There are some really interesting things to note in this section of the results. Perhaps controversially, it could be considered a good thing that confidence in having enough funds to retire has dropped. As an industry we have long worried that the general public haven’t been realistic enough about their retirement pot, grossly underestimating needs and failing to take into account the cost of living, longer life spans and an over reliance on state pension provision, all meaning they would be in for a big shock - this would also have a huge impact on economy not to mention social factors. It could be argued that if there is an acknowledgement there won’t be enough, more can be done to address that, and earlier.

“What’s also interesting is that confidence in their own decision making is up. Higher, in fact, than belief in the role of industry and others in meeting their needs.”

Taylor added: “Where this confidence is coming from is another question. Our last results showed that member communication was the most important factor in building trust – does this mean we are doing something right? The fact is, members will be responsible for more than ever before when it comes to decision making at retirement so it is crucial they are empowered to make those decisions, and not doing anything detrimental that could undo years of hard work and savings. The realism around expected retirement dates is also reassuring, albeit disappointing as a whole.”

This magnitude of surplus presents many schemes, and the industry as a whole, with some exciting opportunities. Pension schemes have options available in the current regulatory regime that can improve outcomes and, whilst continuing to protect member benefits, turn the scheme into a real asset.

The general election may mean uncertainty on many issues. It is clear, however, that there is alignment on generating positive investment from pension schemes, with Labour stating in their manifesto that they will “act to increase investment from pension funds in UK markets” and to “adopt reforms to ensure that workplace pension schemes take advantage of consolidation and scale, to deliver better returns for UK savers and greater productive investment for UK PLC”. Pension schemes wishing to take action now are supported by this direction of travel from the government.

In addition, as highlighted in LCP’s recent longevity report, new mortality projections that were released in April would be expected, once adopted, to boost pension surpluses even further.

Jonathan Griffith, Partner and Head of Endgame Innovation at LCP, commented: “The general election should not mean schemes pause work on their endgame planning. The strong funding levels are persisting, and we are now seeing more schemes take action – building flexible strategies that protect members and meet their objectives in changing market and regulatory conditions.”

Aaron Chaderton, Consultant, and part of the Endgame Innovation team at LCP, added: “It is great that the industry as a whole is talking about innovative ways to make scheme endgames as beneficial as possible. Innovation and being able to access better outcomes for our clients is central to what we’re doing.”

When in government, the Conservative party used the Autumn Statement and Spring Budget to announce their plans to make pensions more productive for the UK economy.

In April, the party applied the triple lock in full to the state pension for 2024-2025 (an 8.5% increase) and confirmed the abolishment of the lifetime allowance, while also proposing measures such as a pension ‘pot for life’ and the consolidation of small defined contribution pension funds.

The Conservative party has reaffirmed its commitment to the triple lock in its manifesto, introducing the ‘Triple Lock Plus’ which ensures that both the state pension and the tax free allowance for pensioners always rise with the highest rate of inflation, earnings or 2.5%.

The majority of the other political parties, from the national Labour and Liberal Democrats parties to the regional parties Plaid Cymru and the SNP who do not have devolved control of pension policy, are also committed to the triple lock.

The exceptions are Reform UK, who did not specifically mention the triple lock within their ‘Contract with the People’, and the Green Party who suggest that they would replace it with a double lock system linked to inflation and earnings, moving to a flat rate of pension tax relief in line with the basic rate of income tax.

Stuart Price, partner and actuary at Quantum Advisory, said: “Pensions are a key policy area for political parties as most voters will receive the state pension and employees are contributing to workplace pensions throughout their professional life.

“The increase in the state pension earlier this year thanks to the triple lock was welcome news for pensioners - a demographic likely to turn out for elections. The triple lock was especially welcomed by those who rely on this as their main source of income and is also an increasingly popular policy decision amongst adults over 40, with a recent survey by My Pension Expert revealing that over half (51%) of respondents stated that a commitment to maintaining the triple lock would significantly influence their voting intentions in the general election.

“Therefore, it is not surprising that many of the political parties across the country have stated within their manifestos that they will retain the triple lock. It is interesting to note that proposals to reform pension schemes are also being highlighted.”

Labour intends to review the pensions landscape and adopt reforms to ensure that workplace pension schemes take advantage of consolidation and scale, increase productive investment and boost the country’s growth. Green finance is also high on the party’s agenda, with a requirement for pension funds to develop and implement transition plans that align with the Paris Agreement, a plan also echoed in the Liberal Democrats and Green Party’s manifestos.

Other suggested reforms include the Liberal Democrats investing in helplines to ensure quicker responses to queries and underpayments for the state pension, the Green Party working closely with the higher education sector to tackle challenges regarding the Teachers’ Pension Scheme and Reform UK aiming to review pension provision and minimise the complexity of the system.

Stuart Price added: “Reforms to pension systems are good political strategies to enable growth and economic prosperity. However, what we really need is a full review of our pension system as it is clear that the younger generation are not saving enough, which will lead to huge problems in the longer term. The only real answer in my opinion is a legislative increase into the minimum contributions required under auto enrolment legislation from say, an 8% total to at least 12%. From what I have seen this is not mentioned in any of the political parties’ manifestos, which is disappointing.”

Laura Suter, director of personal finance at AJ Bell, comments on the latest figures on the government’s income tax take: “The amount the nation is paying in tax on their savings has increased ten-fold in the past four years, and this year it’s expected the nation will hand over more than £10 billion of their savings interest in tax. The latest figures show that the Government is predicted to land £10.4 billion in tax on savings interest in the current tax year – compared to the £1.4 billion it took in 2021/22.

“The estimates for last year have also been significantly revised up. It was expected that we’d collectively pay £6.6 billion in tax on savings interest in 2023/24, but the actual tax take for that year rose to £9.1 billion – almost 40% more than expected. If we see a similar increase between the predicted and actual tax take for this year it could mean the nation paying £14 billion in tax on their savings.

“This highlights that the Government is a big winner from rising savings rates, as while savers have been enjoying higher rates the taxman is dipping its hand into their back pocket and nabbing a chunk of the spoils.

“Part of the increase in the nation’s savings tax bill is down to people not using ISAs to protect their cash from tax during a period of rising interest rates. It means that while they have been benefitting from higher savings rates, they have been breaching their tax-free Personal Savings Allowance and paying tax on some of the interest.

“However, a huge part of this rise in tax bills is also that the frozen tax bands mean more people are being pushed into higher tax bands, which means they see their Personal Savings Allowance cut in half, or lost altogether if they find themselves in the additional rate tax bracket. In some cases the interest people receive is itself pushing them into the higher tax band – meaning they pay the tax at a higher rate and on more of their money.

“This is highlighted in the amount of tax paid by additional rate taxpayers. The threshold for the 45% tax rate was lowered from £150,000 to £125,150 last year. While basic-rate taxpayers get £1,000 of savings interest tax free and higher-rate taxpayers get £500, additional rate taxpayers get taxed on all their savings interest at 45%. In the current year the savings tax paid by additional rate taxpayers is due to rise to £8.3bn – astonishingly that is not far off the entire tax take on savings from all taxpayers last year. But no one is spared from the tax raid, as basic-rate and higher-rate taxpayers will also be paying more tax on their savings.

“Because of the way savings tax is calculated many won’t be aware that they even owe tax on their savings until a brown letter lands on their doormat. Those filling out a self-assessment tax return declare any savings interest and subsequent tax due. But for those taxed under PAYE HMRC receives information from banks and building societies on the savings interest paid to each individual, from which they then calculate any tax due. It means many will find they are repaying the tax through their payslip each month, often before they’ve realised they owe any money to the taxman.

“After the introduction of the Personal Savings Allowance many savers shunned ISAs, but we’re now seeing people flock back to ISA accounts to save the taxman grabbing more of their money. Pensions can also be handy in reducing people’s tax bills too. If someone has just moved into the next tax bracket, they can make pension contributions to bring them under the tax band, meaning they benefit from both a higher Personal Savings Allowance and a lower tax rate.”

Dividend tax

“The impact of the cuts to the tax-free dividend allowance is really being felt by the nation, who are expected to collectively pay almost £18 billion in dividend tax this year – an increase of £1 billion compared to last year.

“The Government has launched a triple assault on investors and company directors recently. The move to cut the tax-free dividend allowance from £2,000 down to £500 over the past couple of tax years means more people are paying dividend tax. But alongside this the freeze on income tax bands means that more people are being pushed into the next tax band, and so paying a higher rate of dividend tax. The third part of this is that the Government increased dividend tax rates, meaning these taxpayers are handing over more in tax. All this means that the Government is expected to take £3.1 billion more in dividend tax this year when compared to the 2021/22 tax year.

“However, the total tax take for last year has actually been revised down. The nation was expected to pay £17.6 billion in dividend tax but the revised figure shows £16.9 billion was actually paid. Likewise for the 2022/23 tax year it was estimated that £15.8 billion would be paid in tax on dividends, but this actually came in at just over £14 billion.

“Lots of taxpayers have been organising their money to be more tax efficient, with investors moving their money into ISAs to protect it from dividend tax. We saw a surge in Bed and ISA transactions towards the end of the tax year in April and we expect that to continue this year, as more people shelter their money in tax-efficient accounts. On top of that more people will be transferring assets to a lower-tax-paying spouse or using pension contributions to drop to a lower income tax band.”

Collaboration and teamwork is one of the areas I want to talk to you about today. It is almost one year to the day since I joined the FCA as joint executive director of enforcement and market oversight, alongside my partner in crime fighting and misconduct tackling, Therese Chambers.

I started my working life in one of the most sober professions: accountancy. The silver lining was that it was for a brewery. I didn’t stay long (partly for the sake of my liver), quickly moving into public service – initially as a government economist before building a career in intelligence and investigations, countering national security threats.

My last role before the FCA was as the director of intelligence at the National Crime Agency (NCA). The Times once referred to it as a role befitting my surname (thankfully without passing comment on whether or not it’s a fitting surname for me).

Fighting crime, preventing harm, enforcing law
On joining the FCA, some of the similarities with the NCA became clear. Over the last year, I have witnessed the breadth – often unseen by those on the outside – of the FCA’s work countering financial crime (alongside all the other work it does to protect consumers and the integrity of our financial markets) – and how committed and mission focused the organisation and the people who work there are.

The FCA approach to tackling harm also has parallels with the NCA – we look to prevent harm before it occurs and pursue those responsible for causing it.

In enforcement, we take on many criminal as well as regulatory cases. And with all our work we are always mindful of the need to constantly improve and evolve, to identify potential harm sooner, prioritise our response and progress our cases at greater pace. Across the FCA we are developing how the different strands of our organisation – enforcement, authorisations and supervision – work in a more integrated way to achieve this. We have a range of criminal and regulatory tools across the organisation, and we are looking to deploy the right tool to deal with the right issue quickly.

When it comes to countering financial crime, we are in many respects a law enforcement agency as well as a regulator. We must stay a step ahead of the criminals, whether it is to pre-empt the way they use new technology such as AI and deep fakes or whether it is to work together with the firms we regulate, to ensure their systems and controls keep a step ahead of those seeking to exploit them.

Alongside prevention, we recognise the need for a strong enforcement response to maximise the deterrence impact of our work.

At the NCA, it was clear that a common thread for solving most serious and organised crime, almost irrespective of its nature, was to follow the money. This is particularly true in financial crime. And in the FCA too our dogged investigators and financial analysts pore over complex spider webs of transactions, designed to conceal money flows. When we get to the end of the trail, we use our asset-freezing and confiscation powers. We are determined to seize the profits of the crimes we investigate and work tirelessly to enforce confiscation orders to return money to victims.

Key to all our work is collaboration with partner agencies to strengthen our collective response to any issue. For financial crime and fraud this means working with a wide range of agencies as part of the National Fraud Strategy. And of course, industry is crucial in all this too. After all, firms stand to lose heavily to fraudsters, and it is in all our mutual interests to tackle this type of crime.

Our goal – as part of our commitment to reduce and prevent financial crime, is to fight the growth in APP (or Authorised Push Payment) fraud and investment fraud as well as to help tackle money laundering. And we are jointly, alongside partner agencies (including the Payments Systems Regulator), making an impact.

There were 3.1m reported incidents of fraud in 2023, still far too many. But this was a decrease of 16% compared to the previous year.

There were 2.6 million adult victims of fraud in 2023, still far too many. But this is half a million fewer than in 2022.

The total losses to fraud were down by 4% to £1.17bn according to the UK Finance annual fraud report.

However, it is a mixed picture: fraud still accounts for nearly 40% of national crime. And fraud typologies continue to evolve; for example: pre-pandemic, the traditional age profile of victims reporting investment fraud to Action Fraud was 50 to 69 years old. Last year – partly driven by changes in technology and the rise in social media promulgated investment scams – you were just as likely to report being a victim of fraud if you were in the 20 to 39 age group.

Never before has so much investment choice been so widely available to so many consumers at the push of a button.

One of our campaigns InvestSmart helps consumers cut through the hype as they navigate their way through the plethora of offers online, via trading apps, social media and recommendations from friends and influencers.

If an offer seems too good to be true, it almost certainly is.

So, what are we doing specifically about financial crime?

Preventing harm through awareness
Well, the first step – and ideal outcome – is always to prevent. We have done this by raising awareness through our ScamSmart campaigns. These highlight the red flags of a scam and encourage consumers to check our online Warning List.

We also worked with big tech platforms such as Google, Bing and Meta to tackle illegal financial promotions and scam adverts.

We have invested heavily in a system that identifies promotions of unauthorised financial services. Last year we issued 2,286 warnings about potential unauthorised activity and scams.

We have issued guidance clarifying the obligations for firms and others, including ‘finfluencers’, when using social media to communicate financial promotions. It is worth remembering that promotions aren’t just about the likes, they’re about the law.

Not all alleged breaches of regulation or the law are easy to spot. We cannot do our detective work alone.

Criminals will always pivot to exploit the weakest firms and sectors, so sharing data and intelligence is a vital tool in strengthening our defences.

We strongly encourage firms and cross-sector partners to participate in data sharing initiatives.

We work with the police, other law enforcement agencies and regulators to develop better intelligence sharing and prioritisation. This allows us to identify fraud networks whether they are home-grown and operating domestically or are part of a complex, cross-border web.

As an example, last year we hosted a 3-day investment fraud tech sprint drawn from regulatory, intelligence and law enforcement agencies to design new ways to tackle this type of fraud. Going forward, industry engagement in this work will be crucial.

Internationally, we continue to strengthen relationships to address cross-border financial crime risks.

Authorisations are key to high standards
Another tool of prevention is the authorisation required for people to sell regulated financial services in the UK.

We ensure as a regulator that standards are high and that starts at the gateway.

Through a rigorous process, we check that firms have the right systems and controls in place, underpinned by sound business models, before they can be approved.

This is to prevent potential harm to the wider system. We make no apologies for high standards but we do recognise that our processes in the past have been slower than we would like. That is why we have worked hard to eliminate our operational backlog and are holding ourselves accountable to help reduce unnecessary delays at the gateway.

As an example, some 86% of the initial crypto registrations we received were rejected, withdrawn or refused. This was because they often failed to meet the appropriate standards to satisfy the anti-money laundering control framework.

However, by working with potential entrants and supporting firms to navigate this process, we are seeing more crypto firms achieving registration under the Money Laundering Regulations, with a total of 44 firms now registered.?

Pursuing criminals and justice
As well as being focused on the ‘prevent’ part of our work, we are also, of course, very active in the pursue space.

Financial crime cases can be particularly complex and difficult to investigate and prosecute, but last year we made decisions to charge 21 individuals with financial crime offences; from finfluencers to multi-million-pound unauthorised investment schemes. That is more charges than in any previous year. We have upcoming trials for offences including insider dealing, money laundering and fraud.

This year, in the month of May alone, we saw an individual sentenced to 18 months' imprisonment for perverting the course of justice in one of our investigations into a mortgage fraud scheme (others directly involved in the fraudulent scheme were sent to prison for between 7 and a half and 8 years). In separate cases, one individual was sentenced to 6 years in prison for running a fraudulent investment scheme – and an insider dealer received a suspended sentence. As you might expect we are pursuing confiscation against the fraudsters and the insider dealer.

Obviously, as a regulator, financial crime is not the only thing we enforce against. We of course take our regulatory work seriously too, pursuing firms and individuals that breach the rules. For example – also in May, we reached a settlement with HSBC UK for significant failures relating to the treatment of customers in default, arrears, or financial difficulty, fining the bank nearly £6.3m. And we settled with Citigroup over a fat finger trade which had a severe impact on European exchanges. We fined them over £27m.

Whether it be crime or regulatory breaches, to be successful in proactively identifying harm and disrupting it early we need to be an intelligence led organisation.

I spoke earlier about data, and it is mind boggling to think that through our Market Oversight team, we received over 7bn transaction reports from over 1,300 UK firms last year. We receive over 500m order book records every day.

Even ingesting this amount of data is a feat but this information is not just collected by us, it is analysed and developed to create tangible outcomes. We use this data to investigate regulatory breaches as well as to detect insider dealing and market abuse.

Using data analytics, our Market Oversight team was able to detect missing notifications and uncovered undisclosed trades in the shares of Bytes Technology Group by the serving CEO of the company.

The CEO resigned shortly after we approached the firm.

This outcome, while not a fine or prohibition, shows the effect that the work we undertake across the FCA can have.?To help strengthen deterrence, we then share the lessons we learn from this data with the industry through our regular Market Watch report.

As well as data, the intelligence we receive from whistleblowers is a crucial element of our intelligence picture. We are continuing to develop and improve our whistleblowing processes to ensure we make effective use of the information whistleblowers provide. We implore anyone with any concerns to contact us whether by phone, email or webform.

Let me turn briefly to the elephant in the room, our recent consultation. We proposed that where it is in the public interest to do so, we would publicise the fact that we have an investigation open at an earlier stage.

This may not necessarily be at the outset.

Each investigation would be considered on a case-by-case basis and there would be no presumption of publication.

We have consulted very widely, and we are grateful for the many responses we have received. We will review the responses and will continue the engagement with industry and other interested parties – as Nikhil, our Chief Executive, said to Parliament recently – we will take our time to consider the right way forward over the next few months.

A degree of enhanced transparency is just one element of some of the proposed changes to boost the deterrence effect of our enforcement activity. Therese and I are also focused on increasing the pace of our investigations. Pace is important as the deterrent impact of enforcement action is greater the closer it is to misconduct occurring. One of the ways we will achieve pace is by focusing our resources on a streamlined caseload of investigations which align to the FCA’s strategic priorities, in particular: putting consumers’ needs first, delivering assertive action on market abuse, and reducing and preventing financial crime.

Conclusion
Finally, I am heartened that the issue of non-financial misconduct will be given a special focus during the conference today.

Conduct is our middle name at the FCA and too often, the non-financial type can be dismissed as being less significant.

Aside from the damaging impact on recruitment, retention and overall workplace culture, non-financial misconduct can undermine financial performance and confidence. It can also undermine the standards and reputation of the industry when you have the wrong people in positions of trust.

We have recently received responses from over 1,000 firms that operate in wholesale and insurance markets about their own experience of non-financial misconduct among their workforces. This is the first time that we have received such a comprehensive set of data on the subject. We will publish an update from this work in the autumn and look forward to working with industry to interpret and draw lessons from them.

That leads me back to the start and the importance of teamwork.

We must all invest in the capabilities and relationships that will prevent and pursue those who seek to undermine our hard-won reputation as one of the world’s leading financial services sectors.

Our regular contributors give their views on current events including amongst others, Alex White from Redington looking at the polarising question in investment that relates to China. Matthew Ferone and Ed Harrison from LCP asks is our personal digital footprint an opportunity for insurers or a challenge for the regulators.

By Peter Shaw, Senior Consultant at LCP

In the last 18 months, cyber risk has been high on trustee agendas, with a number of high-profile incidents making front-page news. This is reflected in LCP’s 2024 Chart your own course report. When asked to rank systemic risks, respondents identified “cyber and the risk posed by AI” as the risk that worries them most. When asked to rate how much they worry about cyber risk on a scale of one to ten, well over half rated this worry as 7 or higher.

At LCP, we have been helping our clients get to grips with cyber risk, including to consider The Pensions Regulator’s recently updated cyber security principles for pension schemes. Our starting point is that trustees should think “when” not “if”.

Here are my three suggestions for considering cyber risk. These are intended to help improve your scheme’s resilience to unexpected events.

Use our cyber security checklist to see how your scheme compares to the Regulator’s expectations
In our survey we also asked respondents what concerned them most about cyber risk. Not unexpectedly nearly half identified data or system breaches as their biggest concern. However, the ever-evolving nature of cyber risk and uncertainty of the unknown also ranked very highly. Cyber risk is less visible than some other risks, such as insufficient assets or unhedged liabilities. We often hear that it can be difficult to know where to begin.

We have prepared a checklist based on The Pensions Regulator’s expectations which provides a starting point for trustees. The responses gathered can be used to draft a cyber security policy and/or to identify areas for improvement or further focus. There is no one-size-fits-all solution, and we find that different schemes have different areas of concern. Can the sponsor help you with your consideration?

Think of the members’ perspective
We have seen in recent incidents that there can be reputational risks associated with cyber incidents. This is not just in relation to the loss of members’ data but the way that an incident is handled can also lead to reputational damage. Members can (and will) take to social media if they are unhappy. This can lead to further press coverage and negative publicity. In its regulatory intervention report following the Capita cyber incident, the Regulator highlighted the potential communication challenges for trustees. It’s important to recognise that when an incident occurs you might need to contact your members before investigations are concluded if there is a reasonable chance their data is at risk. Are you geared up to communicate with members quickly?

In our personal lives we often receive suspicious emails and cold calls. It’s noticeable that these are getting more sophisticated, not least because the use of AI is making it easier for criminals to draft convincing scams. Those of us that are office based will be familiar with tests and briefings on these risks. Some pension scheme members may not be so familiar, particularly if they have been retired for some time. We frequently warn members about pension scams, why not include reminders and warnings around cybercrime in your next newsletter?

Test your incident response
A scenario-planning workshop (or wargame) is a valuable opportunity to consider, in a safe space, how you would react in the event of an incident. It can be used to test an existing incident response plan, or with a blank sheet of paper. It’s not just the subject that is important but also the opportunity to develop roles and responsibilities and to consider which advisers, experts and other parties you might need to contact and involve in the event of a crisis. It’s important to explore when trustees may need to take action without having the full facts available. These sessions also provide a fantastic opportunity to observe board effectiveness through a group exercise. In every session we have run over the last 12 months there have been lessons learned and improvements made that will prove invaluable when a cyber incident occurs in the future.

Further thoughts
Consideration of cyber risk goes beyond the specific cyber controls module of the General Code and the Regulator’s related guidance. It should be considered in the wider context of a scheme’s Effective System of Governance (ESOG) in areas such as risk management, review and selection of advisers and when considering the maintenance of any key IT systems, including any that are provided by suppliers. You can read our guide to the ESOG here.

We believe scenario planning could and should be used to practise crisis-management responses more widely than cyber risk. Trustees stress test funding levels and hedging strategies frequently, so why not stress test resilience to other scheme-specific risks such as the impact of employer insolvency or issues arising late in a buy-in/out transaction?

The senior appointments have been made to reflect recent success in winning new clients, which provides the opportunity to invest further resource to enhance BW’s ability to deliver for clients with bespoke solutions to improve returns and manage risk.

The family office advisory service will provide a new way for families to think about their strategies, helping clarify their objectives, and to then implement cost-efficient ways to invest the assets.

Simon Clark was recently appointed as Head of Family Office. Simon’s role includes developing the services to support family wealth. Simon has worked with families globally, assisting them with their investment requirements from conventional asset management, through to project finance and corporate finance.

Meanwhile, Matthew Gold has been named as Head of Charity & Endowment Investment, leading the firm’s strategic thinking on investment consulting proposition to charities, endowments, and foundations.

Working alongside Craig Turnbull and Wan Heah, Partners within the Insurance & Longevity Consulting team, will be Chris Handley and Chris Pritchard, who take on the role of Co-Heads of Insurance Investment, providing expertise on investment strategy and manager selection to further strengthen the firm’s strategic thinking on investment consulting for insurers.

The internal promotions of Principals Matthew Gold, Chris Handley, Chris Pritchard and the external hire of Simon Clark, who all sit under the leadership of Partner and Head of Specialist Investment Advisory (SIA) Services, Neil Davies, sees the formation of the SIA team.

All five members of the SIA team bring with them vast experience advising clients on long-term objective and strategy setting, risk management and manager selection, as well as ongoing governance and performance monitoring support.

Neil Davies, Barnett Waddingham Partner and Head of Special Investment Advisory services, said: “We are delighted to announce these new key appointments which truly cement a first class offering to our clients, as well as the creation of a new family office advisory service.”

“Barnett Waddingham is already a trusted advisor to charities, endowments, foundations, and insurers, helping our clients develop tailored investment solutions. Our position as an independent consultant with no asset management products to sell makes us an ideal partner for clients who want an unconflicted advice on their objectives, strategy and implementation.”

The WTW 2024 Trustee Governance Survey focuses on understanding how pension schemes are adapting their governance strategies to meet both the new expectations and the proportionality flexibilities of the Code.

The report finds that most pension schemes are not overwhelmed by the new requirements, with only 1% of respondents expecting significant changes to comply with the Code. This suggests that the majority of trustee boards in the survey are already operating with robust governance frameworks that require only modest modifications to meet the new standards.

Jenny Gibbons, Head of Trustee Governance at WTW, said: “Despite some trepidation before the final Code was published, in fact the majority of schemes are well on their way to compliance, with most requiring only minor to moderate adjustments. This is a testament to the strength and adaptability of the existing governance frameworks within these schemes.”

The General Code, which has been in development for nearly five years, emphasises the importance of proportionality in governance practices. This approach allows schemes to tailor their governance efforts based on their specific circ*mstances, size, and complexity.

"The introduction of the General Code marks a significant milestone in pension scheme governance. Instead of mandating one approach for all, the General Code sets out the concept of proportionality in governance, allowing schemes to tailor their approaches based on their specific needs and circ*mstances,” said Gibbons. “This flexibility is essential for schemes to effectively manage their unique risks and opportunities. But it should not mean that smaller schemes should always do less than their larger counterparts and there are some governance challenges, for example cyber risk, that need tackling irrespective of the size of the scheme.”

Let’s look at a few specific areas of focus:

Risk Management
The survey found that while two-thirds (67%) of larger schemes consider risk management a priority, fewer than one-in-five (19%) of smaller schemes do. And while nearly half (43%) of larger schemes have already appointed a Risk Management Function (RMF), almost no smaller schemes (1%) had done so yet.

While the assignment of responsibilities for risk management functions and the management of internal audit frameworks remain undecided in many schemes, it is interesting to see a clear trend in larger schemes towards delegating these responsibilities to specialised sub-committees or external parties. This allows the trustee board to retain oversight by harnessing specialist risk management skills to take on the ‘heavy lifting’.

Approximately two-thirds (64%) of respondents have conducted stress tests on various investment scenarios and reviewed their business continuity planning in the past two years. Digging a bit deeper shows that this increases to 93% for larger schemes. This proactive approach is in line with the Code’s emphasis on comprehensive risk management.

Cyber risk
The focus on cyber risk has intensified, with 65% of schemes now equipped with the appropriate skills and resources to manage this growing threat, up from 55% in the previous year. Additionally, annual training for trustees on cyber risk and adoption of a formal cyber governance framework has increased significantly. A more detailed analysis by scheme size shows the largest schemes clearly out in front on the full range of cyber risk policy, training, assessment and communication activities.

Trustee Board Effectiveness
Nearly half of the schemes are reviewing the effectiveness of their trustee boards with a further 30% planning to do so in the next 18 months; a crucial component of governance that directly contributes to the overall resilience and adaptability of pension schemes. Similarly, almost half (45%) of larger schemes have already reviewed board effectiveness, compared to only 15% of small schemes.

“As pension schemes move forward on their governance journeys it will be important to balance what is important with what is possible. The principle of proportionality allows trustees to focus in on those important areas, for example cyber risk, before moving on to consider how best to tackling less critical tasks,” said Gibbons. “What is possible is often constrained by access to suitably skilled and affordable support. Irrespective of scheme size, building a strong trustee board and investing in their training and effectiveness will create a solid foundation for future governance success.”

Key figures are:
- The number of people over pension age paying income tax rose from 7.85m in 2023/24 to 8.51m in 2024/25 – an increase of 660,000;

- Since 2020/21 (when pension age rose to 66), the number of pensioners paying tax is up just over two million – from 6.47m in 2020/21 to 8.51m this year;

- Focusing on all those aged 65 or over, there are now just under 9 million taxpayers (8.95m), compared with 4.9m in 2010/11 on the same definition, an increase of around 4 million;

LCP has recently published analysis on the issue of pensioners and tax which found that just under 2.5m pensioners currently receive state pensions which – on their own – are in excess of the personal tax allowance. The large majority of these are older pensioners on the ‘old’ state pension system, who combine a basic pension with a significant earnings-related pension under the SERPS scheme.

Commenting, Steve Webb, partner at LCP said: “These new figures from HMRC are very timely and help to inform the debate about pensioners and tax. They show that a combination of frozen tax thresholds and significant increases in the state pension means the number of pensioners paying tax has continued to soar. But this is a continuation of a long-term trend which has seen the number of over 65s paying tax rise by around 4 million since 2010/11. For a pensioner in Britain, being an income taxpayer is now the norm rather than the exception”.

XPS’s Transfer Activity Index saw a slight increase in May 2024, reaching an annualised rate of 19 members in every 1,000 transferring their benefits to alternative arrangements, up from 14 members in every 1,000 in April. Despite this, the Index remained below 20 members in every 1,000 for the sixth consecutive month reflecting the continued long-term trend of low transfer volumes.

Meanwhile, XPS’s Transfer Value Index increased slightly during May 2024 from £155,000 to £156,000 after a decline of 3.4% during April. This marks a continued period of stability for the Index, with month-end values fluctuating within a £5,000 range since the start of the year. This stability reflects the small increases in gilts yields, coupled with similar increases in long term inflation, resulting in lower volatility in transfer values.

According to XPS’ Scam Flag Index, 89% of cases reviewed by the XPS Scam Protection Service in May raised at least one scam warning flag. This represents a small increase of 1% compared to the previous month. This marked a lower rate than average over the previous year, and is the fifth consecutive month that the index has remained below 90%.

Helen Cavanagh, Senior Consultant, XPS Pensions Group, said: "We continue to see a long-term trend of low transfer volumes, alongside relatively stable transfer values, throughout 2024. Among those transferring, whilst the majority are still transferring to personal pensions, we continue to see an increasing number are opting to purchase annuity policies, likely due to more competitive pricing driven by higher gilt yields.”

The annual Chart Your Own Course report includes over 200 UK DB pension schemes with values ranging from under £10m to over £15bn.

The report highlights that many schemes have seen improvements in their funding positions and are exploring various endgame options. Completing a de-risking transaction remains a top priority for many, as many see their timelines to full insurance transactions continue to shrink, with target timelines of 3 years or less becoming increasingly common.

Key takeaways from the survey include:
• Self-sufficiency or active run-on is becoming more popular among smaller and medium-sized schemes. Amongst schemes between £500m and £1bn, the proportion targeting run-on/self-sufficiency for their long-term objective increased from 33% in 2033 to 57% in this year’s survey.
• Insurance remains popular, with 25% of respondents saying that completing a de-risking transaction is the top priority for their scheme in the coming year.
• The proportion expecting their final full insurance transaction to be 10+ years away has fallen sharply, while target timeframes of less than 3 years are increasingly common.

When it comes to Diversity, Equity, and Inclusion (DEI), more initiatives are taking positive steps. The largest schemes are leading the way, with almost 80% of those over £5bn having taken specific steps to in relation to DEI issues. Encouragingly, around 50% of initiatives of all sizes, including those under £500m, have also taken steps. However, a significant minority (around 30%) support DEI but have not yet taken action.

It is also similar to the sentiment of net-zero strategies. Among schemes over £5bn, 90% now have a net zero target or are working through the practicalities. But medium and smaller schemes are also taking steps—the equivalent figure for schemes in the £500m-£1bn range is over 60%, and almost 40% for schemes below £500m.

LCP is urging schemes to maintain this momentum by continuing to be proactive in agreeing on endgame targets and timescales and managing journeys to get there by tackling systemic risks such as climate risk.

Commenting on the report, LCP Partner Jon Forsyth said: “After years of mixed outcomes for DB pensions, the recent year has brought about a notable shift in a positive direction for most of these schemes. Funding positions have shown continuous signs of improvement, pointing towards a more secure financial standing.

“Against this backdrop, our survey results show that lots of schemes have taken proactive measures in various key areas, including endgame strategies, climate risk, and addressing Diversity, Equity & Inclusion (DE&I) issues. It is encouraging to see that schemes are taking control of their journey, and it would be great to see schemes keeping up this momentum to ensure that members receive the best outcomes.”

There may be some minor announcements before an expected budget in the Autumn in a bid to build trust. There is more of a risk of market turbulence after a few years of a new government bedding in, especially if the economy took a turn for the worse and the tax take dips. It would be very hard for Labour to cut services and do anything drastic with public spend and they appear to be in a bit of a tight spot with their fiscal commitments. However, Rachel Reeves has suggested that in the future borrowing rules could distinguish between day-to-day spending and investment to propel long-term growth, potentially loosening the purse strings to further support and partnerships with the private sector, above and beyond the current manifesto commitments. So far, such indications do not seem to have perturbed the debt markets, with bond investors appearing to be more sensitive to interest rate speculation than the investment plans of an incoming government.

Uncertainty surrounds potential increase in CGT in the future
Questions remain about whether Labour could increase capital gains tax in the future but it’s still far from clear if this would happen and what form it would take. However, valuations, which have been languishing lower partly due to the Brexit effect, could be positively impacted if Labour wins, given recent pledges for closer trade ties between the UK and the EU and less of a focus on regulatory divergence.

Impact of a minority administration
A minority administration or coalition would be more unsettling as it would mean more uncertainty and it may hamper bringing in Labour’s agenda, and potentially hold back investment due to the need to integrate other parties’ promises made on the campaign trail. However, pledges on certain sectors such as tougher fines for water companies still probably would not be rolled back, given recent public outcries.

Given the support from across the political spectrum for this idea, it’s to be hoped that this was eased out of the manifestos purely on grounds of space. A new government has the opportunity to accelerate this process to a conclusion, and it would be a crying shame if an election did anything to hamper its progress.

The NatWest share sale
Although the NatWest share sale has been put on ice, due to the General Election campaign, it was mentioned in the Conservative manifesto as still being part of the plan. It was omitted from the Labour manifesto but there are hopes it will still progress.

Schemes like this have the power to encourage new investors, so ideally this will be revisited. Research from HL shows that past privatisation schemes brought in newcomers and super-charged investing habits for many novice shareholders. 25% of people say they invested in privatisations between the late 1970s and 2014. Of this group, a third of people (34%) still hold at least one of the companies they invested in, so schemes like this do have the power to incentivise people to start on an investment journey.

Keep calm and carry on
Ultimately, the attitude investors should take amid some uncertainty about what could lie ahead under a new administration is keep calm and carry on. Keep your eye on long-term goals, and stay diversified across a range of sectors, asset classes and geographies.”

The latest Insurance Risk Monitor from Broadstone this month focuses on the current heightened geopolitical risk environment and how insurers can navigate it.

This decade is shaping up to be unlike any other in recent memory. Just as the world began to emerge from the COVID-19 pandemic, there is now armed conflict in Europe for the first time since the Second World War, and a major war in Gaza with potential to escalate into a wider regional war. At the same time, autocratic nations are openly forming alliances, and democracies that we all took for granted are being challenged from within, nearly to breaking point.

The Federal Reserve’s April 2024 Financial Stability Report[1] lists the worsening of geopolitical tensions as one of the main near-term threats to the financial system. It states that further escalation of geopolitical tensions could reduce economic activity, boost inflation, and heighten volatility. The report states that it may lead to a pullback from risk-taking, cause asset prices to decline, and result in trading losses for exposed businesses and investors.

Insurers are faced with the complex task of estimating the likelihood of further deterioration and the costs associated with this.

Some key scenarios that insurers can consider include the following:
• War in Gaza escalates into a wider regional war
• Russia-Ukraine war escalates into a direct conflict with NATO
• Breakdown of US-China trade and diplomatic relations
• Invasion of Taiwan
• South China Sea territorial conflict
• US civil war
• Disorderly dissolution of the European Union
• Interference in US / Europe elections and civil unrest
• North and South Korean war
• Major cyber-attack and banking system failure
• Two or more of the above scenarios occur simultaneously

The impact on the global economy from these scenarios may include:
• Disruption to oil supplies, global supply chains and energy markets
• Closure of shipping and air travel
• Major global economic slowdown, high market volatility, and disruption to capital markets
• Return of high inflation and upwards pressure on interest rates

Which in turn will impact the insurance industry leading to:
• Loss in business volume across all classes of business
• High claims frequency and high claims inflation
• High counterparty defaults, investment losses and operational losses

How insurers can make sense of this
A key first step to better understand and manage geopolitical risks is to undertake scenario analysis. The analysis will benefit from consulting with experts from outside of the insurance industry such as political analysts and security analysts.

Actuarial techniques can be used to convert the subjective estimates from these discussions into more holistic probability distributions and calculate a potential range for the losses under each scenario. The scenarios can also be combined, for example using a correlation matrix approach, to provide a view on the aggregate value at risk to the business.

Some key areas that will benefit from better quantification of geopolitical risk include the ORSA, business planning, reserving, pricing, capital modelling, exposure and aggregate management, model validation, reinsurance purchase and underwriting.

These results can also be used to assess whether the insurer’s Solvency Capital Requirement calculation remains appropriate in the current risk environment.

Bharat Raj, Head of London Markets at Broadstone’s Insurance, Regulatory and Risk division, said: “The volatile geopolitical landscape at present is of huge global concern - especially the conflicts in Ukraine and the Middle East, which have been going on for a long period already. The potential deterioration between US and China relations also remains a significant risk.

“These are fast-moving situations with potential consequences that reach far beyond their borders and present a threat to economies across the world. Although direct losses from these events may be limited, for example through exclusions, insurers should not underestimate the potential knock-on impact on their businesses, which is likely to be material across all classes of business.

Speaking ahead of the opening of the Marsh McLennan Rising Professionals’ Global Forum in London, which this year addresses the theme of ‘Transforming Chaos into Opportunity’, John Doyle, President and CEO, Marsh McLennan, said: “Today’s global environment is increasingly complex. From the geopolitical and economic situation to climate, technology and social risks, our clients increasingly want to be more agile and resilient to future shocks. Insurance and reinsurance are important means to propelling our economy and society forward. As an industry we have a clear responsibility to develop our future leaders to meet these challenges, which is what the Rising Professionals’ Global Forum is all about.”

Vicky Carter, Chairman, Global Capital Solutions, International, Guy Carpenter, and the Rising Professionals’ initiative, added: “Geopolitical upheaval, climate transition, cyber threats, and economic fragility all create increased uncertainty and volatility. Our industry has a pivotal role to play to enhance resilience in this new era of risk. To meet the challenge, our industry will require a workforce with the talent and skillsets needed for these unique demands. We must inspire the next generation to challenge the status quo and adopt pioneering approaches to risk transfer so the (re)insurance industry continues to transform uncertainty into opportunity.”

The two-day Forum brings together over 800 of the industry’s next generation of leading talent for a unique market event that provides an opportunity to learn from pioneering figures across the (re)insurance sector and beyond.

Speakers include Bruce Carnegie-Brown, Chairman, Lloyd’s, Professor Mike Berners-Lee, author of There is No Planet B: A Handbook for the Make or Break Years, and Professor, Lancaster University; Tom Dickinson, CEO, New Energy Risk; Josh Motta, Founder and CEO, Coalition, Greg Jackson, Founder, Octopus Energy; Mark Sedwill, Baron Sedwill of Sherborne GCMG FRGS LLD, Chairman of Geopolitical Advisory, Saudi Arabia, and Supervisory Board Member for Rothschild & Co, Non-Executive Director, Lloyd’s and BAE Systems, and cross-bench member of the House of Lords; David Gillespie, Partner, European Head of Retail Banking and Wealth Management, Oliver Wyman; Mary Portas OBE, Chief Creative Officer and Retail Expert; and Professor Kevin Fong OBE MRCP FRCA FFICM, frontline emergency physician and former NASA doctor, seconded to NHS England COVID-19 Emergency Preparedness Resilience & Response team.

The two-day event will conclude with a Gala Evening which aims to celebrate the (re)insurance industry’s extraordinary talent. With over 1,000 people attending on the evening, it provides a unique opportunity for CEOs to host those representatives from their organisations who have attended the Forum.

Axa raised personal lines pricing in the UK and Ireland by 51.7% in Q1 to try to improve the performance of its motor insurance book, notes BI, while the quarter also saw Allianz increase UK pricing by 35.3%.

Charles Graham, BI Senior Insurance Industry Analyst, said: “Personal-lines pricing is rising faster than commercial lines, based on Axa figures, as insurers play catch up with the cumulative effects of inflation. Yet Europe-wide price increases have diverged. Allianz raised rates in the UK by 18.4% through 2023 before boosting Q1 pricing by 35.3%. Axa's UK and Ireland prices jumped 31.5% for retail lines in 2023, then it pushed them up a whopping 51.7% in 1Q. The magnitude of such rate increases dwarfs the rises in Germany, France, Italy and Spain.”

Price Hikes Have Helped Keep Allianz UK Business Profitable
Allianz's 35.3% Q1 UK price jump -- building on an average 18.4% price gain through 2023 – has helped keep its underwriting profitable there, according to BI. Allianz had a 95.5% combined ratio in Q1, higher than Germany (93%) or France (90.3%). Since the beginning of 2022, the combined ratio has averaged 97.4%, with France at 94.8% and Germany 91.9%. It has only exceeded 100% in one quarter.

Yet rate rises in Germany and France have, adds BI, been much lower than the UK despite similar inflationary pressures. German rates increased 6.6% in 2023 and 7.6% in 1Q. Prices in France increased 8.2% in 2023 and 9.6% in 1Q. Allianz doubled the size of its UK business with the acquisition of 100% of Liverpool Victoria (LV=) and L&G's general insurance business in 2020. Through Pet Plan, it's also the country's leading pet insurer.

Charles Graham added: “The challenge for European insurers remains how to keep pricing ahead of inflation. While commercial policies may include automatic indexation on long-term contracts to reflect inflation trends, the treatment of inflation for personal-lines pricing and particularly for motor varies by geographic region and is often dependent on individual insurers adjusting pricing in competitive markets.”

By Gemma Burrows, Director, Retirement and Stuart Arnold, Director, Retirement at WTW

Following the publication of our white paper on how to improve future retirement adequacy in the UK, Gemma Burrows and Stuart Arnold explore the key themes and set out what can be done to help defined contribution savers achieve a better future.

We want to take this conversation further and delve deeper into the topics raised. In the first of a mini-series exploring the key themes of our paper, we recap on what the issue is and what can be done to support individuals across the UK achieve a secure and more adequate future.

At a glance
Analysis from the Pension and Lifetime Savings Association (PLSA) shows that the UK is facing a retirement adequacy problem, with 70% of families at risk of not achieving a ‘moderate’ standard of living in retirement. Our paper provides more about the Retirement Living Standards and the analysis WTW has carried out.

This will have consequences for individuals, employers and society and whilst automatic enrolment has increased the number of people saving in workplace pensions, provision as it currently stands is not enough.

When thinking about the challenges that face future retirees, it’s important that we acknowledge the shifting landscape:

It’s unlikely future retirees will benefit from the security or value of defined benefits (DB) pensions, instead relying more heavily on the state pension and DC savings to meet their retirement needs.

The proportion of homeowners is also likely to be lower, with more individuals renting into their retirement than before.

People are living longer and with that comes the need for retirement savings to last longer, the potential for elder care costs and the reality that cognitive decline can impact the ability to make financial decisions into retirement.

What we’re also seeing is that journeys to retirement are often no longer linear; both in terms of the time spent saving and the transition into taking retirement benefits. It’s not unusual for individuals to take time out of the workplace for things such as childcare, elder care or career breaks, resulting in fragmented pension savings and contributing to the very real issue of under-pensioned groups. An issue we must look to address. And when the time comes to take retirement, it may not be a ‘one and done’ decision, with many individuals phasing into retirement by working part-time, returning to the workforce, or moving into a different occupation altogether.

Taking these changes together with the PLSA’s retirement living standards, which illustrate how much an individual might need in retirement, we can clearly see a need to take action to address the future needs of retirees.

At a glance, we believe these actions include:

Save more - Increase contribution levels and make sure more savers benefit from these higher levels.
Maximise returns - Rethink investment strategies and prioritise growth opportunities.
Make better retirement choices - Facilitate retirement solutions and decision-making to avoid unnecessary risk from using suboptimal approaches to providing income.

Automatic enrolment is currently not enough
Automatic enrolment at the current levels is not sufficient to ensure retirement adequacy for all. The framework is built on inertia, with default contribution levels, default investment strategies and default retirement ages. Whilst this has been effective at getting people into workplace savings, we need to work harder to ensure these defaults support adequate outcomes.

Auto enrolment has gone some way to address the issue of retirement adequacy, but it's also led many into thinking that the problem has been solved when, sadly for many, we know that's just not the case.

There is a risk that individuals will take the default for granted and assume it will give them the outcome they need at retirement. Our modelling shows that a median earner contributing at the default contribution level throughout their entire working life is unlikely to reach a moderate level of income under the PLSA living standards.

Tackling this means policy makers, trustees and sponsors taking action. By working together and taking the necessary steps to address retirement adequacy, we put individuals in a better position at retirement.

Taking action
Our paper highlights three key actions to deliver better outcomes for DC pension savers:

Save more

The industry consensus is that higher contribution levels are necessary to achieve retirement adequacy. We agree that a move to a default of 12% under automatic enrolment would be a significant step in the right direction. We understand that cost pressures exist.

By setting a default with the opportunity to opt-down to a lower (but compliant) level, we create the opportunity to alleviate these where needed. We consider this further in our next blog.

Maximise returns

The growth phase of investment strategies should be re-evaluated to maximise returns and ensure members are not missing out on potential growth. This means investing in higher risk assets for longer. When we’ve looked at ‘typical’ default investment strategies, these are often diversified during all phases of the savings journey. Is it really appropriate for individuals to be investing 20% in defensive assets when they’re 40 to 50 years away from accessing their savings? Whilst this might achieve some diversity and reduced volatility, we need to think about balancing this and taking account of opportunity cost risk, that is, the risk of missing out on growth potential over the longer term. This will involve a change in the approach to investment strategies to focus on growth and this should be supported by policy makers through guidance.

Recognising the complexity of retirement decisions, providers, trustees, and sponsors can play a crucial role in facilitating access to advice or guidance for members. Providing direction and support in navigating retirement choices can significantly improve member outcomes. This may involve offering access to financial planning resources, retirement seminars, or personalised guidance/advice services and looking at the current tax-efficient approaches that exist to make this more cost-effective.

Conclusion
So, to wrap things up - the retirement adequacy problem in the UK requires urgent attention from trustees, sponsors, pension professionals and policymakers. While auto enrolment has been a step in the right direction, it is not enough to ensure a secure retirement for all individuals. Increasing contribution levels, rethinking investment strategies, and facilitating better retirement decision-making are key actions that can be taken to address this issue. By working together and implementing these measures, we can strive towards a future where retirement adequacy is a reality for everyone.

SVS managed investments held on behalf of its customers. Under FCA rules, the firm was required to act in the best interests of its customers and not let conflicts of interests interfere with its obligations to them.

Kulvir Virk, the former CEO and majority shareholder, recklessly caused SVS to use a complex business model intended to maximise the flow of customer funds into high-risk illiquid bonds. These bonds were operated by directors of SVS and a close business associate of Mr Virk. The model involved inducements to SVS and unauthorised introducers with undisclosed commissions of up to 12% of the customers’ investments. The model created systematic conflicts of interests and inappropriately prioritised income to SVS over the best interests of customers.

879 customers paid in a total of £69.1m. Bonds into which they were invested by SVS have since defaulted, with customers unlikely to receive more than a fraction of their investment back.

In the FCA’s view, as Head of Compliance, David Stephen failed to fulfil his responsibilities to ensure SVS was following the rules. Demetrios Hadjigeorgiou, SVS’s former finance director then CEO, also failed to fulfil his responsibilities to manage conflicts of interest and ensure proper due diligence was carried out.

The FCA has found that the 3 individuals acted recklessly in deciding to mark-down customers’ valuations when they disinvested from fixed income assets, with the result that SVS kept 10% of customer funds. This allowed them to generate £359,800 in income for SVS at the expense of its customers.

The FCA has decided to fine Mr Virk, £215,500; Mr Hadjigeorgiou, £84,600; and Mr Stephen, £52,100. The FCA has banned Mr Virk from working in financial services, and decided to ban Mr Hadjigeorgiou and Mr Stephen from holding senior management roles.

Therese Chambers, Joint Executive Director of Enforcement and Market Oversight, said: 'These three individuals and SVS were a central part of a tangled web which concealed the fact that customers’ pension money was being invested into high-risk bonds. Customers were entitled to trust that SVS would act in their best interests, but it repeatedly prioritised income for itself and its associates.

'The actions of those in charge threatened the ability of their customers to enjoy a secure and comfortable retirement. This kind of behaviour has life-changing consequences for consumers.'

Demetrios Hadjigeorgiou and David Stephen have referred their Decision Notices to the Upper Tribunal where they will each present their respective cases. Any findings in these individuals’ Decision Notices and the descriptions of those findings in this press release are therefore provisional and reflect the FCA’s belief as to what occurred and how it considers their behaviour is to be characterised.
Kulvir Virk has not referred the FCA’s decision to the Upper Tribunal and his Final Notice has not been the subject of any judicial finding. To the extent that Kulvir Virk’s Final Notice contains criticisms of Demetrios Hadjigeorgiou and David Stephen, they have received Decision Notices which set these out. They dispute many of the facts and any characterisation of their actions in Kulvir Virk’s Final Notice and have referred their Decision Notices to the Upper Tribunal for determination. The Tribunal's decision in respect of the individuals' references will be made public on its website.

Catherine Foot, Director of Phoenix Insights, Phoenix Group’s longevity think tank comments: “Phoenix Insights research found less than a third of current renters expect to buy a house, leaving close to 11 million people needing to fund ongoing rental costs in retirement. Planning ahead for these costs will be crucial but this group typically face higher ongoing housing costs throughout their working lives as well as a lack of predictability of costs, which makes it harder for them to save. Supporting people to remain in good work is critical to enabling those facing housing costs in later life to continue to earn and save for as long as they want or need.”

These credits can make someone over £6,000 better off over the course of a typical retirement.

Specified Adult Childcare credits provide a valuable opportunity for grandparents or other family members caring for a child under 12. When the child’s parent or primary carer is employed or self-employed and already paying National Insurance contributions (NICs) through their work, they may not require the additional NICs they accrue from child benefit claims. These ‘extra’ credits can then be transferred to the child’s caregiver, potentially increasing their state pension by £328 annually. Over a standard retirement, this could translate to a financial benefit of over £6,000.

The government introduced the system in 2011 and it was designed to ensure those who were below state pension age but had given up their career to look after children, could still build up state pension rights that they would have continued to receive had they remained in work. There's no minimum number of hours you need to be looking after the child.

A Freedom of information request submitted to HMRC shows that on average each year 19,616 people apply for the credit with around 15,400 applications proving successful. In total, 123,138 people have successfully claimed for the credit.

Two of the main reasons that Specified Adult Child Care Credit applications are rejected are because the applicant already has a qualifying year of national insurance – usually because they work or receive other NI credits or they are receiving child benefit for the child – in that case, they will already get the parent's NI credits automatically.

You can claim if you are an eligible family member and responsible for caring for a child whose parents claim Child Benefit; otherwise, there are no NI credits to transfer.

Additionally, there is only one credit available per Child Benefit claim, regardless of the number of children. For example, even if you care for two of your grandchildren, only one credit can be transferred to you. The credits are available for transfer only if you are under the state pension age, which is currently 66 years old. Claims can be backdated to 6 April 2011. However, the credits can only be transferred if the parent does not need them and agrees to the grandparent’s application. Keep in mind that applications for a specific tax year can only be submitted after 31 October of the following tax year. The tax year for SACC runs from October to September each year

Jon Greer, head of retirement policy at Quilter says: “It is fantastic to see more grandparents and other family members take advantage of Specified Adult Childcare Credits. The numbers of people applying for the credit have been steadily climbing and last year saw the most people apply on record with this year set to top that.

“These credits are not only crucial for securing the full state pension if you have gaps in your National Insurance record, but they are also a cost-effective method of doing so, versus paying to fill in missed years. It’s worth knowing too that the number of hours a grandparent helps out with childcare is irrelevant to the claim. Even if it's just one day a week, eligible grandparents should be able to claim.

“More needs to be done to highlight that these credits are available and to educate people on how to correctly apply so they avoid rejection. If not, this unsung workforce of child carers will fail to benefit despite playing a critical role in keeping the economy going especially over the summer months when working parents struggle with the rising costs of childcare and grandparents step in to save the day. “

With many DB schemes now facing improved funding levels, and the option of a run-on strategy becoming more of a reality for some, a clear accounting strategy must be thought through. Against the backdrop of a transforming political landscape with opportunities developing from the Mansion House reforms and potentially new legalisation post-election, care must be taken when agreeing an accounting framework.

An objective under a run-on strategy, the leading pensions and financial services consultancy states, may be to share surplus generated with corporates and members. Embedding such a strategy requires detailed planning and management early on to ensure any unexpected accounting implications are avoided.

Commenting on the need for companies with DB pension schemes to consider accounting implications when looking at surplus sharing with members, Sachin Patel, Senior Actuarial Consultant, Hymans Robertson, says: “If a company is considering running on their DB scheme, and sharing the surplus with members, there is a lot to consider. For example, with discretionary pension increases, there are a number of different accounting treatments which could be considered appropriate and it’s vital that the preferred treatment is confirmed with company auditors when agreeing a run-on framework.

“A run-on strategy involving surplus generation, and improving member outcomes, is very different from a decision by a company to award a one-off discretionary increase to members. The scale and complexity of the accounting discussion in a run-on scenario should not be under-estimated and getting it wrong could have material and unexpected financial consequences on companies, at worst de-railing the strategy. The good news is that with early planning this is an entirely manageable issue.

“Our guide outlines the key areas which should be considered and sets out the potential different accounting treatments once a run-on framework has been agreed. Ultimately, the choice of accounting treatment depends on the scheme’s circ*mstances and the views of auditors. Over 30% of attendees of a recent webinar we hosted on this matter thought that accounting complications would be a deterrent to those looking to run-on, with nearly 50% not yet sure on the implications. This is a complex area, and these figures clearly illustrate how important it is to consider this early in the process.”

Accounting implications of run-on and surplus sharing

By Tyron Potts, FIA, Associate and Head of Pensions Research at Barnett Waddingham

During the six-day ‘wash-up’ period, several pieces of legislation were hurriedly finalised and passed into law. However, many did not make it and were dropped altogether. Strict rules limit the bills that can be carried over from one parliament to the next, usually restricted to a few ‘hybrid’ pieces of legislation. Anything not passed by the end of wash-up must be reintroduced in the new parliament formed after the General Election.

So, of all the important pieces of pensions-related parliamentary business in the pipeline, how many made it through during wash-up? Well, none. Or rather, one technical piece – the Finance (No. 2) Act 2024 – squeezed through just before prorogation. This Act clarifies the tax treatment of assets transferred on wind-up of a Collective Defined Contribution (CDC) scheme. Given the UK’s first CDC scheme isn’t yet operational, this wasn’t really a last-minute game-changer.

DB funding falters
Legislation applying new funding requirements to defined benefit (DB) schemes – particularly the requirement to formalise a long-term funding strategy – has already been passed and will come into force on 22 September 2024. The Pensions Regulator (TPR) consulted on a revised DB Scheme Funding Code of Practice in early 2020.

With Parliament dissolved, the legal requirement that all TPR’s Codes of Practice be ‘laid’ in Parliament for 40 days before coming into force presents a dilemma. TPR was not able to lay the Funding Code before prorogation, so it must wait until after the General Election. Given the parliamentary calendar, it is now impossible for the code to be legally in effect before the associated legislation comes into force.

This leaves DB trustees and sponsors in a period of limbo where they are required to target low dependency funding by the time they reach ‘significant maturity’ without a formal definition of what ‘significant maturity’ means (as the law requires TPR to set this out in a Code of Practice). However, provided the code is laid and comes into force soon after the regulations take effect, there will likely be few practical issues with the delay, particularly given that very few DB schemes will be signing off on funding documentation within the first few weeks of the new regime.

Lifetime Allowance lag
HMRC is asking some pension savers to consider delaying their retirement because issues with Finance Act 2024 changes relating to the abolition of the Lifetime Allowance (LTA) were not resolved in time. This affects retiring members with ‘protected cash’ or those who registered for historic transitional protections and are considering transferring their benefits.

Although the LTA was effectively abolished from 6 April 2024, it may be several months before we see the required tidying-up regulations. There are rumours that the Treasury was working on a draft before the election was called, which could be recycled by the new government.

Mansion House moratorium
Many Mansion House reforms had cross-party support, but conclusions to several consultations launched at the time had not been finalised by the time the election was called:

We await the outcome of the DWP’s March 2023 call for evidence on a lifetime provider model which it is hoped would reduce the problems associated with a proliferation of small DC pots.

Facilitating the return of DB scheme funding surpluses to employers and to members from an ongoing scheme was the subject of a February 2024 consultation.

The same consultation proposed a public sector consolidator operated by the Pension Protection Fund (PPF). Although already scoped out by the PPF, this is now unlikely to see the light of day this year.

Supporting individuals on how to use their private pension savings at the point of access – a DWP response on the second part of the consultation (relating to proposals for ‘information guidance and communications’) has been outstanding since mid-2023.

In the DWP’s response to the Mansion House consultation (July 2023), the Government committed to bringing forward legislation to put commercial DB consolidators (superfunds) on a permanent legislative footing “as soon as parliamentary time allows”.

Parliamentary time however did run out.
As part of a DWP review, legislation to introduce a Value for Money (VfM) framework for DC pension arrangements was promised – and the FCA had indicated it would consult on new rules this spring.

Auto-enrolment abeyance
An Act of Parliament has already been passed to remove the Earnings Threshold and lower the age at which auto-enrolment applies. However, secondary regulations are required to bring these changes into force, and these had not yet been drafted by the time the election was called. The new government will need to decide whether to pick this up and run with it, or indeed whether to review the adequacy of auto-enrolment minimum contributions.

Dashboards delay
This is one area where the General Election is unlikely to cause delays, as the pensions dashboards project is on track for most schemes to connect by October 2016. There was cross-party support for the project before the election was called, making it a different story from the last general election in December 2019.

State pensions show-stopper
The outgoing government commissioned an independent review of State Pension Age (SPA) and publicised its follow-up response in March 2023. Meaningful reform has been deferred, with plans to conduct a further review “within two years of the next Parliament”.

Most major political parties have committed to maintaining the triple lock, protecting the state pension against inflation. There will also be much debate on whether and how to compensate ‘WASPI’ women born in the 1950s who, according to an independent review, were not given adequate notice of changes to their SPA.

Statutory Transfers set back
Since rules around the transfer of ‘safeguarded benefits’ were introduced in 2021, issues with the ‘red flag’ for incentivised transfers and the ‘amber flag’ for overseas investments have been identified. The DWP intended to update legislation this winter, but this will now be delayed.

Other obstructions
The PPF has called for amending legislation to reduce its annual levy to zero without limiting future collections. The law currently restricts year-on-year increases in the levy collection to 25%. The DWP was ready to legislate “as soon as parliamentary time allows” – which will now be later this year at the earliest.

In September 2021, the Government consulted on amending ‘Notifiable Events’ regulations, requiring sponsors of DB schemes to give TPR early warning of significant corporate activity. A response remains outstanding, and the new government will need to evaluate the different options open to it.

A voluntary trustee register is expected to start within the next year, but despite Work and Pensions Committee recommendations, there is little political appetite for mandatory accreditation of professional trustees.

The incoming government will face a multitude of pensions regulatory reforms left in limbo by the General Election announcement. The next Pensions Minister will need to quickly establish priorities for the next parliament. Once the champagne corks have popped and the new government gets to work, we’ll be closely monitoring developments on all these outstanding matters.

While these findings highlight the positive financial position of many FTSE 350 pension funds – with a significant surplus and a slight increase in liabilities – the tightening of credit spreads points to a risk that many DB scheme sponsors will likely be monitoring closely.

Shane Tuohy, Senior Corporate Consultant at Mercer, said: “The aggregate surplus is the strongest we have seen. It might have been even stronger for many individual schemes but for the tightening of credit spreads.

The current market environment highlights the value companies can draw from strong oversight of schemes’ journey plans and ensuring their funding and investment strategies appropriately reflect the risk appetite of all stakeholders.”

Over the 12 months leading up to the end of May, credit spreads – the difference between equivalent corporate and government bonds prices – have narrowed. This means that the funding positions reported in companies’ accounts will tend not to be as strong, as had assets been invested to protect the funding position against movements in corporate bond prices. This was evidenced by recent press releases relating to some large UK companies’ year end accounts.

“While schemes usually invest to protect against changes in the prices of government bonds, sponsor’s company accounting positions are driven by changes in the price of corporate bonds. Although having historically had similar movements, these bonds don’t always move in the same direction.

“Credit spreads are now at multi-year lows, with recent falls highlighting the basis risk to which DB schemes’ sponsors are exposed. With the current uncertainty in geo-politics and UK economic policy might anticipate heightened volatility in these spreads. Sponsors will be keeping a close eye on how credit spreads are impacting their bottom line.

According to Mercer’s Pensions Risk Survey, bond yields fell slightly over May while the market’s expectation for inflation stayed broadly level and equity markets performed well. The funding position of the FTSE 350 pension funds on an accounting basis shows a slight rise in the surplus at the end of May.

Background to the May analysis:

Mercer’s Pensions Risk Survey shows the value of liabilities for the UK's 350 largest listed companies' defined benefit pension (DB) schemes increased from £584 billion on April 30, 2024, to £590 billion on May 31, 2024. However, asset values increased from £659 billion to £669 billion at the end of May 2024.

Mercer’s Pensions Risk Survey data relates to about 50% of all UK pension scheme liabilities, with analysis focused on pension deficits calculated using the approach companies have adopted for their corporate accounts. The data underlying the survey is refreshed as companies report their year-end accounts. Other measures are also relevant for trustees and employers considering their risk exposure.

“The overarching trend of investors’ preference for passive offerings has also continued. This has been a tailwind for fund houses offering passive products, including BlackRock which saw a further £1.7bn of inflows in May, totaling £7bn for the year-to-date.”

Estimated Net Flows for the Top 10 Fund Groups (Only UK-Domiciled Funds) by Assets (GBP Millions)
BlackRock saw the biggest inflows in May and is well ahead of peers for the year to date. Overall, great investor appetite for passive strategies has proved to be a tailwind for fund groups with good passive offerings.

The cost of car insurance has risen by 18% year on year, according to new Premium Drivers research from Compare the Market. The typical premium stood at £850 in May 2024 after rising by £132 over the previous 12 months.

The increase in the cost of car insurance in the past year may in part be due to a rise in the cost of claims for insurers. Previously high inflation will have impacted many areas of the motor repair industry including the cost of spare parts, energy, and hiring mechanics.

Older drivers aged 80 or above have seen the largest proportional increase in the cost of car insurance in the past 12 months. The typical premium for motorists in this age group has risen 27% year-on-year (£139). Young drivers, aged under 25, have seen the steepest absolute increase in the average premium in the past year – jumping £310 in 12 months.

Compare the Market: Cost of car insurance by driver’s age (YoY)

However, in line with the rate of inflation falling in recent months, year-on-year increases in the cost of car insurance have similarly slowed. The average premium has declined by £80 month-on-month from April 2024 when it was £930. The recent increases in the cost of car insurance peaked at £951 in November 2023.

Drivers looking to reduce the cost of car insurance should consider shopping around for a cheaper deal when their policy comes up for renewal. Motorists could save up to £549 on their car insurance through Compare the Market.

Anna McEntee, Director at Compare the Market, comments: “The substantial cost of car insurance is understandably causing concern for many motorists. Our research shows motor premiums have risen by more than £100 year-on-year. Drivers aged under 24 and over 80 are seeing the steepest increases. Typically, insurers consider motorists in both age groups as more likely to make a claim which could lead them to see higher premiums. For those concerned about the cost of their motor premium, shopping around ahead of renewal is one of the best ways to try and save money on car insurance. We want to encourage older motorists who may be more inclined to stick with their existing insurer each year to compare prices ahead of renewal to see what deals are available.”

Stephen Lowe, group communications director at retirement specialist Just Group, commented: “Last year set a record for inheritance tax receipts with £7.5 billion collected in total and this year is off to a racing start with over £1.4 billion collected over the first two months.

Nicholas Hyett, Investment Manager at Wealth Club said: “Inheritance tax is a hot topic this election. Labour are targeting non-doms who shelter their money abroad and the Conservatives have accused Labour of harbouring secret plans to go further – with inheritance tax notably absent from the list of taxes in the Labour manifesto that will not be increased. Meanwhile Reform have promised generous inheritance tax cuts as it looks to win over voters.

The reality is that inheritance tax would likely rise under either of the two main parties. Freezes on thresholds over the last few years, partnered with decades of house price rises have brought more and more estates into the tax band. Attempts to increase taxes on wealthy non-doms may be politically popular, but most of the tab will still be picked up by families who would not consider themselves particularly rich. For these families, their standard of living hasn’t changed, indeed inflation means it might have gone backwards, but frozen allowances mean the government now considers them wealthy enough to face inheritance tax.

As things stand there are some useful ways to mitigate inheritance tax – whether that’s making gifts in your lifetime, passing pensions on tax free, investing in certain qualifying AIM shares or making EIS/SEIS qualifying investments. However, political uncertainty is right now – and with inheritance tax a bit of a political football it’s difficult for investors to make informed decisions.

It is based on the observation that the standard new state pension (currently around £11,500 pa) is only slightly below the tax allowance (£12,570) and that within a few years the new state pension could be above the tax threshold. In this scenario people would be paying tax who had no other income than their state pension. The policy solution to this is to ‘triple lock’ the tax allowance for pensioners as well, making sure that the pensioner tax allowance is always above the standard new state pension rate.

We have now undertaken some research into this policy, and in particular the statement on the Conservative manifesto that (capitals as per the website):

“So if you vote to stick with the plan, Rishi Sunak and the Conservatives will not only guarantee the Triple Lock — we’ll introduce the Triple Lock Plus. This means the personal allowance for pensioners will rise every year — ensuring they NEVER pay tax on their state pension”.

We find that in fact this policy would not deliver the stated objective. Rather, we estimate that around 2.5m pensioners would still be paying tax on their state pension even if this policy were to be implemented. This is mainly because most pensioners are not on the standard rate of the new state pension but are actually on the old state pension system, where amounts can vary from a few pounds per week to several hundred pounds per week. Over 2 million pensioners on the old system – roughly evenly split between men and women – get pensions now which are in excess of the tax allowance and would continue to do so if allowances and pensions rose by the same percentage.

By Kevin Hollister, Pensions Actuary and Founder of Guiide, Guiide DB

WTW’s 2024 Professional Trustee Survey, which surveyed 15 of the largest PT firms, covering nearly 2,500 Professional Trustee appointments, shows that appointments grew by 11% in the past year. Growth for Corporate Sole Trustee appointments was even higher at 14%.

Defined benefit (DB) pension schemes are at a tipping point in the UK where half now have a Professional Trustee. In addition, almost half of all Professional Trustee appointments are now Corporate Sole Trustees (48%), where one firm of Professional Trustees take full responsibility for a pension scheme’s Trustee Board. The remainder of Professional Trustee appointments are for Trustee Chairs (27%) and Co-Trustees (25%).

Scheme size is often a big factor in the type of Professional Trustee that is appointed. The Corporate Sole Trustee model is growing especially among the smaller schemes (less than £25m in assets) where it dominates, with around three-quarters (73%) of all Professional Trustee appointments.

Richard Campbell, senior director in WTW's Professional Trustee Group said: "The growth in Professional Trustee appointments across all areas has continued at an impressive rate underscoring a pivotal shift in pension scheme governance. This trend reflects the increased trust and reliability that employers place in professional governance to help navigate the complex pensions landscape and address governance challenges in an efficient way."

Recruitment
In order to keep up with current demand for services, and to make sure they have the capacity needed to meet further anticipated growth in the coming years, PT firms have been recruiting heavily from within the pensions industry and beyond. WTW’s study shows there are more than 380 Professional Trustees operating in the UK market, a 15% increase in the past year, although this varies significantly between firms.

Due to the high growth in appointments and recruitment, PT firms are selecting talent from a wider variety of backgrounds and experiences than has traditionally been the case for pension scheme trustees. Actuaries and pension consultants are still the most popular backgrounds to recruit from (29%), but those with HR (21%), Finance (13%) Legal (13%), Investment (13%) and Covenant (3%) backgrounds are increasingly sought after.

Growth in the Professional Trustee industry is also helping to enhance diversity of gender, ethnicity and age within the Trustee workforce. This is in line with the Regulator’s ambition for Trustees to reflect the profile of the general population more closely.

Currently 42% of Professional Trustees are female, compared to 28% of the overall Trustee population. The ethnic make-up of Professional Trustees is 91% white, compared with 96% of Trustees overall, and is closer to the overall UK population. The median age of professional Trustees is 51, compared with 61 for Trustees overall and 41 for the general population.

Campbell said: “Professional Trustees bring a wealth of expertise to pension scheme governance. With backgrounds spanning a number of relevant disciplines, there has never been such a range of expertise on offer. When thinking about selecting a Professional Trustee, employers and trustee boards should carefully consider what they are looking for in terms of experience, expertise and working style.

"Looking ahead, we anticipate continued growth in the Professional Trustee market. This is further supported by endorsem*nts from the DWP and The Pensions Regulator (including TPR’s May 2024 Corporate Plan) highlighting the important role Professional Trustees play in upholding high standards of governance, which is more crucial than ever in today's regulatory environment."

By Caroline Elliott-Grey, senior product manager, LexisNexis Risk Solutions

What may come as a surprise, however, is that since 1998, the UK has experienced six of its wettest 10 years, with the last 18 months soaking the country with record rainfall.

When this rain is accompanied by high winds, the result is a storm.

Stormy weather
In the UK, a storm is named when it has the potential to cause disruption or damage which could result in an amber or red weather warning. This is based on information from the National Severe Weather Warnings Service which looks at the impact the storm could have and the likelihood of those impacts taking place.

The UK has already seen ten storms this year despite only being halfway through the storm season. Putting this in perspective, in 2021-22, there were seven storms and the year before there were five. The big increase shows the frequency with which insurance providers must now anticipate these events and factor them in when shaping policies.

And there is a lot to consider. Figures recorded during Storm Babet in October last year paint a worrying picture. In a period of just 36 hours, over 100mm of rain fell, pushing the River Rother to a streamflow of 118 cubic meters per second and flooding 1,250 properties in England alone.

Maximum gust speeds are also increasing with the rising frequency of storms and the ABI expects future insured losses to go up by 18% in the next 100 years.

This continual growth in storm occurrence and damage caused drives a real need for data in the market. Without having a reliable source at hand, insurance providers are underprepared for the risks associated with windstorms and are likely to see losses go up.

When a storm occurs flooding tends to follow.
Today, 325,000 English properties are situated in areas at the highest risk of surface flooding but, with the MetOffice projecting 30% wetter weather in the years to come, a total of 5.2 million homes and businesses are at danger of future flooding.

Flooding caused by Storm Babet, for example, impacted over seven thousand commercial properties and some 51K residencies. Rising sea levels can also be a major cause of flooding in the UK. In the past 30 years, the sea level has risen by 11.4cm, demonstrating that it is not just surface water that can trigger a flood.

The decrease in permeable surfaces must also be taken into account when considering the risks of floods. Flash floods are becoming a regular occurrence in many urban, high-density areas due to the reduced permeability of surfaces, clay soils, and ageing drainage and sewage systems. And they are only going to get worse as extreme rainfall events could be four times as frequent by 2080 compared to the 1980s. Individual claims can amount to over £100,000 for ‘super basem*nts’ that have been excavated in high-end homes for parking, home cinemas and so on, containing high-value possessions. Approximately 7,000 basem*nts were excavated between 2008 and 2019, further decreasing the ability of the soil to absorb water and increasing risks like subsidence.

Predicting risk cannot just rely on surface water flood scores. The extreme flooding in the capital in 2021 for example, amounted to insured losses estimated to be over £100 million as the overloaded drainage system backed up into properties with basem*nts causing major losses to stock, business interruption, and water damage.

Geospatial intelligence data can be an ally in tackling climate risks
The best opportunity insurance providers have to make a full, fast and accurate assessment of perils risk for an individual address not just a postcode, is by leveraging geospatial intelligence datasets. The most common risks, such as subsidence, flooding and windstorms are top of the list but this data must also encapsulate fire, crime, terrain and nature. This will give insurance providers a holistic view of property risk for pricing and underwriting and help identify customers at most risk. For example, the LexisNexis® Windstorm Model helps to predict the maximum wind gust speeds as a better predictor for property and structural damage compared to sustained wind speeds.

Understanding property risks is an important part of the process, so this intelligence needs to be delivered in a way that’s swift and simple, as data enrichment at the point of quote, mid-term adjustment and renewal. This helps home insurance, commercial insurance and motor insurance providers more accurately assess the level of risk to a property or a vehicle across the U.K.

And geospatial insights are not limited to larger brokers, insurers and MGAs. Smaller brokers can now access simplified perils risk scores for flood, subsidence and crime, plus details on property characteristics – bringing them more in line with the rest of the market.

Ben Farmer, Senior Investment Consultant , Hymans Robertson says: “Headline inflation may now be back at the 2% target, but this has mainly been driven by falling energy and food prices weighing on the year-on-year comparison. Good news for some, with the energy price cap falling, alongside the price of chocolate (among other things)! However, the Bank of England (BoE) pays closer attention to core inflation – stripping out the volatile energy and food measures – which remains elevated at 3.5%. Other measures that the BoE tracks closely, such as wage growth and services inflation, have also stayed high. As such, the BoE’s decision to hold the base rate steady at 5.25% was widely anticipated and is unlikely to move the dial in markets.

“At the start of the year markets were pricing in six or seven base rate cuts in 2024. After yesterday’s inflation release, this has moved to pricing in one 0.25% p.a. rate cut by the end of 2024, with another potentially to follow in early 2025. That doesn’t feel unreasonable given the Bank of England sets policy on where they think key measures of inflation are going, rather than where they are currently, and that central banks tend to look for more persistent evidence and data before cutting rates than they do when raising them.”

Marc Devereux, Head of Investment Consulting at Broadstone: He said: “The decision to hold rates at 5.25% will not have been a surprise for the market given wage and services inflation remains sticky. The election period reduces the usual additional guidance and commentary from the Bank of England, so market participants will be in a wait and see phase until the election is over and the next bank meeting in August.

“For scheme managers and pension scheme trustees, constant monitoring of their strategic positioning will remain important, especially with regards to inflation hedge ratios which are particularly sensitive to market rates.”

Danny Vassiliades, Partner at XPS Pensions Group, commented: “Yesterday’s announcement that CPI inflation fell to 2.0% in the year to May 2024 marked the first time inflation has hit the Bank of England’s 2% target in almost three years.
Despite this, with private sector wage growth remaining high, inflation is expected to rise in the coming months, and with election campaigns firmly underway, the Bank has decided to maintain the base rate at 5.25%.

Matt Hurshman joins Aon from Barnett Waddingham, where he spent over eight years as an investment consultant, working with numerous charitable and non-profit clients to support them with their investment arrangements.

Maria Johannessen, senior partner and UK head of Investment at Aon, said: “Charities are an essential element of society and returns on their invested assets play a vital role in allowing them to continue to deliver on their future aims. It is rewarding to play a part in supporting their work by providing independent expertise to their investment strategy and we are looking to expand our efforts in this area.

“Matt Hurshman brings considerable expertise in the charities and not-for-profit sectors, so we are pleased to have recruited him to Aon and I am sure our clients will soon be seeing the benefits of his advice.”

By Kevin O'Neill, Associate and Head of Workplace Health at Barnett Waddingham

The negative side of this is the potentially increased financial burden for employers. The cost of cover is likely to increase due to claim settlements, which can hit the money available to dedicate to employee benefits. And if employers are unwilling or unable to cut their benefit offering, further costs could stem from the incumbent insurer at their next premium rate review.

While this is a challenge, it isn’t necessarily all doom and gloom. A proactive approach to supporting your workforce will help minimise financial risks but also help improve employee engagement and resilience.

The costs and implications
For larger group life assurance schemes, analysing claims data by age, cause and reason can offer a range of insights. Where trends can be identified, early intervention programmes, employee assistance programmes and wellness initiatives can be the preventative measures needed to help employees manage their health, helping prevent claims and bringing long-term premium savings for employers.

Adapting benefits
Employers may wish to look at cost-saving options and adjust their group life assurance offering by amending cover levels, such as introducing tiered cover based on roles or seniority. Pairing this with wider benefits aimed at mental health and wellbeing could lead to a more cost effective and sustainable offering.

Employers do, however, need to ensure there are no contractual issues if benefits are reduced. They may also wish to consider alternative tax and National Insurance (NI) efficient funding methods, such as offering a lower core benefit but giving employees the option to top up their cover via salary sacrifice.

Make the most of insurers
It has become common for group risk insurers to extend the range of non-contractual value-added benefits attached to group policies. These services are designed to aid both the employer and members outside of the core life assurance benefit.

Historically, the most you could expect from a group life assurance scheme was access to bereavement support and a probate helpline. But, depending on the insurer, employees can also access a wide range of support services at no extra cost.

These can include:

employee assistance programmes;
fitness plans and advice;
nutrition plans and advice;
mental health support and counselling;
online health checks; and
medical second opinion service.

Communicating with members
Transparency and open communication is essential. Educating employees about their group risk benefits, claims processes and associated value-added benefits can reassure employees. And potential adjustments can mitigate anxieties and improve employee engagement, health, wellbeing and resilience. A regular review of cover and making sure changes are communicated in a positive manner will show employer commitment to the health and wellbeing of employees.

Conclusion
Although increasing group life assurance claims may lead to increased costs which need to be sensibly contained, it does offer the opportunity to consider and improve employee wellbeing.

By taking an employee focussed approach to providing cover, an employer is investing in its most valuable asset by helping create a healthy and engaged workforce. The key benefit will be the positive impact of reducing the number of life assurance claims and increases in the cost of cover.

“If you’re able to take a long-term view, consider saving into a Lifetime ISA (LISA), which can be particularly beneficial if you’re saving up for a first property, or a pension, which offers
both the benefits of investing, tax efficiency and a potential build-up of compound investment growth over a number of years.”

Lily Megson, Policy Director at My Pension Expert, said: “With just 15 days until the election, the government will no doubt claim the slowdown in inflation as a victory. But it's too little, too late for Rishi Sunak. The return to the Bank of England’s 2% target is a positive development, but it cannot erase the prolonged financial hardship faced by many households.

“Following last month’s dip in inflation, the Prime Minister claimed it was proof that the plan is working. But the government must recognise that today’s figures do not signal the end of people's fight for financial security. Pension poverty, for example, is on the rise. The cost-of-living crisis has made it incredibly challenging for individuals to contribute to their pension pots, leading many towards a difficult, delayed or unattainable retirement.

“The next government will have its work cut out. With inflation back at manageable levels, now is the time to help people get back on the path to recovery. Prioritising financial education and ensuring accessible advice for all will be essential. This approach will not only empower people to take control of their financial futures, but also ensures that everyone benefits from any economic recovery over the coming months.”

James Lynch, fixed income investment manager at Aegon Asset Management: "At the start of 2023 with inflation running over 10% it seemed like a gargantuan task to return inflation back to 2% target. Back then if the BoE was told it would get to the magical 2% number one day before its MPC meeting with interest rates at 5.25%, it would have been very certain it would cutting rates on the 20th June 2024.

"However, that now seems very unlikely. Indeed, even a move at the following meeting in August hangs in the balance. This is because the underlying mix of the inflation basket does not give it much comfort that this return to 2% target is sustainable. Goods inflation is in deflation at -1.3%% while services is 5.7%. The BoE has stated it believes services is a better gauge of underlying inflation and 5.7% is 0.4% above its forecast for this print.

The FCA’s review will look carefully at firms’ arrangements for dealing with PEPs based in the UK. While the FCA cannot change the law putting in place the PEPs regime, the review will consider how firms are:

applying the definition of PEPs to individuals
conducting proportionate risk assessments of UK PEPs, their family members and known close associates
applying enhanced due diligence and ongoing monitoring proportionately and in line with risk
deciding to reject or close accounts for PEPs, their family members and known close associates
effectively communicating with their PEP customers
keeping their PEP controls under review to ensure they remain appropriate

The review will report by the end of June 2024. The FCA will take prompt action if any significant deficiencies are identified in the arrangements of any firm assessed.

Sarah Pritchard, Executive Director of Markets at the FCA, said: 'These rules follow international standards and are designed to keep the financial system clean, free from corruption and guard against financial crime. It’s important that they are implemented proportionately and don’t create unnecessary barriers for public servants and their families. We have already persuaded some firms to improve their approach and we will use this review to identify if we need to provide further guidance to firms.'

Under legislation adopted by Parliament, financial firms are required to do extra checks on political figures, their families and close associates. More than 200 countries and jurisdictions have signed up to the standards set by the Financial Action Task Force. However, if rules are applied inappropriately by firms, then individuals may find themselves excluded from products or services through no fault of their own.

The FCA has already taken a number of steps to remind the industry and specific firms that they should follow its guidance on implementing current rules, and some firms have already changed their approach as a result. Individuals can also raise concerns with their financial institution or the Financial Ombudsman Service.

Toby Holmes, Senior Deal Manager at Aviva, said: “In today’s climate it’s more important than ever for schemes to be well-prepared when approaching the market. This process has highlighted just how quickly and smoothly a transaction can run when it follows a well thought out and crisply executed transaction process. The trustees had a clear strategy to secure member benefits, and their vision, when supported by highly experienced advisers, has made for an efficient and successful transaction.”

John Bannister, representing Capital Cranfield, Chair of Trustees for the Scheme said: “We are pleased to be able to secure our members’ benefits with an experienced, well-regarded insurance company. We are confident that Aviva will provide a good long-term home for our members’ benefits.”

Ken Hardman, partner at LCP, commented: “We are delighted to be able to help the Trustee secure members’ benefits with Aviva. The transaction highlights the opportunity for well-prepared schemes to leverage strong insurer competition, even in a busy market.”

By James Wintle, Managing Director, Retirement, Nicola van Dyk, Senior Director, Retirement GB, Matthew Slater, Director, Retirement and Molly Tinker, Associate Director, Retirement at WTW

This is the first article in our mini-series exploring how the fiduciary duty of UK pension scheme trustees interacts with their ability to both manage climate risk and have a positive climate impact.

It is encouraging that many trustees are starting to work on this already, with compulsory disclosure activities relating to climate risks now bedded in for most larger schemes but still questions about the application of fiduciary duty linger for many. In this article, we delve into the dual nature of climate risk and impact and, in this context, how investment decisions related to climate change can be reconciled with fiduciary duty.

The relationship between climate-related risk and impact
Climate risks are systematic, hard to predict based on past experience and transcend individual asset classes. They require deliberate, forward-thinking strategies and considered transition plans. These risks encompass both physical threats, such as extreme weather events, and transition risks, including policy changes and technological advancements. Left unaddressed and unmitigated, climate risks could lead to significant disruptions in asset values, sponsor covenants and even life expectancies – all examples of the effect of climate risk on a pension scheme.

Looked at from the opposite direction, the investment decisions made by a pension scheme will have an impact on climate change and by extension the welfare of individuals around the world, including pension scheme members and beneficiaries. Investment decisions could also look to exploit the climate opportunities of the transition to a low-carbon economy.

The complexity of climate risk and the dual nature of the relationship between climate-related risk and impact, poses the need for a re-evaluation of traditional investment behaviours and the application of fiduciary duty.

Fiduciary duty – the story so far

To set the scene, let us quickly recap fiduciary duty and how it should influence trustees’ investment decisions. Fundamentally, a trustee's fiduciary duty is understood to mean acting for the proper purpose of the trust in the best interests of beneficiaries, prioritising prudent management and safeguarding assets, without taking one’s own personal interests into account. Historically, this has translated into a focus on maximising returns while minimising risks.

To support trustees in fulfilling that aim of maximising returns while minimising risks, the Law Commission of England & Wales has previously differentiated between “financial” and “non-financial” factors with trustees always being expected to take financially material factors into account when making investment decisions[1]. For example, these factors have included the expected return, the variability of future expected returns or inflation protection offered by the investment – in fact, anything that might affect the financial outcome of that investment. “Non-financial factors” (that is, anything else), can be taken into account by trustees when selecting investments only if certain (very restrictive) tests are met[2].

There has been significant debate recently around where climate change sits between these two groups and whether it is appropriate for pension scheme trustees to factor climate into their decision-making process. The recent paper from the Financial Markets Law Committee (FMLC)[3] explored these issues in detail and was cited by experts, including WTW’s Debbie Webb, who provided evidence to the House of Commons Work and Pensions Committee. We draw out a few conclusions from that paper below.

Climate risk and fiduciary duty
So, can pension scheme trustees consider climate risk when making investment decisions, and if so, how? The answer, according to the FMLC, is yes, and increasingly, they must if they are properly fulfilling their fiduciary duty. Trustees are not only permitted but also encouraged to integrate considerations around the sustainability of returns and factors that affect beneficiaries’ quality of life into their decision-making processes, as these may be reasonably considered “financial factors” as defined by the Law Commission. This includes assessing the resilience of investment portfolios to climate-related shocks, engaging with companies on sustainability practices in order to drive better future returns, and incorporating climate scenarios into risk assessments. Of course, this should all be considered in the context of the specific circ*mstances of the scheme and the employer that supports it.

Climate impact and fiduciary duty
Taking this further, sentiment is already starting to move in favour of also factoring the potential climate impact of investments into decision-making, with over half of those who participated in WTW’s 2023 Emerging Trends in DB survey indicating that they believed investments supporting the environment delivered better long-term performance and over one third saying that schemes’ investment strategies should support environmental considerations even if risk-adjusted returns are expected be moderately worse (something the current legal framework makes challenging).

This is encouraging, but hurdles remain as the pensions community continues to debate the extent to which trustees can factor the impact of their investment decisions on climate change into their decision-making processes.

To some, the price or expected return of an investment might be irrelevant if the climate impact is positive, so they view climate impact through a “non-financial factor” lens. The Law Commission’s strict tests must therefore be met before investing in this case. For others, the price is also a relevant consideration, alongside the climate impact. These investors therefore believe climate impact can be included within the “financial factor” list. Trustees’ objectives and motivations are therefore a key part of the decision making process and could lead to different trustee boards receiving different advice and reaching different conclusions.

What guidance is available?
Early movers are already actively navigating the area of climate change with input from their legal advisers although as mentioned above, legal opinions can differ.

In relation to climate risk, the FMLC’s paper considers how pension scheme trustees might approach the issues surrounding climate change when making decisions in keeping with their fiduciary duty. In particular, it notes that pension scheme trustees have the benefit of not generally being involved in the day-to-day detail of the asset management and can often consider the schemes’ investments more holistically. It goes on to reflect that trustees may be failing to meet their fiduciary duty by not considering all of the risks inherently present (of which climate is a very present risk to the economy and investment markets).

Similarly, the Institute and Faculty of Actuaries has issued guidance on climate change to its members, with the aim of aiding professionals who support trustees on assessing, advising and facilitating conversations on these long-term risks.

In our view, what the industry needs now is a greater consensus on whether (and if so, how) trustees can build the climate impact of their investments into decision-making.

What the industry needs now is a greater consensus on whether (and if so, how) trustees can build the climate impact of their investments into decision-making.

Taking action
Looking ahead, trustees are being encouraged to develop Climate Action Plans, which the Pensions Regulator believes might help focus trustees’ attention on plausible actions that can be taken in addition to meeting the disclosure requirements. These action plans could involve investment strategy changes, stewardship actions, changes to risk management processes and more. In our next article, we will explore some of the actions we are seeing trustees adopt.

The guide provides a comprehensive outline of the various regulatory ESG disclosure requirements, ESG disclosure obligations for asset managers, a summary of the information that trustees need from their asset managers and a breakdown of the role of the investment consultant in ESG matters.

SPP President, Sophia Singleton, said; “This practical guide is a welcome addition to the available guidance on ESG for trustees, builds on our 2023 guidance on the same and is packed full of useful information in the form of checklists, summaries and case studies as well as more in-depth guidance.

There is still some uncertainty about obligations in this area so we hope this SPP guidance will play a useful role in raising awareness and understanding.”

“Last week, the launch of the Conservative and Labour manifestos finally made an official commitment to maintain the state pension Triple Lock for the next five years. As a result, state pensioners can have peace of mind knowing that their state pension will continue to increase at the highest of price inflation, earnings growth or 2.5%.

“The Conservatives went a stage further, committing to their new ‘Triple Lock Plus’, under which the personal allowance for state pensioners would also increase in line with the Triple Lock. This removes any possibility of state pensioners in receipt of the full new state pension paying income tax on this.

“The Conservatives also set out what the Triple Lock would produce “on current forecasts”. For next April, they predict a £430 increase from £11,540 to £11,970, equal to 3.7%. Given today’s announcement that inflation sat at 2.0% for May, it’s very likely the Triple Lock will be based on earnings growth. This currently stands at 5.9%, but it’s the figure published in September which is used, and the implied manifesto expectation is this will fall to 3.7% by then.

“The Conservatives also predict the state pension will have risen to £13,200 in 5 years’ time, come 2029/30. While not specified in their manifesto, Aegon calculations show that this means they are assuming the minimum 2.5% increase in the following 4 years. In other words, current forecasts are that both inflation and earnings growth will not exceed the 2.5% per year guaranteed increase over this period.

“On that basis, the full state pension would equal £11,970 in April 2025, £12,269 in April 2026, £12,576 in April 2027, and £12,890 in April 2028, before reaching the £13,200 in April 2029.

“These figures are based on the assumption that inflation will remain at or below 2.5% throughout this period. And while the increases are far below the bumper boosts of 10.1% and 8.7% in April 2023 and 2024 respectively, when inflation and earnings growth were skyrocketing due to exceptional circ*mstances, this return to more typical Triple Lock increases will still allow state pensioners to at least retain their purchasing power.”

“While Australia’s system is commendable, it is important to recognise the significant structural and contextual differences between the UK and Australia. Implementing Australia's pension model in its entirety here would entail substantial financial implications and logistical challenges.

Publication of insurers’ latest annual returns demonstrates that most insurers are reporting slightly lower solvency coverage at year-end 2023 compared to the previous year. This largely reflects some return to normality following unusually high positions, in particular driven by favourable market conditions towards the end of 2022. While 2023 saw some capital strain from a record year of market volumes (in most cases without a need for raising new capital to support it), insurer balance sheets typically remain around 200 percent, comfortably higher than target operating levels and an indication of the ability to continue to write very significant levels of new business.

Martin Bird, senior partner and head of the risk settlement team in the UK at Aon, said: “Experience tells us that there are several ‘levers’ that affect the risk settlement market and changes in any of them always affect how it operates from year to year or even within 12-month periods. While the market has been healthy in the first half of this year, it has been relatively slow compared to 2023 and may need a spectacular second half to match last year's total volumes.

“However, with insurer balance sheets remaining so well capitalised, we can be sure that they – and their shareholders – will be keen to see their war chests put to use supporting new business in the rest of the year and into early 2025.”

Martin Bird continued: “We also know the newer – and, as we expect, new - entrants to the bulk annuity market are likely to be especially aggressive on pricing as they seek to establish a foothold in the market, which will further support competition and overall capacity. This is great news for the market, and in particular for smaller schemes who may well be the beneficiaries of that. They will offer the best opportunity to make an early impact.”

The news follows previous research by PensionBee, a leading online pension provider, that indicated that approximately 10% of defined contribution pension savers’ funds in the UK are invested in the US tech giants, collectively known as the ‘Magnificent Seven’, which includes Amazon, Meta (the parent company of Facebook), and Alphabet (the parent company of Google).

A recent survey of PensionBee customers revealed that nearly three-quarters (72%) believe shareholders should leverage their voting rights to influence how tech companies utilise AI. This strong sentiment reflects a growing apprehension among pension savers regarding the ethical and operational implications of AI.

Previous findings also showed significant support from pension savers for shareholder resolutions at Amazon, Meta (Facebook), and Alphabet (Google) annual general meetings (AGMs). However, these resolutions ultimately failed to pass, underscoring a disconnect between shareholder actions and pension savers' concerns

The results of the related shareholder resolutions at each AGM were as follows:

Amazon: During Amazon’s AGM, a shareholder resolution was introduced urging Amazon's Board to establish a committee of independent directors to address AI-associated risks. Further research by PensionBee showed that almost half (45%) of their customers supported this resolution. Unfortunately, it garnered only 10% of the vote.

Meta (Facebook) & Alphabet (Google): Meta and Alphabet’s AGMs included a shareholder resolution requesting the Board to issue a report assessing the risks associated with generative Artificial Intelligence (gAI) and proposing remedial measures. This resolution was supported by 68% of PensionBee customers surveyed. Despite this backing, the resolution received only 17% of the vote at Meta’s AGM and 18% at Alphabet’s AGM.

Alphabet (Google): At Alphabet’s AGM, a shareholder resolution called for an independent third-party Human Rights Impact Assessment of Google's advertising policies and practices. Despite the apparent support, the resolution failed to pass, receiving only 19% of the vote.

Clare Reilly, Chief Engagement Officer at PensionBee, commented: “The failure of these resolutions is a disappointment for pension savers who tell us that they are increasingly concerned about the ethical implications of AI.

“We see a strong desire among savers for greater accountability and transparency in how AI is developed and deployed by these tech giants. Their management teams have a responsibility to listen to these concerns and take action to mitigate potential risks. The rapid pace at which AI technology is advancing brings with it significant ethical and social considerations, and it’s imperative that these are not overlooked in the pursuit of innovation.

"PensionBee’s research shows that pension savers are not just passive investors; they are keenly aware of the broader impact of their investments and are calling for responsible stewardship from the companies in which they are invested. This is particularly crucial in the tech sector, where the decisions made today about AI could have far-reaching consequences for society.”

By Julien Masselot, Principal and Head of Capital and Risk and Fearghas MacGregor, Associate and Senior Consulting Actuary at Barnett Waddingham

"While validation is an integral part of the risk and regulatory framework around internal models, the approach needs to evolve to cope with the fast changing (internal and external) environment. This will then mean valuable feedback can be provided to both first line and the Board."

Certainly from our experience, firms are beginning to ask the question as to whether the validation process is still fit for purpose.

Stakeholder engagement: quantitative versus qualitative outputs
A key discussion point was about striking the right balance of quantitative information in a validation exercise. Our roundtable attendees noted that there has been an increasing reliance on point estimates over the past ten years.

This has two effects:

It leads to anchoring to prior results but does not equip the board with the right information for effective challenge.
It increases the danger of distracting senior management from issues that are not material to their organisation and risk profile, as a point estimate does not convey information about its accuracy.

To address these issues, attendees shared strategies that have worked for them including the use of ranges when communicating results to senior management.

These provide a more realistic picture of the risks faced by the business by allowing for some uncertainty. By providing ranges rather than point estimates, the group emphasised that it gives context for stakeholders to understand and assess the results. It also allows them to temper their response to changes. For example, a change to business plans leading to changes in the solvency capital requirement (SCR) can quickly be assessed for materiality by measuring against the model output ranges used in validation.

Stakeholder interaction was also discussed as an area which needed improvement. One attendee wished for a more effective validation framework, which would require consistent and regular training for non-executive directors and other board members.

Boards have matured over time - the current members are very different to those from ten years ago and have different areas of experience and expertise. Meanwhile, the models and procedures will also have developed, so there will naturally be a need for regular realignment and training.

Improving validation quality through collaboration
The importance of building partnerships with other teams was highlighted, whether working with first line capital or with the finance team.

By creating a collaborative environment rather than operating in silos, the quality of the validation outputs can be improved, and a feeling of partnership can be developed. For example, it was shared that successful collaboration with the first line enabled the model development plan to prioritise areas of focus for future validation.

Participants mentioned that they were actively pushing back against validation as a tick box exercise. Instead, it should be viewed as a powerful tool to help the business make better decisions. But it was noted that validation must still satisfy the original requirements: providing comfort to the board, the regulator, and other stakeholders.

One proposal to unlock more benefits from the validation cycle was to work with the first line team more efficiently. This can be done by transferring some of the initial checks to first line, who are best placed to address these, freeing up validation teams to consider wider areas of focus from an earlier stage.

Key focus areas
One participant suggested leveraging historical validation to find and focus on areas that will “move the dial” – whether materially impacting the total capital requirement, individual risk areas, or any other important business metrics.

We carried out a short survey during the roundtable, asking 15 attendees to select the key themes of focus for the upcoming validation cycle. The results are shown in the graph below:

The areas identified were:

Underwriting – both profitability and prospective loss ratios. This was expected to be an area of particular regulatory focus, given the ‘Dear CEO’ letter from the Prudential Regulation Authority (PRA).
Geopolitical risks – covering both the areas from the 2023 exercise, as well as any additional areas as the current political climate develops.
Reserving - especially back year deterioration and how this contrasts with prior reliable reserve releases.

Efficiencies within the validation process
A repeated concern raised by participants was the constraints (both time and resources) of validation.

Regulatory timelines are getting tighter while the validation work remains increasingly dependent on the work of other teams. Therefore, material changes to their work can have significant knock-on impacts to validation which has implications on the output quality. For instance, triggering an unexpected major model change close to the Lloyd’s Capital Returns (LCR) submission will add a lot of pressure to the validation team.

The roundtable then moved on to discussing the challenge of creating efficiencies within validation, specifically automated validation. We have our own version of such a tool called validateR. We noted that a small number of participants had tried down this road but were often distracted by other more pressing concerns.

Automation has many benefits, including allowing the validation team to spend more time providing valuable feedback, focussing on key areas that need more attention and providing the opportunity to increase interaction with other teams, building quicker feedback loops.

Next steps
Our roundtable provided a valuable platform for insurance experts to discuss challenges and opportunities within validation. It was useful to discuss the market observations we have seen, but also to learn more about specific challenges that insurers face and share practices on how to overcome those challenges.

"As the industry continues to evolve, internal model validation remains a key component of the second line of defence of insurers, but does need to be a value adding process rather than just a regulatory box ticking exercise."

Braun leads the ABI’s strategy and policy across long-term savings, health and protection insurance and is Executive Sponsor for Diversity, Equity and Inclusion. She pioneered the ABI’s cross-sector Pensions Dashboard pilot, a digital prototype designed to reconnect people with almost £27 billion in unclaimed pensions, which has now been legislated for, with the full service scheduled to reach savers in 2026.

During the pandemic, Braun led the sector’s charitable £100 million Covid-19 Support Fund, to help people and communities hit hardest by the Covid-19 crisis. She also spearheads the ABI’s high-impact diversity, equity and inclusion initiatives to ensure that the 320,000 people who work in insurance and long-term savings reflect and represent the communities they serve.

ABI Director of Policy, Long-Term Savings, Health & Protection Yvonne Braun said: “I am deeply honoured to receive an OBE for services to the pensions industry and socio-economic diversity. Our sector’s purpose to help people achieve a financially secure retirement has never been more important, and to achieve it, our sector must truly reflect the customers we serve. My heartfelt thanks go to all members of my teams – I have been incredibly fortunate to work with such talented and motivated colleagues.”

Hannah Gurga, ABI Director General Hannah Gurga said: “I am beyond delighted to see Yvonne’s commitment and dedication to pensions and DEI recognised with an OBE. This is a much-deserved honour and a testament to the impact Yvonne has had on the pensions industry. A true DEI champion, Yvonne has also been the driving force behind the ABI’s DEI Blueprint and is integral to our efforts to make our sector the most diverse, equitable and inclusive in the UK economy.”

Mike qualified through the Faculty of Actuaries in 1992 after which he held positions at Southern Life, Momentum and Metropolitan Life. Since 2013, Mike has been Chief Executive Officer at the Actuarial Society of South Africa (ASSA). The IFoA and ASSA have a close working relationship, with ASSA having benefited significantly over the years from the IFoA’s education and, more recently the IFoA has adopted ASSA’s banking specialist exams. Mike’s appointment at the IFoA will facilitate even greater cooperation between the two professional bodies.

IFoA President Kalpana Shah, said: “I would like to give Mike a warm welcome as he comes on board as Director of Learning. As a qualified actuary, he has walked that road that our members are walking of balancing studies and professional development with a full-time job. In addition, our work with ASSA means that we have seen, first-hand, Mike’s commitment to collaboration with other actuarial societies and the wider profession. Mike’s experience and fresh perspective will be crucial as we continue to evolve the IFoA’s education offering.”

Mike McDougall, incoming IFoA Director of Learning, said: “I care deeply about the advancement of the actuarial profession and have huge respect for the work the IFoA is doing to support this. I believe that education plays a critical role in supporting actuaries, as they move towards qualification and throughout their working lives. One key focus for me will be to maintain the underlying ethos of actuarial education – the strategic approach to risk management coupled with professionalism – while incorporating the advantages that technology, including artificial intelligence, can bring. I look forward to joining the IFoA and working with the Learning team and as part of the Executive Leadership Team.”

Ben Kemp, Chief Executive Officer (interim), said: “The IFoA has always been committed to providing a modern and robust pathway to qualification and beyond and we want to ensure that the learning experience is a positive one for our members. It is incredibly valuable to have someone of Mike’s calibre joining this organisation and bringing his broad range of experience to our Learning team.”

Martin will be sadly missed by his friends, former colleagues and contemporaries. He made a huge contribution to the industry and in his 9 years as Government Actuary.

Leader and innovator
Fiona Dunsire, who took over the role of Government Actuary following Martin’s retirement in 2023 said: “It was a great shock to us here in GAD to hear the sad news of Martin’s death and his loss will be felt by everyone who knew him in the profession. Martin was a leader and innovator here and we see his legacy every day in our work with clients.”

Martin started his public service in 2006 at the Pension Protection Fund, following an actuarial and general management career within the retail financial services industry.

Martin Clarke CB FIA - Government Actuary 2014 to 2023.

Legacy
He moved to the Government Actuary’s Department (GAD) in 2014. He steered GAD through a period of modernisation, growth and diversification as well as the challenges of the pandemic. He left the department in a strong position, delivering more work, across more areas and public sector clients than ever before.

In an interview before his retirement in November 2023, he spoke about his role: “I had a little idea of what to expect when I joined. I just didn’t then fully appreciate the extent, nature and reach of the department’s work.

“One of the great pleasures of my role has been seeing and enabling potential to be turned into reality. Be that a project that evolves from a blank sheet of paper to a stunning bit of work for our clients or seeing colleagues develop and flourish in their roles.”

Martin Clarke passed away on 5 June 2024 and is succeeded by his wife Julia and his 3 children.

While PIMFA is supportive of the intended purpose and spirit of the proposals put forward by the FCA, they fail to sufficiently take account of the unique requirements of the market for portfolio management and of retail investors.

In its response to the Regulator’s consultation, PIMFA has highlighted its significant concerns around the timing of the implementation. PIMFA has significant concerns regarding some of the proposals put forward by the Regulator and given those concerns, considers it may be unrealistic to believe the final SDR rules for portfolio management will be agreed by October. Even if they are, the final implementation deadline of 2 December does not provide adequate time for firms.

This would create a significant challenge for firms, placing considerable regulatory burden on them to complete structural work to meet the requirements for extending SDR to portfolio management in only six weeks.

PIMFA believes it is important to allow the SDR fund regime to embed properly, as the pace of implementation of the first tranche of SDR rules will influence portfolio management firms.

Firms in our sector will find it challenging to continue to work with some smaller fund houses and have them represented in their portfolios because these have not met the SDR labelling standards yet and will not adopt the labels for another year or two. This would unintentionally reduce choice of investments for portfolios and may affect end client outcomes.

Additionally, PIMFA is calling on the FCA to reconsider including bespoke portfolios in the SDR regime. Bespoke portfolios are not products, they are services, and more clarity is needed on how firms would be expected to apply a product label to a service-based investment approach.

PIMFA would also like to see the Regulator provide more clarity around the inclusion of overseas funds which are currently out of scope of the SDR and the role of portfolio manager when including them in portfolios. The current proposals make it difficult for investors to understand why SDR applies to some funds but not others making it difficult for them to make informed decisions.

Further, PIMFA would like to see the 70% threshold for labels lowered to avoid any unintended consequences for portfolio managers and avoid potential confusion that a lower risk portfolio cannot be sustainable. Portfolio managers may have a sustainable label for their higher risk portfolios (which will be heavily weighted towards equities) but not for their lower risk portfolios. This could be the case even though the underlying assets were the same, just in different weightings. This would imply that sustainable labels are only for higher risk (and higher return) portfolios.

Maja Erceg, Senior Policy Adviser EU and Government Affairs, PIMFA at PIMFA commented: “We are broadly supportive of the work the FCA is doing around SDR but the timing to agree the rules for portfolio management firms let alone implement them is not merely challenging, it is close to impossible.

“We have specific concerns around both the timeframe as well as labelling, which could cause confusion for retail investors, making it difficult for investors to understand why SDR applies to some funds but not others, such as overseas funds. This will make it challenging for consumers to make informed decisions about their investments.

“It is vital that these rules are agreed and implemented correctly. In order for these proposals to successfully meet the policy objectives, we strongly believe that it would be better to delay the implementation period by 12 months in order to give firms the time to comply with these rules.”

By Adam Smylie, Associate Consultant, Neil Gedalla, Principal and Ed Harrison, Partner from LCP

Why are volume and volatility often not joined up?

There are a number of reasons why it is surprisingly difficult to create a strong link between volume and volatility.

Tight timescales: Modelling timescales are often very tight, so parameterisation is often done well in advance of the period to be modelled. This means that the modelled volumes of business may be very different to those in the historical data used to parameterise volatility.

Parameter roll-forward: Volatility parameters (usually coefficients of variation, or “CoVs”), are often reviewed on eg a 3 year cycle. In the interim, CoVs tend to remain unchanged, even if the new business volumes or reserve volumes change. A full re-parameterisation of a risk area requires fresh data, judgement and validation.

Lack of validation challenge: Common validation tests used to assess volatility assumptions include benchmarking CoVs against the market and back-testing against the historically observed volatility of the portfolio. These tests do not automatically allow for differences in volume and can potentially give false comfort if changes in volume are not factored in.

If there is a big difference in reserve volumes between the two successive year-ends, the CoVs set may no longer be appropriate if they are not volume-adjusted.

Challenges around model parameterisation timescales, resource and prioritisation are unlikely to go away. Given this, can we adjust volatility for volume without doing a full re-parameterisation? Having a simple data-driven formula that links volume and volatility would allow capital modellers to build dynamic volume-driven adjustment of CoVs into the capital process. This could include adjustments:

To reflect differences in volume between past data used to set the CoV, and forward-looking business volumes the CoV is applied to. To keep the parameter in line with volumes of business written or reserves held in years when the CoV would otherwise not be updated.

What might such a formula look like? A simple example might be expressed as follows:

where V represents volume of business. A key judgement is the fine-tuning of the b parameter. A higher parameter implies the CoV is more sensitive to volume change.

We performed two different types of analysis on the Schedule P dataset of the US National Association of Insurance Commissions (NAIC) return.

Validation: We cross-checked our results against other data sources and regions. For example, we observed a similar relationship in our annual LCP capital benchmarking survey when comparing participants’ selected CoVs against their reserve volumes.

In summary, our research suggested that the power relationship in the formula fits the data really well and that a value for b of around 0.22 is broadly applicable across a range of different datasets.

As expected, we also found that b varied by class of business, for example, we found that it tended to be lower for classes more exposed to systemic risks.

Next steps

We think that adopting a scaling approach that links CoVs to volume addresses a current weakness of many firms’ modelling processes in a simple and efficient way.

Overall, firms who create the strongest link between the capital modelling and the risks that business face will be best placed to understand those risks and manage them in line with the overall strategy.

A more comprehensive summary of our research was presented at the IFoA General Insurance Spring Conference and is available to watch on-demand.

Support for this policy was particularly strong (92%), by those aged 35 to 44, a group that’s consistently demonstrated low pension confidence, according to PensionBee’s Retirement Confidence Index over the past 6 months.

Lifetime Allowance and the Triple Lock
Maintaining the abolition of the Lifetime Allowance, a recent reversal in Labour’s plans was favoured by 61% of respondents. Over a third (37%) of respondents believed it encourages saving for the future, while almost a quarter (24%) noted that any changes would directly impact their retirement planning.

Meanwhile, the Conservatives’ ‘Triple Lock Plus’ policy, resonated with older voters, as almost two-thirds (65%) of over 55s were aware of this policy and broadly understood its aims. Less than 10% of over 55s were unaware of the policy, the lowest rate among all age groups.

Taxes and social care
A significant proportion (60%) of respondents indicated they would likely vote for a party pledging to scrap inheritance tax. Previous research from PensionBee found that while 30% of over 55s would like to see the tax abolished completely, only 15% of young savers (age 18-34) shared this sentiment, instead favouring a more means-tested approach.

Prioritising the NHS and social care funding was highlighted as another priority, with almost 70% of respondents stating they were likely to vote for a party that committed to increased spending in this area, even at the expense of higher taxes.

Sustainable investing and looking to the future
Meanwhile, the Green Party’s pledge for pension funds to divest from fossil fuel assets by 2030 indicated a clear contrast from the preference of customers in PensionBee’s default plan. Almost two thirds (65%) of customers in the Tailored plan favoured continued investment in fossil fuels, citing profitability and the potential to drive change through AGM votes as reasons not to divest.

When asked about their feelings towards the future, overall respondents felt optimistic about a change of government (55%), while more people (23%) felt unsure rather than pessimistic (21%) about the change. Younger savers were the most optimistic (68%) about a new government, whereas those aged 65+ were the least (40%) likely to express this sentiment.

Becky O’Connor, Director of Public Affairs at PensionBee, commented: "Pensions often face policy changes due to the costs involved for the Treasury in offering tax relief and the State Pension, but also because votes can be won or lost through adjustments to people’s retirement prospects.

Our survey clearly shows that voters are eager for meaningful reforms in some areas of the pension system and continuity in others, reflecting a broader need for financial security.

The ability for working people to build a decent pension is a key pillar of a well-functioning society and the incoming government has a significant opportunity to implement policies that foster confidence and trust among savers, ensuring a financially secure future for all.”

The firm warns a common vision is vital; without one there’s a risk of wasting management time and excessive spending on advisor costs, with both parties pulling in opposite directions for their desired end goals. The majority of practical issues can also be resolved fairly easily if there is a common shared purpose.

The leading pensions and financial services consultancy cautions that stakeholders must work together to maintain sight of their key objective of making run-on work. Exploring the merits, through detailed and considered strategic planning, will ensure all stakeholders are working together.

For most DB schemes, the discussion at this stage will centre one of four options: a realisation that more thought is required; a preference for risk transfer; deferring decision-making or, agreement that run-on is the most appropriate solution. Working together and looking at all available options, will ensure that future challenges are manageable, and all of those involved fully understand the path ahead.

Commenting on why DB sponsors and trustees should unite to explore the feasibility of run-on before diving into the granular detail, Leonard Bowman, Head of Corporate Consulting, Hymans Robertson says: “Run-on can be a very powerful and attractive option, for all stakeholders. However, it can also open up a daunting number of issues and decisions to consider. It’s very easy to lose sight and end up not being able to see the wood for the trees. It is tempting to dive straight into detailed analysis, but that could lead to wasted time and money. Ultimately, it is key that all stakeholders work together to keep the big picture in mind and see value in the feasibility of run-on. There must be a common vision that run-on is worth deeper investigation.

“The starting point is to get the company and the trustees around a table to discuss all of the options. This will ensure that the respective benefits and challenges are heard and explored, and a common end-goal is reached. Our insight hub, can help direct thought around the key issues to be addressed, helping to structure conversations, ensuring that this upfront investment of time will give confidence to all stakeholders.

“When getting round the table, it is important that any past positions and comments are parked and previous assumptions are put to one side. Start with a genuine blank sheet of paper and open mind. Whilst detailed analysis is not needed at this principles based stage, it is worth checking that all options under consideration are allowed legally. Although an unresolvable legal issue is rare, seeking legal advice early will avoid future wasted time or spend.

“By having this initial, principles based discussion, it ensures that all stakeholders see value in taking the next steps, getting advice and taking time to make decisions. They will then be fully aware of what work needs to be done to meet the needs of scheme members, the trustees and the sponsor.”

The Hymans Robertson Excellence in Endgames insights hub and decision-making tree can be found here.

These can result in both under or over payments which employers need to identify and correct quickly, warns the leading pensions and financial services consultancy. The firm estimates that the average DC pension scheme member could be at risk of losing contributions which are worth up to £12k in retirement. In its new guide ‘Spotlight on pension contribution accuracy and The Pensions Regulator’s requirements’ , it warns employers to proactively review their scheme’s DC contribution compliance and review their payments. By taking the time to do so, all organisations regardless of size, can help avoid costly mistakes.

Auto-enrolment compliance, a renewed focus on pensions inadequacy and a vastly different employer landscape post-Covid-19, have created a perfect storm for DC schemes. The firm’s analysis shows that there is a significant volume of undetected errors being made. Employers could face costly remediation projects with members losing out on thousands of pounds if these aren’t rectified. Some of these discrepancies can be significant, with an investment of both time and money needed to re-calculate, and then apply, the correct payments.

Urging schemes to be proactive and act quickly to review their contribution compliance, Hannah English, Head of DC Corporate Consulting, Hymans Robertson says: “The Pension Regulator (TPR), in its latest code of practice, instructed providers to seek more detailed information from employers. This has led to the discovery of a number of contribution errors for certain DC schemes. Unintentionally, this has meant those DC pension schemes, where the errors have been found, are facing costly remediation projects to set things right. In tandem, there has also been a detrimental impact on some DC pension scheme members which must be addressed.

“For a member on an average salary of £30,000, errors over a ten-year period missing out on 1% contribution, could lead to a gap of up to £12,000 in contributions, if this isn’t rectified. This is a significant loss in contribution to an individual’s outcome if not corrected, and one that will be multiplied across many employers and DC schemes.

“From our own independent reviews, we have seen similar themes emerge which have led to contribution inaccuracies. Errors in pensionable pay, wrong contribution percentages and the incorrect application of tax relief, and salary sacrifice are a few of the common reasons for mistakes. These errors could result in both under or over payments which employers would need to correct. In some cases, this will also need to be reported to the regulator. Identifying these early and having a clear plan should reduce the likelihood of the need for further investigation.

“Our guide provides an overview of the steps which can be used as a starting point, but we would urge all employers to investigate and review their payments. By taking the time to do so, all organisations regardless of size, can help avoid costly mistakes and longer-term challenges saving both time and, ultimately, expensive corrective payments for both the scheme and the member.”

While smaller insurers are set to benefit from increasing thresholds, those that now fall below the Solvency II thresholds can choose to operate under the non-Directive firm (NDF) rules which are tailored to smaller firms, or remain within Solvency II regime, according to Broadstone.

The Prudential Regulation Authority’s (PRA) Policy Statement PS2/241 set out increased thresholds below which Solvency II regulations will not apply, with the gross written premium income threshold increasing by a further £10 million from the £15 million originally proposed.

In the Policy statement, the PRA cites a further six firms that will fall below the Solvency II thresholds on top of the nine previously referred to in CP12/232, but Broadstone anticipates the actual number falling out of Solvency II is likely to be less.

Those insurers operating underneath the Solvency II thresholds can choose to operate under NDF rules, which are tailored to smaller firms, or remain within Solvency II regime.

It is important for insurers to consider the costs and benefits of operating under NDF rules and also the transition period, which will need to take place before the end of 2024.

The PRA considers that NDF rules feature lower compliance costs than Solvency II, owing to simpler administrative requirements, reporting expectations and capital standards. Nonetheless, the PRA provides the option to remain in Solvency II as some firms may not wish to invest in adapting to a different regulatory regime, especially if their growth plans will soon lift them above the thresholds in the near future.

Firms becoming non-Directive on 31 December 2024 will need to ensure that their finance and actuarial reporting processes are ready to report under new rules. Broadstone highly recommends firms prepare for this in advance and ensure that the end-to-end process is in good working order before the end of the year.

Steven Cameron, Pensions Director at Aegon: “With older generations typically more likely to vote, policies for pensioners will always be a key focus in General Election campaigning.

“But pensions aren’t just important to ‘older people’ – government policies on pension savings, investment and economic growth also play a huge role in helping people save for their retirements.

“The Labour manifesto, published today, provides confirmation of its commitment to retain the State Pension Triple Lock for a further five years.

“This offers state pensioners a very valuable guarantee of increases equal to the highest of price inflation, earnings growth or 2.5%. With the Conservatives also committing to this, the triple lock is secure whatever the election outcome.

“Of course, this comes at a cost, but a return to typical historic levels of inflation and earnings growth may make it less costly or unpredictable in future years. One means of funding this would be to further increase the state pension age, but there has been no mention of this in either Manifesto.

“As expected, Labour is not following the Conservatives in creating a Triple Lock Plus arrangement. The ‘Plus’ is a Conservative commitment to increase state pensioners’ personal allowance in line with the state pension triple lock. Without this, the Conservatives say there is a risk that the full new state pension will rise above the personal allowance, meaning pensioners could be subject to income tax even if they have no other income in retirement.

“The tax breaks on offer to pension savers can make a big difference to how quickly they can build up pension funds and hence create wealth for their futures. While the Labour manifesto places much emphasis on wealth creation, it is silent on aspects of pensions tax. The Conservatives said they won’t change the system of pensions tax relief for the next five years, retaining a top-up based on an individual’s highest marginal rate of income tax, which is very valuable particularly to higher earners. There’s also a Conservative commitment to the 25% tax free lump sum and no new or increased pension taxes.

“Labour’s Manifesto commits to reviewing the pensions landscape to consider what further steps are needed to improve pension outcomes and increase investment in UK markets. It also talks of increased pension scheme investment in productive assets. These investment aims are similar to what the current Government has also been seeking.

“Automatic enrolment into workplace pensions has been hugely successful in helping millions of people build up more in workplace pensions. But neither the Labour nor Conservative Manifesto makes any mention of when planned enhancements might be advanced. These would open up automatic enrolment from age 18 rather than 22 and would gradually increase the minimum contributions to 8% of earnings from the first £1, rather than only on earnings above £6,240. We very much hope whoever is in power advances this as a priority to start the journey towards more adequate pension savings.

“There are many other pension initiatives under development by the current Government, affecting people both while saving for retirement and when they take a retirement income. These include online pension dashboards to keep track of all pensions, a consistent value for money framework for assessing all pension schemes, a solution to consolidate small pension pots worth under £1,000, offering members of trust-based pensions more retirement options, extending a new form of ‘collective defined contribution’ scheme and offering individuals the choice of a pension ‘pot for life’ rather than their employer choosing their pension scheme. Aegon has been campaigning for a combined plan with sensible timescales. If we have a new party in power, we’ll repeat our calls for clarity on which are being taken forward, and in what order.”

Calum Cooper, Head of Pension Policy Innovation, Hymans Robertson says: “We’re really pleased to see that the Labour Party’s manifesto is proposing a pensions review. This is desperately needed to ensure the pensions framework can provide sustainable retirement incomes for savers and help secure later life income for millions of people. For it to be truly effective, however, we believe this should be led by an independent pensions commission. This is about delivering later life security for today’s workers and generations to come and not a game of party politics.

“The biggest pension challenge any new government will have is the rapidly emerging pensions division between those generations. Often between those with a DB and DC pensions. DB Pension are likely to provide an adequate pension income while those with a typical DC pension face a massive inadequacy challenge. This difference between the older and younger generations is quite simply inter-generationally unsustainable and must be addressed. Issues such as deciding how to use DB surplus, encouraging innovative new pension design for DC – whether that’s CDC or other risk sharing ideas, looking at solving the decumulation puzzle, gradually stepping up Auto Enrolment contributions and developing new thinking to help savers navigate from work into retirement safely and successfully need to be addressed.

Most Brits understand and can explain key football rules better than they can the rules around retirement, according to new research by Aviva.

Almost three in five people (59%) can confidently describe football’s offside rule; and more than half (53%) know what VAR (Virtual assistant Referee) stands for; the same percentage (53%) know that 30 minutes of extra time could be played if the final result of a match is still a draw after the usual 90 minutes.

Unfortunately, the same could not be said for our retirement plans: Less than half (46%) of UK adults are confident that their retirement plans are on track and this confidence appears to decrease with age – only one in five (18%) 25–34-year-olds say they are ‘very confident’ their retirement plans are on track – this drops dramatically to just 7% of those aged 45-54 years old.

Only two in five (40%) correctly recognised 66 as the age that UK residents are currently eligible to claim the state pension, almost two in five (38%) thought they could access the money between 60 – 65 years old.

Just under one in four (23%) can correctly identify the value of the full state pension (£221.20 per week) – one in five (19%) predicted that they would be between £20 - £60 better off each week (citing £241.20 - £281.20 as the payment).

A further 18% thought the earliest age they can access their private pension was between 40 and 54 years old – not 55, which is the correct age.

Today there are a record number of people saving for their retirement – more than 22 million across the UK. That’s enough people to fill Wembley Stadium nearly 250 times over.

Millions will watch the start of the UEFA Euros 2024 championship this weekend; but millions of the same people may be flying blind towards their retirement.

Commenting, Alistair McQueen, head of savings & retirement at Aviva said: “Football is our national game. Millions love it. And even those who don’t, seem to have a pretty good understanding of its rules. Sadly, the same cannot be said about our retirement plans.

“Most of us are now actively saving for our retirement thanks to auto-enrolment.

“Many can hopefully look forward to a lot more cup finals in our retirement. By taking some simple steps today, it can help us take control of our retirement plans and allow us to keep cheering our teams with confidence, for years to come.”

Aviva’s three key retirement planning ‘rules of thumb’ are:

Aim to begin saving for your retirement at least 40 years before your target retirement age.

Aim to save at least 12% of your earnings into your pension – and remember this 12% can often include contributions from your employer.

Aim to have a pension fund worth at least ten times your salary by the time you reach your retirement.

By Dale Critchley, Workplace Policy Manager, Aviva

My barber, Vincenzo, started his business in 1967 and is still working one day a week. He has had some of the same customers for over 40 years and coming to work means catching up with old friends as well as providing a great service.

Clearly, Tarcisio and Vincenzo love their work.

Working into our 80’s might not appeal to everyone. However, working for longer and transitioning into part-time work is increasingly common. For some, like Tarcisio and Vincenzo, going into work is something they look forward to. For others, not having enough savings means working for longer is a necessity. Auto enrolment is helping employees today save into a pension, but it has only been in place for 10 years, which means there are thousands of workers in their 40’s and 50’s with only a decade’s’ worth of pension savings. Therefore, the traditional cliff-edge retirement around 65 years old might not be an affordable option for this group, unless they act now.

The seemingly obvious thing to do is to save more into a pension but the cost-of-living squeeze means this might not be a viable option for some, at least not for now. For those people who are struggling to put money aside for the future, financial education can fill a gap to help ensure they are making informed choices to maximise their savings. Saving into a cash ISA or a bank account might be the right thing for some people who want easy access to their money, particularly right now, but it is rarely the right choice for long-term savings. Financial education can equip employees with the knowledge to recognise the tax advantages of pension saving and the potential greater long-term returns of investing.

Working for longer has three advantages when it comes to pension saving.
Firstly, it provides savers with more time to save, meaning more employee and employer contributions are paid in. If someone has contributed pension savings for 120 pay days, adding another 36 pay days by retiring three years later will make a big difference.

Secondly, it provides more time for existing funds to potentially grow in value. Traditionally, default funds de-risked towards retirement into a mixture of so-called ‘safer’ cash and bonds in anticipation of an annuity purchase. De-risking now tends to include assets designed to deliver growth during decumulation. The important lesson is that individuals who plan to delay their retirement should let their pension scheme know, so that de-risking is aligned with actual retirement age, and individuals maximise their opportunity for growth and returns.

The third and final advantage is that the term over which income will be taken from a pension will be reduced. This will be reflected in the sustainable drawdown rate, as well as in annuity rates. At 80 years old, a £100,000 pension pot could provide a single life annuity of £10,975 guaranteed for 5 years for someone in good health, and someone with health conditions could receive a higher amount.

The increase in value offered by an annuity as people get older is why Aviva is developing a hybrid ‘guided retirement’ solution which will initially be offered to Aviva Master Trust members. It will combine a flexible drawdown income in the early years of retirement with an annuity in later life, to manage the risk of running out of money.

Another consideration is that the state pension will not be payable until age 67 from April 2028 and may increase further in time.

Under the leadership of Scott Phillips of The Pension Lab and independent consultant Justine Pattullo, FLAG is a unique industry action group that brings together a diverse coalition of organisations, including master trusts, pension providers/platforms, advice/paraplanning firms, industry bodies and numerous fintechs. The collective effort is a direct response to the release of the influential white paper in April 2024 entitled, What Lies Beneath Letters of Authority from the #LogYourLoAPain campaign, which identified significant inefficiencies and the urgent need for reform in the LoA process.

Scott Phillips, CEO and founder of The Pension Lab, underscored this initiative's critical nature: "Our white paper brought to light the pervasive issues within the LoA process, which impacts all stakeholders. With the increasing number of pension pots and transfers and the significant impact of pension dashboards forecast to increase LoA numbers eightfold, the need for reform is more urgent than ever. The establishment of FLAG is a pivotal step towards actionable solutions."

During the inaugural meeting, three key working groups will be proposed as priority areas for improvement. Each group will be dedicated to addressing specific aspects of the LoA process, including LoA requests, LoA fulfilment, and identity verification.

Billy Burnside, managing director of Criterion and founding member of FLAG, adds, "By bringing together a balanced representation of all affected parties and facilitating greater collaboration, FLAG aims to prioritise and tackle the most pressing issues. The way to achieve this is by working together as an industry. Our structured approach, with focused sub-working groups, will also showcase the benefits that Standards can bring to the LoA process."

Paul Holland, CEO and founder of Beyond Encryption, said: “Dealing with customers at a distance presents several challenges - including the need to authenticate relevant parties. Whilst 'wet signatures' have been the long-standing and accepted mechanism for verifying documentation, they provide little to no assurance of the authenticity of the signatory when transactions are completed remotely. For the LoA process to continue using wet signatures as a form of identity verification is not only outdated but seems at odds with where we, as an industry, are trying to get to in terms of digital servicing standards. We continue to support this important initiative to bring identity verification and the LoA process under the spotlight.”

Based on the success of the #LogYourLoAPain supported by Criterion, Beyond Encryption, Punter Southall, EV, Penny, MypensionID, PensionBee, Octopus Money, and CATS; FLAG's mission is to drive concrete improvements through industry collaboration. It aims to create an efficient LoA process that currently costs the industry over £442 million every year. The group calls on master trusts, providers, platforms, industry bodies, and advice professionals to join this vital initiative by contacting Justine Pattullo directly.

Over Q1 as a whole, the Aon UK DC Tracker rose which suggests the expected future living standard in retirement provided by defined contribution (DC) savings was higher than at the end of the previous quarter. As usual, this overall increase masks a more complex picture for the individual sample savers.

Older savers, particularly those with the largest existing pension funds, had the largest increase in their expected retirement income, while the expected retirement income of our youngest sample saver was effectively unchanged over the period.

Aon UK DC Tracker

Source: Aon UK DC Pension Tracker (1 January to 31 March 2024)

Note, the sample savers used in the Aon DC Tracker were ’re-set’ to their original age and fund values at the year-end which results in the discontinuity (shown in grey in the chart above) as at 31 December 2023.

As a reminder, in February 2024 the Pensions and Lifetime Savings Association (PLSA) released an update to its Retirement Living Standards, which showed higher outgoings were required in retirement across all three standards. The Q1 2024 release of the Aon UK DC Tracker showed that it fell significantly after being restated to reflect these updates, as shown on 31 December 2023 in the chart above.

Over the quarter (January to March 2024) the Tracker rose from 56.8 to 60.0. This rise was driven by strong investment returns over the period, which most benefited our older savers, who have the largest existing funds. The youngest saver (with a relatively small pension, pot built up currently) saw no change in their expected outcome over the quarter.

Savers’ Positions (measured compared to the ‘comfortable’ living standard)

However, the next quarterly update, which will cover the period from 1 April 2024 to 30 June 2024, will reflect the April 2024 increase to the state pension. This will further boost the Tracker score next quarter, with, all else being equal, all members’ retirement incomes increasing by around £900 per Annum. Commitments made to the Triple Lock - but the OECD has doubts.

In pre-election campaigning, both main parties have committed to maintaining the Triple Lock increase on State Pensions. Under this agreement the state pension increases each year by the greater of CPI inflation, average earnings, or 2.5 percent, if higher. However, the OECD has cast doubt on the long-term affordability of maintaining the Triple Lock and, in its 2023 Economic Outlook, instead suggested that state pension increases could be based on the average of CPI inflation and earnings growth.

In recent years, high levels of inflation and subsequent pay increases have led to bumper increases to the state pension, 10.1 percent in 2023 and 8.5 percent in 2024. The last time that the 2.5 percent minimum increase applied was in the April 2021 state pension increase following the impact of the Covid-19 pandemic on inflation and average earnings.

If we consider the potential impact of the OECD proposal, illustrated below is how a revised Aon UK DC Tracker would have performed over the past three years. This shows a revised tracker with the dotted line representing if the OECD proposal had applied from the introduction of the single tier state pension in 2016. This is compared to the existing Tracker based on the actual state pension increases applied over the period.

While the revised Tracker is below the actual Tracker at all points, the gap between the two varies over time and at some points is remarkably narrow. This is particularly so following the Covid-19 pandemic when the Government chose to disregard the increase in average earnings on the basis that the pandemic-driven fluctuations were considered exceptional.

If the OECD proposal had been applied since 2016, the expected retirement outcomes for our sample savers would be around £375 per year lower for members at 31 March 2024, corresponding to the approximate difference in the Tracker scores at the end of the chart of a little less than one and a half points.

Matthew Arends, partner and head of UK retirement policy at Aon said: “It is, of course, up to governments to decide on national spending and welfare policy. What our analysis shows, however, is that, if the OECD’s proposal has been adopted since the single tier state pension began in 2016, outcomes for members would have been affected. But the effect is less than you might expect – our sample members’ retirement outcomes are projected to be about £375 a year lower after tax, or approximately £7.20 a week. Having said that, the state pension is of most significance to the lower paid for whom this size of shortfall could make a material difference to their lifestyle.”

Aon UK DC Tracker – existing vs Tracker with revised state pension

Source: Aon UK DC Pension Tracker (1 January to 31 March 2024)

Movement over the first quarter of the year

The increase in the Aon UK DC Pension Tracker over the first quarter of 2024 was primarily driven by positive benchmark investment performance over the quarter. This was partially offset by a reduction in the expected future asset returns for the younger two savers.

Source: Insurer public announcements as at June 2024. *M&G was formed from the de-merger of Prudential plc in 2019 with the UK insurance business becoming part of M&G plc

LCP expects the new entrants to transact relatively modest figures initially as they scale up their operations. However, they have the potential to add material capacity to the market over time although they will be subject to many of the same supply-side constraints the existing insurers have been navigating – they will compete for the same experienced personnel, reinsurance capacity, post-transaction resource and attractive assets with which to back their pricing.

Ruth Ward, Principal at LCP, commented: “The pension risk transfer market is experiencing rapid change. As 2019 and 2023 demonstrated, the market has the capacity to handle large numbers of giant buy-in/out deals, even if they come along in a single year. We expect the total number of insurers in the market to reach a record 11 by the end of the year following a surge in new entrants. Demand from large schemes continues to be strong but inevitably £1bn+ transactions are lumpy and that is likely to mean continued volatility in buy-in/out volumes.”

Charlie Finch, Partner at LCP, added: “There has never been a wider and more positive range of options for schemes choosing their endgame. The upcoming general election creates uncertainty but we only expect the endgame options to grow.

“As well as a booming buy-in/out market, DB superfund transfers are now a viable solution which we expect to see being used in a wider range of situations. The DWP consultation on DB options should also bring positive news giving greater flexibility for schemes, and so increasing the attractiveness of running-on for a period for some schemes.”

Tim Middleton, Director of Policy and External Affairs at the Pensions Management Institute, said: “We are encouraged that the Labour Party has committed to better retirement outcomes for pension savers and that its review will seek to identify the best way to achieve this. Whilst it is unclear at this point what specific outcomes the review is going to achieve; it is important that a thorough review takes place.”

Alan Collins, Managing Director of Spence & Partners, said: "Change is the headline of Labour manifesto, but we are likely to see little or no change when it comes to pension policy. The current direction of travel to strive for consolidation and scale remains, and the pledge to reinstate the Lifetime Allowance has been dropped. I am not sure many would agree that another review is needed on "improving security" or "increasing productive UK investment" - these seem more like holding patterns or a flag that not much is going to change any time soon."

“Pensions and pensioners are central to this year’s General Election campaigning, as the ‘grey vote’ holds significant importance.

“The Conservative manifesto provides written confirmation of a range of key pension measures.

“The Conservatives have reaffirmed their commitment to retain the State Pension Triple Lock for a further five years, offering state pensioners a very valuable guarantee of increases equal to the highest of price inflation, earnings growth or 2.5%.

“There has been much speculation over the sustainability of this, but a return to typical historic levels of inflation and earnings growth may make it less costly or unpredictable in future years.

“As previously trailed, the Conservatives would go one step further, under their Triple Lock Plus plans. The ‘Plus’ is a commitment to increase state pensioners’ personal allowance in line with the state pension triple lock. This will make sure state pensioners have a personal allowance above the full new state pension, meaning they won’t be subject to income tax on this state pension.

“The manifesto also confirms the Conservatives won’t change the system of pensions tax relief for the next five years, retaining a top-up based on an individual’s highest marginal rate of income tax, which is very valuable particularly to higher earners. There’s also a commitment to the 25% tax free lump sum and no new or increased pension taxes.

“Unfortunately, a number of important future pensions developments don’t get a mention, including when enhancements to automatic enrolment might be advanced. These would open up automatic enrolment into workplace pensions from age 18 rather than 22 and would gradually increase the minimum contributions to 8% of earnings from the first £1, rather than only on earnings above £6,240.

“On a related note, of particular interest to our most elderly and their families, the Conservatives have recommitted to their plan on social care funding, originally to have been implemented in October 2023 but delayed for 2 years. This will introduce an overall cap on eligible care costs of £86,000 meaning those needing lengthy periods of care don’t face unlimited personal costs which can wipe out lifetime savings.

“Now that the Conservatives have set out their stall on pensions, we await the Labour manifesto on Thursday to see how it compares.”

Standard Life analysis shows the potential long-term impact of applying savings made through loud budgeting to pension contributions. “Loud budgeting” – being open about what you do and don’t want to spend money on – became a viral financial trend earlier this year, helping people set boundaries with friends and family by honestly communicating their financial constraints.

Now, new research by Standard Life, part of Phoenix Group reveals how comfortable younger generations feel about openly discussing their finances and how many are turning down social activities because of the costs involved, with many preferring to prioritise longer-term financial goals.

Generation Z (those aged between 18 and 27) are more comfortable openly talking about money and their financial situation than older generations. Three in five (61%) of Gen Z are comfortable having these conversations with friends, and 71% are comfortable doing this with family. In comparison, just half of 35 to 54 year olds (49%) and of those aged 55 and over (50%) feel comfortable talking about finances with friends, while 61% of 35 to 54 year olds and 69% of over 55s are at ease discussing this with family.

Meanwhile 7 in 10 (68%) Gen Z adults say they have turned down social occasions because of their financial situation, with 49% saying they’d rather save money towards a financial goal.

Loud budgeting to enhance long-term savings
Younger generations face competing financial priorities with the high cost of living and goals like buying a house likely to top their agenda. For a longer-term view, Standard Life analysis highlights the significant financial uplift loud budgeters could see if they channelled the money saved by foregoing social events into their pension.

Topping up monthly contributions by just 2% over the course of a career could lead to tens of thousands of pounds more in retirement. For example, someone that began working full-time with a salary of £25,000 per year and paid the standard monthly auto-enrolment contributions (5% employee, 3% employer) from age of 22, could amass a total retirement fund of £434,000 at the age of 66, not adjusted for inflation*.

However, if they were able to save extra through applying loud budgeting and then increased their monthly contributions by 2% (5% employee, 5% employer) from the age of 22, they could accumulate £542,000 by the age of 66* – £108,000 more than standard contributions would achieve.

Making higher contributions could naturally have an even bigger impact on a retirement pot – but even a 1% increase in contributions could produce £54k in additional savings, just under 19 months average salary for a UK full time worker:

Though it is a positive that thousands of people have potentially been saved from fraudsters since the regulations were first implemented, this has been overshadowed by the large number of pension transfers that have been halted unnecessarily.

Despite repeated calls for legislative change to prevent unnecessary delays in pension transfers, the latest figures from MaPS reveal that more than 23,000 of the 28,118 amber flags raised over the past two and a half years were raised due to either an unknown reason or for a potentially low risk transfer relating to overseas investments.

Of the 28,118 MoneyHelper Pension Safeguarding Guidance (PSG) sessions conducted since the introduction of the pension transfer regulations, just under half (46% or 12,888) were conducted with an attendee who did not know the reason why an amber flag had been raised on their pension transfer. Meanwhile, more than a third (36% or 10,153) were conducted after a flag was raised on potentially low-risk transfers relating to overseas investments.

Despite the DWP’s acknowledgement that the regulation wording in relation to overseas investments was causing delays and issues for pension savers, it has taken no action to resolve the issue and those transferring their pensions have continued to face unnecessary delays as a result.

Similarly, there has been a persistent lack of information provided to customers on the reason for an amber flag being raised. Since implementation, nearly 13,000 PSG sessions have been conducted with attendees who were not aware of the reason as to why the amber flag was raised, and therefore why they needed to attend the appointment, which could negatively impact customer engagement.

Given the one year anniversary of the DWP’s review of the regulations is fast approaching and little to nothing has been done in that time despite the issues being formally acknowledged, Quilter is renewing its call for the DWP to ensure changes are implemented swiftly to improve the pension transfer experience.

Jon Greer, head of retirement policy at Quilter, says: “We are well into the third year of the pension transfer regulations, and while it is positive that many people will have been saved from fraud thanks to the protection provided, the same issues that were recognised within the first few months continue to persist even now.

“As the industry has repeatedly highlighted, there remain far too many unnecessary points of friction within the regulations which have greatly limited their effectiveness. Unfortunately, the lack of meaningful change from the DWP has resulted in a growing number of people being negatively impacted as their pension transfers have been stopped in their tracks for what is often no real reason.

“Earlier this year the DWP confirmed that work to consider whether the rules could be improved is ongoing, but it gave no indication of a timeline. Though it is good to hear that the DWP is making efforts to adjust its rules to eliminate the current issues, this arguably should have been done a year ago when it first published its review and could have made changes to prevent further disruption to pension savers.

“As a matter of urgency, the DWP must act to ensure that the divergence between policy intention and the practical application of the law when it comes to the overseas investments wording is ironed out as at present, there is no distinction between overseas investments that present a scam risk as opposed to those that do not.

“Additionally, our understanding of the effectiveness of the rules has been marred by the lack of clarity provided to customers as to why a flag has been raised, and consequently the data that MaPS is able to capture. Pension schemes must be required to provide accurate and clear information to customers and the DWP should consider making it an explicit legislative requirement to swiftly resolve this issue.

“Pension savers have suffered needless delays for years now, and only the DWPs action will be able to finally put a stop to it.”

A perfect storm of increased economic volatility, geopolitical upheaval and the disruptive force of AI has driven the corporate threat level to its highest in 12 years, according to Clyde & Co’s annual Corporate Risk Radar.

The survey of C-Suite decisionmakers, in-house legal teams and General Counsel, conducted in partnership with research consultancy, Winmark Global, found that escalating threats on multiple fronts are creating a ‘polycrisis’ of risk.

This is having a dramatic impact on corporate decision-making. Risk caution is estimated to be costing as much as 5% of corporate revenues, with more than a quarter of respondents saying that risk perception was stymying ‘bold decision making’.

Top risk rankings
Economic risk – inflation, interest rates and currency volatility – cemented its position as the number one threat according to business leaders. This was followed by ‘people’ challenges which include attracting and retaining talent, upskilling, management and succession planning.

Increasingly in the Corporate Risk Radar, the impact of AI and the risks associated with the growing technology, is evident. While respondents said that AI was a potential source of competitive advantage, an urgency to embed this technology was prompting “a gold rush” mentality with the fear of being left behind driving decision-making.

Divergent and often contradictory regulations on AI are just one concern respondents cited, but they are part of a much wider concern about the overall regulatory burden companies are having to manage. Regulatory and Compliance risk is now the joint second biggest issue organisations are tackling, according to the report – up 9% on 2023’s findings.

With numerous regional conflicts persisting or escalating and further political uncertainty and upheaval likely thanks to an unprecedented year of elections around the world, geopolitical risk surged 11% from last year, ranking fourth.

Eva-Maria Barbosa, Partner, Clyde & Co said: “Organisations are having to deal with risks that were never on their radar in the past. An unpredictable economic environment with shorter and more volatile cycles is being fuelled by growing geopolitical tensions. In response, we are seeing a proliferation of sanctions and a greater regulatory burden which organisations must now navigate. Add to this the growing impact of AI and the sheer number of risks could feel overwhelming for any business. With all of this to contend with, effective planning and risk prioritisation is becoming crucial, with more and more companies understanding the importance of consistent horizon scanning.”

Carolena Gordon, Senior Partner, Clyde & Co said: “This year’s report shows that the business of doing business has become more unpredictable than ever. Most of us have now come to terms with the fact that there is no longer such a thing as ‘normal’ and that a different mindset is needed when assessing and responding to risk. Navigating risk is not just a defensive play but a crucial enabler of commercial opportunity and global economic activity. It is encouraging to see that, despite the headwinds, businesses are increasingly taking a proactive approach to risk management.”

Other findings in the report include:
• Leaders surveyed said that market disruption – including AI – was now the risk they feel least prepared for, eclipsing climate change, geopolitical and societal risks.
• General Counsel were the least optimistic about their readiness to deal with market disruption, perhaps reflecting their proximity to these risks compared to other leaders and board members.
• Respondents said that scenario planning and risk horizon scanning was now a much bigger part of their jobs than it was just a few years ago.
• Some respondents highlighted the growing tension between boards and executive risk management, with the suggestion that boards were often relying too heavily on executives to identify and present risks.

The world is facing multiple interconnected crises which bring about ever-more complex risks, finds Swiss Re's 12th SONAR emerging risk report. It explores critical topics of the future to foster better understanding of new or changing risks, their interactions and dependencies.

Patrick Raaflaub, Swiss Re Group Chief Risk Officer, said: "We live in a world characterised by interconnected crises, which in turn can give rise to new risks. For re/insurers, it is key to anticipate trends and understand how major global issues such as climate change, economic uncertainty or geopolitical turmoil could impact not only the industry but also society as a whole."

Weather-related natural catastrophes are increasing in frequency and severity. While floods, wildfires and storms can lead to property damage and loss of life, the cascading effects of such events pose additional risks. Wildfires can impact the water infrastructure by contaminating water sources or cutting access to it. Floods and storms can likewise damage energy grids and disrupt transport networks, bringing production lines to a standstill due to lack of power, leading to lost production time, materials spoilage and delays to deliveries. If critical infrastructure and supply chains are affected, the accumulation of damage can be significant.

While the security of supply chains was a priority for companies following the large-scale disruptions caused by the COVID-19 pandemic, the focus has shifted back to immediate cost savings. The cost pressure has grown, but so too have the risks to supply chains – as exemplified by the Red Sea crisis. Due to the more volatile geopolitical landscape, increasing frequencies of extreme weather events, economic uncertainty, and heightened cyber and technology risks, key supply routes around the globe are likely to become less secure. Given the current situation and the negative outlook on these risk drivers, supply chain resilience should be at the top of companies' agendas. If risks accumulate or coincide with an already stressed supply chain, the economic fallout could be significant.

Climate change and supply chain issues also affect the healthcare infrastructure, exacerbated by consistent underfunding of healthcare systems. Essential services such as water, sanitation and electricity supplies may be compromised under more extreme climate scenarios that cause a higher risk of frequent flooding and other disruptive events. Weakened health services increase risks for societies, with delayed or inadequate care contributing to higher morbidity and mortality, and thus also impact economies through increased health-related absenteeism and understaffing. Underfunding of healthcare systems and the impacts thereof are a concern across low-, middle- and high-income countries.

The English version of the 2024 SONAR report is available here.

By Alex White, Head of ALM Research at Redington

For many de-risked, hedged, well-funded schemes, it is likely that they will run off with a material surplus, holding more assets than are needed to pay pensions. And this money could, from first principles, be put to use in one of three ways:

1. It could be used as a buffer to further increase security
2. It could go back to the sponsor
3. It could be used to increase member benefits
4. It could go to the government in a nationalization of DB schemes

At the moment, only option 1 is on the table; the consultation opens up options 2 and 3. Given that trustees retain control, and have a duty to act in members’ best interests, option 2 is unlikely to be viable on its own- but that doesn’t make it unviable. In particular, we see 2 major cases (as well as other, subtler possibilities) when it may be useful.

The first case is a very well-funded, secure scheme. Paying money out of the scheme, on its own, can only increase risk. However, if a large benefit can be gained from a small increase in risk, it’s probably worth doing. At the extreme, if a scheme were 500% funded, say, then it could double benefits, pay the same amount to the sponsor to use productively, and still be 200% funded. This case is hugely unlikely, and for a scheme 103% funded, paying that 3% away could meaningfully increase the odds of failing to meet benefits.

However, it demonstrates that there is a point at which the trade-off makes sense- if the scheme is safe enough, its members are better off marginally increasing risk for a meaningful increase.

The subtler, second option would be an increase in security. A scheme can only fail if either its sponsor fails or if its sponsor is too small to cover the scheme’s deficit. That means that a stronger, larger, and more secure sponsor is a benefit to the scheme. This is indirect and imperfect, so a scheme is better off with £1m on its own balance sheet than on its sponsors, so there’s no case for directly handing over money. However, there are many ways to get improved security from a sponsor, many of which may be worth paying some of the surplus for.

For example:
• If a sponsor is a small, vulnerable firm that has a huge multinational parent, the parental guarantee may be more valuable to the scheme than some extra surplus
• If the scheme can get ring-fenced contingent assets, or a super-senior call, these could be, in effect, bespoke options to cover tail risk, which may be far more effective.

In all cases, there are trade-offs, and neither option is automatically better. But so many more doors are opened, not least the possibility of better incomes in retirement for members, that should this go through they can’t be ignored.

By Adam Poulson, FIA, Partner at Barnett Waddingham

In this blog, we’ll highlight the key messages from this communication, and use it to frame why, given the large increase proposed, we are recommending participating schools to seek independent advice on the matter.

Key takeaways

Our key observations from the communication are:

Deficit contributions could increase threefold: Each school will actually see a slightly different increase depending on their underlying membership, but the expectation is that most schools will likely see a significant increase to their contributions.

The deterioration is primarily due to the investment strategy adopted: The EC have cited that the fall in funding level is primarily due to the investment strategy adopted by the Trustee in recent years. ISPS uses Liability Driven Investment (LDI) to help stabilise the funding position, but these asset classes experienced difficulties in September 2022 when government bond yields rose significantly. ISPS also holds growth assets to target higher returns, but these too have underperformed over the past few years. Further information can be found in the EC’s March 2024 update.

The proposed recovery plan structure remains unchanged: The current and proposed recovery plan both increased 3% p.a. and are set to end in June 2032 – the EC will negotiate the payment amount and structure of the recovery plan, and potentially could ask to extend the recovery plan length to reduce the annual payments. Depending on a school’s financial position, there will likely be differing views on the pace of contributions within ISPS.

The EC are continuing to liaise with the Trustee regarding the results of the valuation: There may be scope to negotiate the assumptions used within the calculations to alter the deficit (albeit it’s unlikely they will reduce the deficit by a third). The EC have asked for schools to provide affordability information to help them work with the Trustee regarding the proposal for deficit contributions. We understand the Trustee is very open to assessing a school's affordability, so it is therefore in the interest of schools to submit this information as accurately as possible.

Valuation results
The results of the recent funding valuations and updates are shown below.

Source: TPT Retirement Solutions

Since 2017, ISPS’s funding position has deteriorated, and an increase in deficit reduction contributions is now required. The increase in contributions compared to the rates set in 2020 is a result of the deteriorated funding level, as well as being three years closer to the proposed recovery plan end date in 2032. In addition, the 2020 valuation allowed for post valuation experience when calculating the recovery plan – the £2.7m contributions were calculated to repair a deficit of around £37m rather than £55m.

DRC and expense payments
The proposed increase to DRCs is the latest challenge to face schools who are already under financial pressures. The recovery plan was extended by two years as a result of the 2020 valuation, and if no changes are made to the current recovery plan end date, the average school would see a threefold increase in their DRC payments.

The EC’s communication did not mention how the 2023 valuation results impact expenses. However, as expenses are not directly linked to the funding of ISPS, it is not expected there will be will an increase as significantly as the DRCs.

Debt on withdrawal position
The EC’s communication was also surprisingly silent on an update of ISPS’s solvency position – this is the position used to assess the cost of a schools’ exit debt.

Although the calculation of deficit reduction contributions and exit debts are separate, it is often the case that they will move in the same direction as each other. An increase to deficit reduction contributions likely means debts will have increased too.

Options available
Given the significant increase proposed to deficit reduction contributions, schools need to take a step back and consider their participation in ISPS.

Some options available to schools may involve:

Withdrawing from ISPS and paying the exit debt – this however may come at a material cost (including expenses). However, the ongoing legal case with TPT, regarding how members benefits have been determined in practice, is also stopping schools from exiting and being given the necessary legal discharge of their liabilities to ISPS.

Considering member option exercises – offering member option exercises (such as commutation exercises, pension increase exchange exercises and transfer value exercises) could be an effective way to reduce exit debts.

Transfer options – there might be other options available to you to if you currently cannot afford to pay your full exit debt. For example, you might be able to meet the costs of establishing a new scheme and transferring your ISPS assets and liabilities into it. In this a case a payment would still be required to ISPS, but it would likely be much lower than your exit debt.

You may also be interested in our Growth Plan blog, which considered how employers could proactively manage their participation in the Growth Plan and some of these considerations also apply here.

Other TPT Schemes
In light of ISPS’s results it will be very interesting to see how the other schemes have faired since their previous valuations in 2020.

Many of TPT’s multi-employer DB arrangements are currently undertaking actuarial valuations at 30 September 2023, including some of the larger schemes such as the:

Growth Plan (GP)
Social Housing Pension Scheme (SHPS)

As each scheme has a different investment strategy in place, a funding level deterioration to the same extent as ISPS is not guaranteed. However, as the schemes are governed by the same trustees and advisers, some deterioration in funding level (and therefore increase to DRCs) would not be surprising.

The average quoted price of home insurance rose by 41.6% in the 12 months to April – the highest annual increase since Consumer Intelligence began tracking prices in 2014, the latest Consumer Intelligence Home Insurance Price Index ¹ shows.

There is little evidence of a slowdown either – the past three months saw a 10.3% increase in quoted premiums for buildings and contents insurance which was the biggest quarterly increase for 10 years.

Premiums have most commonly been quoted between £150 and £199 with 24% of quotes falling within that range, Consumer Intelligence’s data shows.

Customers who have made claims could see additional increases in the coming months, Consumer Intelligence warns, with those making recent theft claims experiencing increases in quoted premiums of 13.8% in the past three months.

In the 12 months to April, customers with buildings claims have seen increases of 50.3% while those with water-related damage have seen increases of 49.8%, those with theft claims rises of 43.7% and those with damage related claims have seen increases of 46.4%. By comparison, those with no claims have seen increases of 40.9%.

“The increase in building and contents insurance new business quoted premiums is the largest yearly increase we have seen since tracking began in 2014.

“The market saw inflation during each of the last 12 months and the last three months was the highest recorded in the last 10 years exceeding the 10% in Q3 2023,” says Matthew McMaster, Senior Insight Analyst at Consumer Intelligence.

Long-term view
Overall, quoted premiums have now risen by 68.8% since Consumer Intelligence first started collecting data in February 2014.
Into the regions

All regions have seen increases in quoted premiums over the past 12 months ranging from 49.9% in London to 37.6% in the North West

Increases in quoted prices over the past three months range from 7.4% in the West Midlands to 14.5% in London.

Age differences
Quoted premiums for over-50s households rose slightly faster than for under-50s households at 42.4% compared with 41.0%.

Over the last three months, quoted premium increases have been broadly similar at 11.3% for over-50s and 9.7% for under-50s.

Property age
Properties of all ages saw big increases in quoted premiums in the past year ranging from 46.4%, which was the highest, to 39.1% for homes built between 1940 and 1955, which was the lowest.

Quoted premiums rose across the board for properties of all ages in the past three months ranging from 12.2% for houses built from 1895 to 1910 to 9.0% for those built between 1985 and 2000.

Data from the Consumer Intelligence Home Insurance Price Index is used by the Office for National Statistics, regulators, and insurance providers as the definitive benchmark of how price is changing for consumers.

The improvement is primarily due to increases in asset values (mainly equities), partially offset by small reductions to UK government gilt yields. Of the 87 participating funds, 59 have funding levels of 100% or higher, with levels ranging from 69% to 164% funded.

At the previous actuarial valuation date, 31 March 2022, the aggregate low-risk funding position was 67% and none of the 87 funds had a funding level of 100% or higher on a low-risk basis.

Equity markets continue to perform well and gilt yields remain at very high levels, and in May the difference between the returns on equities and gilts reached its widest point since 31 March 2022 (the last actuarial valuation date). LGPS funds may question whether remaining in equities will deliver the performance they need, or if gilts are better to help them lock in funding levels, with different answers for different funds depending on their overall funding level.

Each LGPS fund is made of many employers, each of which have their own funding position, which is different to the average for the fund. Employers who are over 100% funded on a low-risk basis may have a different view on whether to stick with equities compared to employers who still need to make up ground through investment outperformance or more cash contributions.

If LGPS funds could offer their employers the ability to choose their own investment strategy on a more widespread basis it would avoid their employers exiting the LGPS unnecessarily, or the regret risk should markets move back to where they came from. While it might not be possible to do this quickly, Isio is recommending it is considered for future agility.

The LGPS continues to attract attention from the UK Government, with a particular focus on having much fewer schemes. The most commonly stated barrier to this is a lack of local investment control for councils, and so employer-specific investment strategies in new, merged schemes would provide the best balance between local control and operational efficiencies.

Isio has identified eight benefits of employer-specific investment strategies.

It believes they will:
1. Put employers at the heart of the LGPS’s future
2. Ensure investment strategies are tailored to funding strategies
3. Address the risk of not de-risking
4. Reduce employer exits
5. Pave the way for fund mergers
6. Remove the “postcode lottery”
7. Support the levelling-up agenda and UK investments
8. Protect the LGPS from being used as a sovereign wealth fund

Steve Simkins, Partner and public services leader at Isio, says: “The LGPS currently faces a structural issue in relation to its investments. No pension schemes planned for the huge increases in UK government gilt yields in 2022, which led to an immediate liquidity crisis for private sector schemes. And now the LGPS is facing its own challenge which has played out more slowly and is coming to a head.

“The current equity and gilt market divergence will cause LGPS funds to consider whether they stick with equities or switch to gilts. This is a significant risk decision on behalf of their employers, who are not all the same. Most councils might play the long game, but other employers who have been asked to pay more contributions might want to lock into their surpluses. This highlights the “postcode lottery” for employers whose investment strategy depends on the fund they are in, only some of which offer a lock-in option.

“Now would be an ideal time for all LGPS funds to be able to introduce employer-specific investment strategies. There is only so much that can be done quickly, demonstrating that the ideal LGPS fund of the future would be agile and able to offer this in readiness for another unexpected market change.

“At the same time, pressure is being applied by the UK Government for funds to create efficiencies through fund mergers. The most common point of resistance to mergers is the loss of local controls over investments. However, if each council could continue to have a say over its investment strategy in the scheme, this barrier is removed.”

Sion Cole, Head of European Institutional OCIO at BlackRock, said: “The aggregate surplus of schemes rose by £10 billion from £458.3 billion at the end of April to £468.8 billion at the end of May. We’ve now seen surpluses increase by over £40 billion since the end of January. The rise in May continues the trend of positive funding, re-enforcing the opportunity for managers and trustees to shore up their positions.”

“In this environment, schemes are better positioned to explore investment opportunities, opening the door to potentially return surplus funds and improve member benefits.”

“As inflation stands within a whisker of the 2% target, we expect the BoE to follow suit with the ECB’s decision last week to lower rates. Our base case remains for the Bank of England to cut rates this year, likely following the July election – presenting opportunities for UK gilts. Scheme trustees will need to navigate uncertainty as they consider their risk profile and long-term objectives to ensure funding and investment decisions are correctly aligned.”

Vishal Makkar, Managing Director, UK Wealth Consulting at Gallagher, said: “In May, the PPF 7800 Index dug its heels into a robust holding position, as the total number of DB schemes in surplus only increased by a modest 29 with a corresponding fall in the number of schemes in deficit. The Index ventures into June in a further fortified position; the total surplus climbed by £10.5bn, with the overall funding ratio increasing from 148.8 per cent in April to 149.4 per cent in May. Over May asset values increased by around £20bn with liability values only increasing by around half as much.

“Following an upward trend in scheme funding levels over the past few months, it stands to reason that many trustees will be keen to lock in their endgame plans before the current positive trajectory starts to plateau. The market has settled into a stable phase, but trustees must not shirk their obligations to the members. The TPR is unequivocal: the highest-performing schemes should be progressing their plans to execute buyouts, run-ons, or moving to a consolidator.

“Given the current regulatory environment, it is vital that trustees approach any endgame scenario with an appropriate level of governance. Each DB scheme is a unique proposition, with its own specific operating requirements, and so trustees should submit every administrative practice to a standardised and rigorous evaluation process. In the gradual run-up towards buyout, DB schemes must put forward tailored investment strategies to maintain funding levels in a very dynamic period for the sector.”

View the June update and see the supporting data on the 7800 Index for 31 May 2024 here: The PPF 7800 index | Pension Protection Fund

Tim Middleton, Director of Policy and External Affairs at the Pensions Management Institute, said: "We note that the Conservatives’ ‘Triple Lock Plus’ will provide security to those who are already past State Pension Age, but are frustrated that there was little new announced concerning those who are currently still in work. It would have been encouraging, for example, to have included further reforms to auto enrolment. It is also a little surprising that there was no mention of the Lifetime Provider."

Becky O’Connor, Director of Public Affairs at PensionBee, commented: “The Triple Lock Plus seeks to raise the income tax threshold for pensioners, ensuring that even with an increased State Pension, it remains below the taxable income level.

“Over 60% of people aged 65+ paid income tax last year, as the tax free allowance for pensioners has been cut in real terms, leaving many older people worse off in retirement. To preserve the State Pension, some form of index-linking is necessary as without decent and reliable rises to the State Pension, many retired households could lose a vital safety net.

“However, the State Pension is relevant not only for today’s pensioners but also for future generations. An enhanced Triple Lock policy raises the question of whether a continually rising State Pension age may be required to manage escalating costs.”

“The Conservatives have recognised the clear potential in the benefits of people having a lifetime pension provider so they don’t lose old, valuable pensions as they move from employer to employer.

"The reality is people change jobs, pensions get left behind, some are forgotten and retirements suffer so having all of the pensions someone acquires in one place makes sense."

“This concept could be popular and relatively easy to introduce, ultimately allowing people to take greater control of their long-term finances, so it’s disappointing that further details on the next steps of this process were not outlined.”

David Lane, Chief Executive of TPT Retirement Solutions, said: “The Triple Lock Plus pledge in the Conservative Manifesto could prove popular with some older voters. Our research found that more than half of working people are worried about the cost of retirement, and 63% of those aged 55 or older want the next Government to maintain the triple lock. Many people are struggling to save enough for retirement and will rely on the state pension. If this policy isn’t introduced and income tax thresholds remain frozen, pensioners are expected to start paying income tax on their state pension in 2027. Anyone who depends on the state pension for their retirement may find it difficult to cope if they have to start paying this tax.”

Simon Kew, Head of Market Engagement at Broadstone: He comments: “There were no surprises on pensions reform in the Conservative manifesto with the previous commitment to a ‘Triple Lock Plus’ to protect the State Pension from being dragged into income tax reaffirmed.

Rothesay, has completed a £125m full scheme buy-in with the MPS Pension Scheme (the “Scheme”).

The Scheme is sponsored by The Medical Protection Society Limited (the “Company”), the world’s leading member-owned, not-for-profit protection organisation for doctors, dentists and healthcare professionals.

The buy-in secures the benefits of all 618 Scheme members comprising 174 pensioners and dependants, and 444 deferred members. This was the Scheme’s first transaction and no contribution from the Company was needed, with the Scheme being in surplus.

Gowling WLG provided legal advice to the Trustee while Rothesay received legal advice from Eversheds Sutherland. Isio acted as the lead broker on the deal.

The completion of this transaction continues Rothesay’s strong momentum in the pension risk transfer market following the announcement, in March 2024, that it agreed to acquire Scottish Widows’ c.£6bn bulk annuity portfolio from Lloyds Banking Group, covering 42,000 underlying policyholders.

Katie Overton, Business Development at Rothesay, commented: “We are pleased to secure the future for the Scheme’s over 600 members. In a very buoyant market, this was a well-prepared scheme which supported the quick and efficient execution of this de-risking transaction. Following a busy first quarter this year, Rothesay continues to see very strong momentum in the pension risk transfer market with an unprecedented pipeline of new business. Our substantial capital resources and proven execution capabilities mean we are very well-placed to capitalise on the significant opportunities we are seeing.”

Richard Pile, Chief Financial Officer at The Medical Protection Society Limited, said: “We are delighted to secure the pensions of all our Scheme members through this transaction. Given improved funding levels and the hard work we put in to preparing the Scheme for its end-game, we were able to work quickly with all parties to achieve a great outcome in a busy market.”

Colin Richardson, Sole Trustee, Zedra Governance Limited, said: “Given the level of competition in the market, this transaction is evidence of the importance of effective scheme preparation. Following the diligent advice and guidance of Isio and Gowling, we gained the interest of 5 insurers, ultimately electing to partner with Rothesay on account of their high-quality offering and good value. The transaction secures the future pension payments and benefits for all Scheme members representing a very positive result in a short time frame.”

Tom Ridley, Senior Deal Manager at Isio, added: “This transaction was executed in good time thanks to the dedication of the Trustee, Company, Rothesay and all their advisers. We are delighted to have supported the Trustee and the Society in delivering on their objectives and protecting the benefits of all Scheme members. It was also pleasing to see such high levels of insurer engagement in a busy market, with over half of all insurers providing a quotation, demonstrating the continued attractiveness of mid-sized schemes who set clear objectives.”

According to an updated ranking and analysis completed by Insuramore (www.insuramore.com/rankings/mgas-mgus/revenues), the value of revenues earned worldwide by MGA, MGU and cover-holder groups (a.k.a. delegated underwriting authority / underwriting agency groups) was around USD 23.9 billion in 2023 with between 70% and 75% of this due to direct commercial P&C (non-life) insurance and the rest to direct private P&C, life and health insurance plus reinsurance.

The market value in 2023 signifies annual growth in this sector of over 20% relative to 2022 before adjusting for inflation. This is close to double the growth rate of world’s insurance broking sector which, as reported by Insuramore in a related press release on 4th June 2024, is believed to have advanced in value by over 11% in 2022. Moreover, it also indicates that, globally, over USD 200 billion in premiums across all classes are likely to have been written by MGAs in 2023.

As a consolidated group, Brown & Brown was again ranked first globally in this arena in 2023; it had worldwide MGA revenues of around twice those of the group ranked second, namely Amwins. Then, following from third to fifth in the ranking were Ryan Specialty Group, TIH – itself divested by Truist to private equity owners during the first half of 2024 – and Gallagher. Collectively, the top five groups accounted for around 17.6% of global MGA revenues in 2023 with the equivalent shares of the top 50, top 100 and top 300 groups working out at a respective 55.4%, 67.5% and 84.4% in what remains a fragmented yet highly dynamic sector. Indeed, there are around 3,000 individual enterprises involved in MGA activity worldwide among which over 1,650 are on course to write premiums of more than USD 10 million in 2024 (www.insuramore.com/globalvista).

By ownership, 58 of the top 300 groups in this space in 2023 are classifiable as broker-owned, 31 as insurer-owned and the remaining 211 as independent (albeit many of these are backed by private equity firms). Among insurer-owned groups, Insuramore judges that Munich Re generated the highest revenues from proprietary MGA business in 2023 while NSM Insurance Group was the largest independent group. Furthermore, by location of headquarters, with 163 in total and benefiting from the strength of the US dollar against most other global currencies, the US played host to the most MGA groups in the top 300 in 2023 with the UK (42), Canada (16), the Netherlands (12) and Germany (11) coming next on this count.

As would be expected given the very high industry-wide growth rate, almost all MGA groups experienced an increase in their revenues in 2023 and 12 of the top 300 are believed likely by Insuramore to have more than doubled their income relative to 2022 with both organic growth and M&A activity influential in this respect.

However, the wider sector has experienced mixed fortunes with several MGA enterprises that launched in recent years having ceased to trade during 2023 (or the first half of 2024) and with a few fields of activity having seemingly attracted more competing MGAs than they will be able to support. Arguably, in the wake of the sharp slowdown in its growth in recent months, these include cyber insurance as well as “fun” segments with comparatively low barriers to entry such as cannabis and pet insurance.

Nevertheless, despite a few isolated headwinds, the increasing demand for more bespoke and innovative insurance cover supported by appropriate technologies means that the outlook for the global MGA market remains highly favourable.

Founded in 2000, Cardano is a long-term savings specialist in the UK and the Netherlands, with approximately £52 billion ($66 billion) in assets under management. Terms of the transaction, which is expected to close near the end of 2024, subject to regulatory approvals, were not disclosed.?

Cardano offers a range of fiduciary management, investment advisory services, and liability-driven investing and derivatives solutions to both defined benefit (DB) and defined contribution (DC) pension schemes in the UK and the Netherlands, the two largest pensions markets in Europe. Cardano adopts a differentiated model, offering a combination of direct investment capabilities and external manager selection, as well as deep pension expertise, a solutions mindset, and a long heritage in sustainability.

Through NOW: Pensions, Cardano operates the third largest UK master trust platform, serving more than two million savers across 27,000 employers, and with leadership in the structurally growing auto-enrolment market.??

“We are excited about the opportunity to welcome Cardano to our Wealth business, which brings with it a high-quality team and complementary range of specialist investment capabilities,” said Michael Dempsey, Mercer’s Wealth President. “The acquisition and alignment of our expertise and capabilities represents a unique and timely combination to support pension clients and other institutional investors and their evolving needs.”??

“Our combined talent and capabilities will position Mercer as the pension provider of choice in the UK and the Netherlands. This will allow us to continue to expand globally beyond pensions to serve other large asset owners, including endowments and foundations, family offices and insurers,” said Benoit Hudon, Mercer’s UK President and CEO. “As always, our aspiration is to drive even greater value for our institutional investor clients and help deliver brighter futures for millions of savers.”?

“Mercer is the ideal long-term home for our business and clients,” said Michaël De Lathauwer, Cardano Group’s CEO. “We share an aligned culture with Mercer, focused on delivering excellent outcomes for clients, and together, we are committed to being the best solutions provider for UK and Dutch pension schemes. I am thrilled our clients and colleagues will have access to everything Mercer offers, including global resources, a deep bench of investment talent, strategic advice, manager research and alternative investment advice. We look forward to being one multi-disciplinary team and helping our clients navigate the evolving pension and investment landscape.”?

As part of the agreement, approximately 550 Cardano colleagues in London, Nottingham and Rotterdam will join Mercer, upon completion of the transaction.?

Based in London and reporting to Nick Moore, CEO of Argenta Holdings Limited and managing director of Argenta Syndicate Management Limited (“ASML”), Nathan will also join the board of ASML.

Nathan has more than 20 years of experience in the global insurance industry spanning risk, pricing, reserving, risk capital, strategy development, and transformation. Nathan joins from EY where he was a partner and the UK non-life actuarial practice leader. Before this, he spent more than a decade at Swiss Re, where his roles included head of actuarial pricing UK, director group corporate strategy and development, before becoming chief risk officer of Swiss Re Corporate Solutions. Nathan will lead Argenta’s risk team and will oversee the actuarial function, working to ensure it maintains its robust risk framework, strong governance, and appropriate supervision and risk controls.

Nick Moore said: “We are delighted to appoint Niranjan to this key position. His vast experience in the industry makes him a real asset and he will play a crucial role in ensuring that Argenta’s continued growth is underpinned by a robust risk framework.”

Niranjan Nathan said: “I am excited to be joining at this stage in Argenta’s ambitious strategy. I look forward to working closely with the board, executive team, and teams across the business to further embed a strong framework for risk management and deliver on Argenta’s vision and strategy.”

The survey of 1,050 retired over 55s found that nearly three in 10 (28%) had withdrawn pension cash between the age of 55 and when they finished working full time, either as a lump sum (tax-free or not) or via income drawdown.

Nearly half (49%) of this group said that they had not received any advice or guidance prior to making the decision to withdraw from their pension pot before retiring from full-time work, raising concerns over the support available to people making these complex decisions. A little over a quarter (27%) spoke with a regulated financial adviser before deciding to dip into their pension.

It follows the FCA’s latest Retirement Income market survey which signalled that over a third (37%) of people who entered drawdown in the 12 months to March 2023 did not seek or use any advice and the number of people entering drawdown without advice or guidance rose by 16% between the 12 months to March 2022 and the 12 months to March 2023.

For those purchasing annuities, more than half (57%) of those who purchased an annuity in the 12 months to March 2023 did not use any advice or guidance, compared to 41% in the 12 months to March 2022.

Only one in 10 pension dippers used Pension Wise, either through a telephone appointment or face to face, despite it being a free, independent, impartial and government-backed service. This raises serious questions about the effectiveness of the ‘stronger nudge’ initiatives introduced in 2022, and the impact of revised wake-up packs, to meet the government’s stated ambition of making guidance ‘the norm’.

Commenting on the data, Stephen Lowe, group communications director at retirement specialist Just Group, said: “It's alarming that a significant portion of retirees are diving into their pension before leaving full-time work without the benefit of any financial advice or guidance.

“We would urge anybody considering dipping into their pension to make use of the government-backed, free, independent and impartial service – Pension Wise. It’s the lifebelt George Osborne promised every saver when pension freedoms were announced but only the rare few use it.”

Steven Cameron, Pensions Director at Aegon, said: “The removal of the LTA by the Conservatives was designed to stop pensions tax rules encouraging higher paid professionals in the NHS from retiring to avoid tax charges. This is something that all political parties should support.

“We understand that the abolition might appear like a tax break for high earners, and not aligned to traditional Labour policy. But the removal has proven excruciatingly complex and attempts to reinstate could have tied the pensions industry, as well as a new government, in knots.

“There are many more greater pension priorities, such as implementing the 2017 auto-enrolment reforms and improving retirement income adequacy for an incoming government to progress.

“The rules removing the LTA have still not been finalised and the next government should ensure HMRC plugs the gaps so those individuals currently in limbo can sort out their pension affairs.”

Aggregate scheme assets increased slightly over May 2024, as equity markets continued their strong year to date, further boosting improvements in DB surpluses.

This increase in scheme assets was broadly offset by a minor fall in long-term gilt yields of 0.06%, leading to an increase in the value of liabilities.

XPS calls on the future UK Parliament to ensure new DB funding code comes into force in September 2024 as planned.

Over May 2024, UK pension schemes’ funding positions rose by £1bn, relative to long-term funding targets, new XPS Pensions Group research shows. Based on assets of £1,441bn and liabilities of £1,262bn, the aggregate funding level of UK pension schemes on a long-term target basis remains extremely positive, at 115% of the long-term value of liabilities, as of 31 May 2024. This was broadly flat on the prior month where the aggregate funding level stood at 114%.

Relatedly, in May, Rishi Sunak announced that a general election is to take place on the 4th of July, putting into question the new DB funding code which was due to be published this summer and take effect from September 2024. The uncertainty around the future Government means that there might be some delays expected to the code, as well as on the progression around options on uses of surplus by DB schemes.

Danny Vassiliades, Partner at XPS Pensions Group said: “As surpluses remain significant, the positive outlook highlights the strong position of schemes looking to run-on. Our recent survey found that 75% of trustees are willing to manage and govern a scheme that runs on for surplus.

The timelines for the release of the new DB funding code should be carefully monitored by employers hoping for emerging surpluses and favourable legislation around recovery. We therefore call on any future Parliament to ensure the funding code comes into effect in September 2024, as delays will only cause pension schemes headaches and uncertainty.”

Of mortgage holders without cover, a quarter (23%) say it’s because they don’t currently see it as a priority expense, a fifth (22%) have just never thought about it and the same proportion (22%) say the cost-of-living crisis means they don’t have enough money to pay for it

When asked how their mortgage would be paid for if they died, almost one in five (19%) said they didn’t know

When looking to buy life cover, the most common resource mortgage holders used was speaking to a financial adviser (44%). Only 16% went directly to a provider

Almost three in ten (28%) young UK adults with a mortgage do not have life cover to protect them and their families.

This is equal to nearly 1.7 million (1,664,258) UK homeowners aged 18-40 who have mortgages without the safety net of life insurance to support them if they passed away. The research by Beagle Street, which is part of the OneFamily Group, surveyed 2,000 UK adults between the ages of 18-40 and asked them about their attitudes and behaviours towards life insurance.

Further research by the insurer suggests that in 2023, there was more than £433billion of mortgage debt not covered by life insurance in Britain. This represents the combined value of home loan debt that would be owed if an expected death were to happen.

Of those who have a mortgage but no life insurance, a quarter (23%) say it’s because they don’t currently see it as a priority expense, a fifth (22%) have just never thought about it and the same proportion (22%) say the cost-of-living crisis means they don’t have enough money to pay for it. Slightly less (19%) report that they simply can’t afford it.

When looking to buy life cover, the most common resource those with a mortgage used was speaking to a financial adviser (44%). Only 16% went directly to a provider.

Ryan Griffin, Director of Protection at Beagle Street, said, “It’s really important for people to put plans in place and protect themselves and their families if the worst were to happen. We understand life insurance might not be something people want to think about, but it really can make a huge difference to those who need it.

“We know that almost half of those with a mortgage and life insurance took out a policy after speaking to a financial adviser. So, advisers are vital in making sure people have life insurance that is right for them.”

Phoenix’s “Caring for Carers” initiative aims to help millions of people who work and care for someone to better balance some of the challenges they might face, be they personal, financial, professional or emotional.

Commenting on the partnership with Carers UK, Mary Bright, Group Head of Social Sustainability at Phoenix Group, said, “Through partnering with Carers UK we can support the great work they do and help drive real change in society. “Carers UK advocates for, champions, supports and connects carers across the UK, so that no one has to care alone. They also campaign for lasting change.

Helen Walker, Chief Executive of Carers UK, said: “We are thrilled to be embarking on this partnership with Phoenix and are excited about the difference that we can make to raising awareness of caring in key areas and improving carers’ lives together. Caring for older, disabled or ill relatives or friends is an issue that affects millions of people every day, in every part of the UK, in households, places of work and in local communities.

“Most of us will provide care at some point in our lives and it can have a negative impact on our ability to work, our finances, our health and wellbeing and relationships. Yet caring can come as a shock that is often not planned for. With our ageing population this will become increasingly important, not just for carers, but for employers, the economy and society as a whole. That’s what makes this partnership really important and will help to deliver our mission to make life better for carers.”

Phoenix Group has been working to raise awareness of the challenges faced by working carers and has taken a number of steps to support its colleagues which it encourages other businesses to consider too.

These include:
• 10 days paid carer’s leave, available since 2020
• 5 days unpaid leave (Carer’s Leave Act 2023)
• Offering flexible working to suit caring and family responsibilities (introduced in 2022)
• Carers Network for colleagues (in operation for 10 years) where colleague who are caring for someone are able to discuss problems, support each other and show solidarity for the role they are in
• Access to KareHeroes – a specialist support and concierge service to help all our UK colleagues with practical support, from identifying care homes (respite or residential), to agency carers coming in for a few hours a day, through to offering care cover for aging family members during a family’s holiday period, to ensure wellbeing and peace of mind for all parties.

By Phil Hardingham, Head of Digital Strategy (Investments) at Hymans Robertson

Target Benefit Plans
One Canadian CDC-like arrangement which has traction across some Canadian provinces is the Target Benefit Plan (TBPs). Across British Columbia, TBPs cover around a fifth of members in registered pension plans. They resemble DB multi-employer pension plans, but with the added flexibility to adjust benefits up or down depending on the funding position of the plan.

The legislative frameworks governing TBPs resemble DB regulations. Current consultation is focusing on:

fair treatment of provisions for adverse deviations (PfADs) – a buffer to increase income stability and reduce the likelihood of benefit cuts; and
how to communicate effectively to members.

It’s no coincidence this echoes what we saw in the Netherlands, that CDC needs to feel fair and transparent to members for the structure to thrive in perpetuity.

DC Structures

University of British Columbia Faculty Pension Plan
There’s longevity pooling within DC plans too. A long running example is the University of British Columbia Faculty Pension Plan (UBC FPP), a DC plan set up in 1967 to allow faculty members to benefit from higher expected domestic returns than available in the USA (where their pensions were previously invested).

The mechanism for sharing longevity risk is in the decumulation phase, through the purchase of a ‘Variable Payment Life Annuity’ (VPLA) within the Plan at the point of retirement. Much like a traditional annuity, the proceeds of members who die early in retirement is effectively redistributed to provide income to those who exceed their life expectancy. Unlike a traditional annuity, the VPLA allows a member to retain exposure to risk assets (expected to deliver higher returns, on average) and the level of income is not guaranteed.

Today, VPLAs are unusual in Canada, largely because the federal government effectively banned them from DC plans from the late 1980s - more on that later – although they’re making a comeback.

The return of VPLAs
Off the back of the successful experience of UBC FPP, the federal government reintroduced VPLA options within DC plans in the 2019 budget, and work to include this in provincial level legislation is ongoing5. This is allowing the largest DC Plan in Canada ($11.5bn), the Public Employees Pension Plan in Saskatchewan, to design the first new VPLA as a decumulation option within their Plan.

Mutual Funds and Tontine Structures
Outside of the DC framework, there has also been recent activity to facilitate longevity pooling within other structures. Purpose investments Inc. launched the Longevity Pension Fund in 2021 as a mutual fund, and Guardian Capital launched their GuardPath™ Modern Tontine within a tontine trust. One unique feature is that both are structured around age-based cohorts, rather than pooling longevity risk across different ages.

These arrangements fall outside of pension regulations – instead, they are covered under mutual fund legislation. It’s still early days as to whether these scale, but they afford wealth advisors another lever to help guide clients through personal finance retirement challenges.

What lessons can we take?
Consider indirect impacts of legislation
It’s encouraging to see a variety of mechanisms allowing Canadian pensioners to pool their longevity risk.

However, the impact of regulatory intervention is evident across the spectrum of different structures:

Within TBPs, the debate surrounding the role of funding requirements and prudence buffers is causing regulatory uncertainty. This is partly symptomatic of trying to flex concepts originally constructed to safeguard member guarantees in a context where those guarantees don’t apply by design.

The reason VPLAs were banned from the late 1980s until 2019 is because they were caught up in wider legislation to prevent DC plans from self-annuitizing6. For fixed annuities, this was a sensible step to protect members’ interests, given DC plans don’t have additional sponsor support or capital to underwrite guarantees. However, the treatment of VPLAs (grandfathering existing plans and leaving it at that) was the ‘path of least resistance’ to getting the wider legislation enacted, rather than an active decision that VPLAs were bad for members.

The reason the funds are based on age cohorts is probably because mutual funds must disclose a single unit price. This is a regulatory requirement to mandate transparency and reporting standards in the interest of investors, but it effectively excludes the possibility of pooling longevity risk between cohorts (in an actuarially fair manner7) which could be a quicker path to reaching effective scale within the longevity pool.

It's hard to anticipate these unintended impacts in advance.

Therefore, we believe the UK government should:

avoid being overly prescriptive in their approach to CDC regulations (being principles based rather than rules based);
ensure regulation enables longevity pooling in the decumulation phase only (like VPLAs), rather than only regulating more complex structures blending both accumulation and decumulation phases (like TPBs)

The Value of institutions and early adoption
The diversity within Canadian risk pooling has been fuelled by the early success of the UBCFPP. In turn, the history and culture of the University supporting faculty members is imprinted on the history and design of the plan.

In the UK, we also benefit from the existence of similarly long-lived Pension Schemes (Royal Mail and USS come to mind), and if these can act as an institutional heritage that trailblaze the way for improved pension provision more widely, we will collectively be all the better for it.

Climate change, meanwhile, is complex, nuanced and characterised by uncertainty. The Institute and Faculty of Actuaries (IFoA) has warned that current climate-change scenario modelling techniques are significantly underestimating climate risk, with too much of a focus on regulatory scenarios which, while they introduce consistency, also introduce the risk of group think . In addition, these techniques still exclude many severe catastrophic impacts that we can expect from climate change – they simply do not exist or are not well represented in models and methods that we use today.

Also, the focus of most life insurers' investigations into climate change has been on the direct impact of physical and transitional risks upon asset portfolios without considering the potential wider indirect impacts on both assets and liabilities , for example considering how variations in climate might impact policyholder behaviour, which could in turn impact mortality or persistency. To be more effective, CROs will need to address the material limitations and uncertainties of scenario modelling.

Climate change requires a new lens through which to view materiality and proportionality, alongside current methods. The global risk landscape is more complex and interconnected and the potential for disasters to cascade through systems is increasing with the impacts having greater geographical, social and temporal reach.

Regulation rising on the CRO radar
In the UK, Solvency UK reforms have been well communicated, with changes to the risk margin having come into effect at the end of 2023 and matching adjustment reforms due in the middle of 2024. The PRA have also recently focused on Funded Reinsurance as one of their top priorities for 2024. The CRO will need to consider the impact of recapture on capital requirements, considering how collateral links to their risk appetite and have a plan for taking ownership of assets and liabilities in the event of recapture.

Meanwhile, IFRS 17 has been a long time coming and our recent global survey of over 300 firms suggests more work is needed to complete the job. So far, much of the burden has fallen upon the finance function to interpret the standard, implement new methodology and assumptions, adopt new systems and cope with increased complexity in the reporting. This is set to change with CROs expected to become more involved. This is because the new IFRS standard contains more judgment than its predecessors. And where there is judgment, you typically see a greater level of oversight. IFRS 17 results are also externally reported, so a risk function is likely to have a closer view over model reliability.

Consumer outcomes and operational resilience
Regulatory focus in the UK during 2024 seems concentrated on consumer outcomes, evidenced by the roll-out of the Consumer Duty introducing a new consumer principle that requires firms to deliver good outcomes for retail customers. It goes further by requiring firms to enable their customers to make effective decisions that are in their own interests. This is intended by the regulator to be a paradigm shift in delivering a higher standard of customer care and protection in the market.

This links to operational resilience, which is focused on the ability of insurers to adapt and respond to operational disruption. For example, the Financial Conduct Authority in the UK has been focusing on the potential impact on consumers, such as when disruption leads to claims not being paid. Significant progress has been made, with risk functions heavily involved in designing operational resilience frameworks and putting in place impact tolerances, with CROs continuing to have an integral role in the review and challenge in these areas.

Raising the bar on model risk
Actuarial valuation models or day-to-day tools such as Excel used to produce key information to stakeholders are not always well governed, potentially leading to key numbers reported by a life insurer being incorrect due to the data calculations or process involved. This risk is exacerbated with the increased use of open source tools and data science techniques in models. Whilst not a new challenge for life insurers in 2024, we do see a variety of levels of maturity in the market in terms of addressing model risk in the business, coupled with obvious intent by the regulator following a recent supervisory statement to UK banks, which we expect will require investment to raise the bar on model risk this year and into next.

The incentive for insurers to make that investment is clear. Strong model governance provides greater confidence in reported results. Whether it's Solvency II or IFRS 17, quotes on new business acquisition pricing, numbers communicated in letters or online to customers, it's not uncommon to see material errors in reporting. These can and have had real business consequences, needing rework and redress. Yet, all too often, firms only implement strong model governance once they have made a material error.

Preparing for the unexpected
The CRO is responsible for maintaining an effective risk framework to help guide the business through foreseeable regulatory and business change, and with which the company can safely execute its strategy. For example, the business needs to have a clear risk appetite and risk limits to manage certain exposures. In addition to this responsibility, the CRO will also need to have the capability and tools to monitor and respond to a much wider myriad of emerging or horizon risks that have the potential to impact the business, some at high velocity and with little warning.

You can bet your bottom dollar that the risk event that does arise will be slightly different to any that an insurer has potentially foreseen or modelled in advance. The rapid rise of generative AI is a clear example of a disruptive force, that is both risk and opportunity. The technology has evolved at astonishing speed with insurers finding themselves scrambling on a steep learning curve to recognise the risks and leverage the potential of Gen AI.

In the survey, Aon found that 57 percent of respondents reported that they had appointed a professional trustee already. Aon expects this proportion will continue to rise in the future.

James Patten, partner at Aon, said: “A professional trustee won’t be appropriate for all schemes - many of which will already have highly experienced trustees on the board – but with the increased focus from employers on endgame planning, we expect the proportion of schemes with a professional trustee to continue to grow.

“Where employers are looking to settle their pension risk through an insured transaction, the additional experience of the process that a professional trustee can offer, in addition to that of a specialist adviser, is likely to be attractive. That knowledge may also enhance credibility with insurers as the scheme approaches the insurance market. For schemes that are instead looking to run-on, there will be new and complex decisions to make, and, in that case, a professional trustee is likely to be valuable in reaching quick and robust decisions.”

With the background of the current economic climate, and – as reported in Aon’s Global Pension Risk Survey 2023/24 - the increasing governance burden on schemes, many new professional trustee appointments may be made on a sole trustee basis.

James Patten added: “Our survey suggested that 87 percent of the schemes using the sole trustee model had less than £250m in assets - which suggests that cost-efficient governance is particularly important at that end of the market. However, we may begin to see more interest for a sole trustee approach for larger schemes in the coming years.

“But it’s one thing to have a plan, and quite another to implement it. In the lead-up to moving to an endgame, we suggest employers and trustee boards work collaboratively to consider how their needs may have altered as their circ*mstances have changed. They also need to review the pros and cons of different trustee structures, how the current governance structure aligns with these requirements, and then how any changes can be made. This doesn’t always mean a professional trustee or a sole trustee solution is the right answer. It often depends on the skills and diversity of the existing trustee board, the history of the scheme and the nature of the relationship that the trustee board may have with members.”

As schemes navigate new forms of volatility, Aon has developed a clear four-step process to help employers work with their trustee boards to consider both their future needs and which structure will best help deliver them.

It involves:
1. Articulating the governance aims
2. Reviewing the governance structure against these aims
3. Reviewing the operational effectiveness of the current trustee board
4. Considering the appointment of new trustees where appropriate

The Broadstone Sirius Index – a monitor of how various pension scheme strategies are performing on their journeys to self-sufficiency – posts its latest update.

The Broadstone Sirius Index finds that the 50% hedged scheme is nearing full funding amid continued improvements to its funding position through May, recording a high of 99.7% near the end of May as it approaches full funding.

On a month-to-month basis, the scheme posted notable gains, rising from 98.3% to 99.0% as a slight reduction in yields saw liabilities and hedging assets rise.

The fully hedged scheme also saw funding improvements, rising from 67.5% to 68.2%.

Chris Rice, Head of Trustee Services at Broadstone, commented: "Both of our example schemes improved their funding positions in May following a reduction in yields which drove liabilities and assets higher.’

“It is also encouraging to note that both schemes’ funding levels have remained relatively stable for over a year now, and we would expect that the majority of defined benefit schemes have adapted to their new funding positions and adjusted their long-term investment and funding strategies accordingly.

“As we enter the General Election period, it looks likely that the next government will inherit a stable defined benefit pension scheme funding environment,” he said. “This will help it consider and develop long-term policy regarding well-funded schemes that are targeting buy-out in a hot insurance market, the emerging consolidation options and/or run on as well as those schemes where there is still work to do.

“This will allow trustees to work with employers to set realistic and affordable medium to long-term strategies.”

The average quarterly contribution amount for female savers rose by 60%, from £873 in Q4 2023 to £1,395 in Q1 2024. Meanwhile, male savers, who continue to save more into their pensions than their female counterparts, boosted their average quarterly contribution amount by 64%, from £1,242 to £2,038 in the same period.

Self-employed savers also gave their pensions a boost in the last 3 months of the tax year, with their average quarterly contribution amount rising by 63% from £1,121 in Q4 2023, to £1,822 in Q1 2024.

While the proportion of customers making contributions remained consistent from Q4 2023 to Q1 2024, compared to the same period the year prior, their average contribution value increased by over a quarter (27%)from £1,384 in Q1 2023 to £1,762 in Q1 2024.

The overall increase in pension contributions could be attributed to savers maximising available tax relief by contributing up to their total earnings for the year into their pensions or taking advantage of the increased annual allowance, which rose from £40,000 to £60,000 in the 2023/24 tax year.

Becky O’Connor, Director of Public Affairs at PensionBee, commented: It’s encouraging to see consumers increasing their pension contributions and taking advantage of the tax benefits associated with this.

Despite the prolonged cost of living pressures, the rise in the annual allowance threshold appears to have motivated pension savers to prioritise their pension contributions.

As we look ahead to the election, the potential reinstatement of the Lifetime Allowance by Labour, if elected, could reshape the limitations of the annual allowance and tax penalties. Regardless of any change in government, the annual allowance must remain generous enough to incentivise consistent pension contributions, as this will enhance consumers’ quality of life at retirement.”

Just under a quarter (23%) said they would draw it down over time, while one in six (16%) said they would take their pension as a lump sum. Just 6% plan to buy an annuity.

Since pension freedoms legislation came into force in April 2015, people with DC pensions aged over 55 have been able to actively choose how to use their savings. Before the legislation, pension savers were forced to purchase an annuity. However, they are now free to opt for drawing down over time, taking some of it as a lump sum, or purchasing an annuity, with the ability to take a tax-free withdrawal of 25%.

The survey of more than 2,500 defined contribution (DC) members found that those approaching retirement were more confident and engaged than other demographics. However, 30% of all pension savers confess they don’t know how to make retirement decisions and worry about how to access their pension savings. Being unsure was the most common response throughout the research, even for those claiming to be confident in making retirement decisions. Despite this, only 8% of pension savers said they use a financial adviser for help with their pension, while 6% have used Pension Wise.

Beyond making decisions, many showed concern about their savings; 37% of those approaching retirement lacked confidence in their savings lasting the entire duration of their retirement and 36% expressed worries that they will not have sufficient savings for a comfortable retirement.

To address the concerns of pension savers, TPT has been running an ongoing series of live pension planning and financial wellbeing webinars and producing a range of supporting materials to help employers engage their employees in their workplace pensions. As a result of this engagement, 43% of active members regularly review their pensions, up from 35% last year.

Philip Smith, DC Director at TPT Retirement Solutions, comments: “The lack of confidence and knowledge expressed by savers, particularly when approaching retirement age, is worrying. Similarly, the reluctance to pay for professional advice may result in high levels of anxiety and a lack of preparedness as savers approach retirement. DC pensions firmly put responsibility for members’ financial futures in their own hands. Helping people understand how workplace pensions work is therefore essential. If we want savers to take an active role in their retirement planning, it’s imperative that employers and trustees provide them with the right information, tools, and support to enable them to make informed decisions.

“Over the last few years, improving members' understanding of pensions has been one of our top priorities. We’ve introduced an extensive suite of support, initiatives, and educational tools, including an educational site for DC savers, personalised video annual benefit statements, a comprehensive new-joiner engagement programme, new pension savings tools and a series of live educational pension planning webinars.”

Hymans Robertson’s analysis reveals the full range of endgame options and the associated scheme characteristics in each case. The analysis also highlights why it’s vital for all schemes - especially those in the squeezed middle - to review the full range of options and reset their objectives.

Michael Abramson, Partner and Risk Transfer Specialist, Hymans Robertson says: “The regulations published by the PRA slightly expand the universe of suitable assets that insurers can use to back buy-ins and buy-out. In particular, the regulations provide some flexibility in respect of the so-called ‘matching adjustment’, which encourages insurers to invest in assets with cashflows that match their liabilities. This may provide a modest boost to insurer capacity as well as helping some pension schemes by making it easier for insurers to take on their existing assets as part of a buy-in or buy-out. However, pension schemes should manage their expectations as many illiquid assets held by schemes will still fall outside of the new insurer regulations.

“The publication of these regulations means that the first phase of the new Solvency UK framework is now largely complete, with any remaining details focussed on more operational aspects.”

Nick Ford, Partner, Head of Risk & Capital risk says: “UK Life insurers are now going to be able to invest more of their assets into the UK productive economy thanks to the rules just finalised by the Prudential Regulation Authority (PRA). These deliver on the most technical component of the initial phase of Solvency UK reform which primarily impacts how insurers invest to secure the payments they will be making to pensioners for decades to come. With around £50bn of funds transferring from pension funds to these insurers each year this has the potential to deliver some of the £100bn of extra investment sought by the UK government into productive and green finance.

She has extensive experience advising trustees on current issues, risk management, scheme governance and scheme funding, including assisting in negotiations with employers. Barbara regularly supported trustees through the buy-in/buy-out and winding-up process.

She also advised sponsoring employers on a number of pension-related matters, from scheme closures and mergers to accounting disclosures.

Barbara brings more than 20 years of experience as a certified Scheme Actuary and pension professional to her new role. She is a Fellow of the Institute and Faculty of Actuaries and a member of the Law Society of Scotland’s Pensions Sub-Committee.

She has joined Dalriada in its Glasgow office to further grow the firm’s presence in Scotland. Dalriada now employs over 50 professional trustees, overseeing more than 350 pension schemes across the UK.

Commenting on the appointment, Chris Roberts, Managing Director of Dalriada, said: "We are thrilled that Barbara has joined us as a professional trustee. The needs of our clients are currently evolving at pace, and Barbara’s broad-based scheme governance expertise, as well as her significant experience advising trustee boards and sponsoring employers, will make her invaluable to our team."

Barbara Fewkes comments: "I’m very pleased to have joined Dalriada as one of the leading professional trustee firms in the UK. The firm has a collaborative, client-first approach to trusteeship that utilises the unique technical expertise and professional background of each trustee. I’m excited to build upon my previous experience to deliver the best outcomes for both clients and members."

1. D-Day was the start of Operation 'Overlord'
On D-Day, 6 June 1944, Allied forces launched a combined naval, air and land assault on Nazi-occupied France. The 'D' in D-Day stands simply for 'day' and the term was used to describe the first day of any large military operation.
Early on 6 June, Allied airborne forces parachuted into drop zones across northern France. Ground troops then landed across five assault beaches - Utah, Omaha, Gold, Juno and Sword. By the end of the day, the Allies had established a foothold along the coast and could begin their advance into France.

2. 'Overlord' opened the long-awaited second front against Germany
The defeat of Germany was acknowledged as the western Allies’ principal war aim as early as December 1941. Opening a second front would relieve pressure on the Soviet Union in the east and the liberation of France would weaken Germany’s overall position in western Europe. The invasion, if successful, would drain German resources and block access to key military sites. Securing a bridgehead in Normandy would allow the Allies to establish a viable presence in northern Europe for the first time since the Allied evacuation from Dunkirk in 1940.

3. D-Day required detailed planning
Lieutenant-General Frederick Morgan and his team of British, American and Canadian officers submitted plans for the invasion in July 1943. Although limited planning for an invasion of Europe began soon after the evacuation of Dunkirk in 1940, detailed preparations for Operation 'Overlord' did not begin until after the Tehran Conference in late 1943.

A command team led by American General Dwight D. Eisenhower was formed in December 1943 to plan the naval, air and land operations. Deception campaigns were developed to draw German attention - and strength - away from Normandy. To build up resources for the invasion, British factories increased production and in the first half of 1944 approximately 9 million tonnes of supplies and equipment crossed the Atlantic from North America to Britain. A substantial Canadian force had been building up in Britain since December 1939 and over 1.4 million American servicemen arrived during 1943 and 1944 to take part in the landings.

4. D-Day was an international effort
D-Day required unprecedented cooperation between international armed forces. The Supreme Headquarters Allied Expeditionary Force (SHAEF) was an international coalition and although the Allies were united against Germany, the military leadership responsible for 'Overlord' had to overcome political, cultural and personal tensions.

By 1944, over 2 million troops from over 12 countries were in Britain in preparation for the invasion. On D-Day, Allied forces consisted primarily of American, British and Canadian troops but also included Australian, Belgian, Czech, Dutch, French, Greek, New Zealand, Norwegian, Rhodesian and Polish naval, air or ground support.

5. The largest naval, air and land operation in history
The invasion was conducted in two main phases - an airborne assault and amphibious landings. Shortly after midnight on 6 June, over 18,000 Allied paratroopers were dropped into the invasion area to provide tactical support for infantry divisions on the beaches. Allied air forces flew over 14,000 sorties in support of the landings and, having secured air supremacy prior to the invasion, many of these flights were unchallenged by the Luftwaffe.

Nearly 7,000 naval vessels, including battleships, destroyers, minesweepers, escorts and assault craft took part in Operation 'Neptune', the naval component of 'Overlord'. Naval forces were responsible for escorting and landing over 132,000 ground troops on the beaches. They also carried out bombardments on German coastal defences before and during the landings and provided artillery support for the invading troops.

6. German defences in Normandy varied in effectiveness
Germany tried to defend the northern coast of France with a series of fortifications known as the 'Atlantic Wall'. However, German defences were often incomplete and insufficiently manned.

Members of the French Resistance and the British Special Operations Executive (SOE) provided intelligence and helped weaken defences through sabotage. The Allied deception campaigns succeeded in convincing the Germans as late as July 1944 that the main invasion force would still land elsewhere. The threat of this larger, second invasion kept German reinforcements tied down away from Normandy.

Defence also suffered from the complex and often confused command structure of the German Army as well as the constant interference of Adolf Hitler in military matters. However, the Allies faced a number of setbacks both on 6 June and in the months that followed. On D-Day, the Americans came close to defeat on Omaha partially because the preliminary air and naval bombardment failed to knock out strong defence points, but also because they faced highly effective German troops who had gained hard-earned experience on the Eastern Front. Throughout the Battle of Normandy, the technical superiority of their tanks and anti-tank weapons, as well as the tactical skill of their commanders, gave German forces an advantage over the Allies. However, the Germans were never able to fully exploit their successes or the weaknesses of the Allies in a decisive way.

7. D-Day was possible because of allied efforts elsewhere
D-Day was made possible because of Allied efforts across all fronts, both before and after June 1944. In planning D-Day, Allied commanders drew important lessons from previous failures at Dieppe in France and Anzio in Italy.

The Allied strategic bombing campaign, which began in 1942, weakened German industry and forced Germany to commit manpower and resources away from Normandy to home defence. Securing air superiority allowed the Allies to carry out aerial reconnaissance, giving them vital intelligence on German coastal defences.

D-Day also depended on Allied control of the Atlantic, which was finally achieved in 1943 through victory in the Battle of the Atlantic.
The campaign in Italy directed German troops away from the Western and Eastern Fronts. The Soviet Belorussian offensive, Operation 'Bagration', was launched just after 'Overlord' and destroyed the entire German Army Group Centre. It also kept German forces tied down in the east. Ten weeks after D-Day, the Allies launched a second invasion on the southern coast of France and began a simultaneous advance towards Germany.

8. There is more to Normandy than D-Day
The importance of D-Day often overshadows the overall significance of the entire Normandy campaign. Establishing a bridgehead was critical, but it was just the first step. In the three months after D-Day, the Allies launched a series of additional offensives to try and advance further inland. These operations varied in success and the Allies faced strong and determined German resistance.

The bocage - a peculiarity of the Normandy landscape characterised by sunken lanes bordered by high, thick hedgerows - was difficult to penetrate and placed the advantage with the German defenders. Yet the bloody and protracted Battle of Normandy was a decisive victory for the Allies and paved the way for the liberation of much of north-west Europe.

9. North-west Europe was the most significant campaign fought by the Western Allies
'Overlord' did not bring an end to the war in Europe, but it did begin the process through which victory was eventually achieved. By the end of August 1944, the German Army was in full retreat from France, but by September Allied momentum had slowed. The Germans were able to regroup and launched a failed but determined counter-offensive in the Ardennes in December 1944. This defeat sapped German manpower and resources and allowed the Allies to resume their advance towards Germany.

10. There were many 'D-Days' throughout the war
In this cartoon, one man says to the other: 'When they call us D-Day Dodgers, which D-Day do they mean, old man?' 'D-Day' is a general term for the start date of any military operation - the 'D' stands for 'day'. It is often used when the exact date is either secret or not yet known. Some people thought soldiers serving in Italy were avoiding 'real combat' in France and called them 'D-Day Dodgers'. But troops in Italy had faced their own D-Days at Sicily, Salerno, and Anzio and were engaged in a dangerous and difficult advance up the Italian peninsula.

By Nikhil Rathi, FCA Chief Executive, delivered at the Investment Association Annual Conference.

Many of these jobs are located across the UK, with more than 13,000 of them in Scotland, where nearly 1 in every 5 pounds (16%) of UK Assets Under Management is managed.

Maintaining that position is not easy. Ours is a globalised world, yours is an especially globalised industry.

The case for placing one’s trust with money managers here needs constantly to be made. That relies on a strong and respected regulatory regime, with consistent international engagement. Embracing of innovation. Technological in product mix, and in the way we regulate.

Take the first of these.

We play a significant role in international discussions on global regulatory standards and the risk environment.

Let me highlight some of the key international initiatives.

First, liquidity Risk Management has been an area of focus, particularly in relation to Open Ended Funds following the dash for cash in March 2020.

Last year, the International Organization of Securities Commissions (IOSCO) finalised its guidance on anti-dilution Liquidity Management Tools and achieved a good compromise on Anti-Dilution Tools (ADTs) which garnered international support. There is joint work underway with the Financial Stability Board on the design and use of stress tests for Open Ended Funds. And in the UK, the FCA has been engaging closely with the work of the Financial Policy Committee on a system-wide exploratory scenario, including non-bank financial institutions for the first time. This is similar to a scenario-based stress testing exercise.

These different pieces of work are crucial for helping us understand risks to financial stability and market integrity and where there may be data gaps that we need to work on with industry over time.

Another area of focus, where the FCA jointly chairs a working group with the European Central Bank (ECB), is on leverage in non-bank financial institutions. We are finalising a stocktake of the existing data and policy tools authorities have to monitor and address the build-up of systemic risk from leverage. And we will be engaging with industry in an outreach event in New York in June.

Linked to this is international work on margin preparedness, where there is a consultation currently open.

This aims to reduce procyclical behaviour of market participants in response to margin and collateral calls during times of market-wide stress, by enhancing participants’ liquidity preparedness and by strengthening the ability of authorities to monitor and manage associated financial stability risks.

And finally let me mention valuations where again we are leading work on updating principles for the valuation of Collective Investment Schemes to keep pace with market developments.

This is alongside work we are doing here in the UK on valuation practices in private markets to consider, in particular, issues around governance and conflicts of interest.

Global innovators
Let me turn now to technology and innovation which is driving radical change in your industry and client expectations.

Through our domestic initiatives, such as the Digital Securities Sandbox and our project work on fund tokenisation, we have been working to support firms as they innovate with the tokenisation of financial assets and Distributed Ledger Technology (DLT).

We have undertaken work, for example, to identify whether there are any significant regulatory barriers to the adoption of fund tokenisation models, based on use cases we are seeing in the UK market. Here we have been working closely with the technology working group, where the Investment Association (IA) is leading the work. Through those experiences, we have concluded that to fully reap the rewards that tokenisation offers of efficiency, liquidity, and accessibility, we need globally connected networks to support globally connected firms.

We are participating in Project Guardian, in partnership with the Monetary Authority of Singapore (MAS), Japan’s FSA and the Swiss Regulator FINMA. This is a collaborative initiative with the financial services industry on asset and fund tokenisation. As well as sharing knowledge we are jointly examining the benefits, regulatory challenges and commercial use cases of asset and fund tokenisation.

We have been closely engaging with firms to understand their tokenisation use cases and identify regulatory barriers to adoption. We stand ready to test a number of these use cases in our regulatory sandboxes.

Let me turn now to AI.

Advanced analytics of massive data sets guide investment decisions, assess risks, and mark portfolio managers’ school reports.

We have welcomed the increased engagement from Big Tech and data service providers. It is through this that we can solve some of the questions around the framework of regulation – for example, whether we treat traditional technology differently to generative AI.

Or how we cope with the concentration risk where a handful of powerful global firms could exercise control over vast swathes of data across the financial and other sectors and how this impacts competition.

With firms having differing amounts of resources to invest in technology and data, could this exacerbate the risk of concentration and correlation in markets?

How do we make sure data does not entrench bias?

How should firms’ governance respond to the adoption of these new technologies? And we know that many of you are thinking hard about the skills and capabilities in your organisation as we are too, particularly when there are reportedly fewer than 10,000 deep AI experts in the world.

While we are a technology neutral regulator, we still have an objective to ensure market integrity. With that in mind, how can we guard that in a stampede to maximise profits, the use of the most advanced AI in trading does not lead to market manipulation?

Even if clear rules are given, will the most advanced AI applications report objectively on how they are followed? Would we know if they didn’t?

We do not want to put the brakes on innovation. Our view has been that, for now we can rely on governance embodied in our senior manager regime and outcomes-based regulation, encapsulated in the Consumer Duty and our market integrity framework.

We are also bringing forward proposals with the Bank of England around oversight of Critical Third Parties to the financial system to support resilience.

What investors want
We are also mindful that beyond technological innovation, other changes are having a huge impact on the industry. For example, the growth of passive investing.

In January in the US, passive funds controlled more assets than active ones for the first time. There is a lively debate about the implications of this for active fund management and access to capital for smaller businesses.

We know geopolitical risk is high on your agenda and that global investing now must contend with more challenges than ever before, for example implementing sanctions and periods of considerable volatility.

Demographic changes features in markets around the world. With longer life expectancy and varying savings levels, there is a need for people’s money to work harder for them to support them in retirement. And that means discussing the appropriate level of risk.

We want to support more investors to carefully assess the risk that is right for them over the long-term, with for example our review of the advice/guidance boundary.

That will allow for innovation – perhaps aided by the deployment of AI I talked about earlier to build technology-based solutions – in the advice market. Providing more advice to the mass market, rather than being the preserve of the wealthiest.

And in partnership with the IA and other market participants, we developed the regulatory regime for the Long Term Asset Fund (LTAF) – a scheme that gives defined contribution pensions in particular access to less liquid investments, allowing them to diversify their portfolios and help clients reach their retirement goals. As well as supporting investment in infrastructure.

At the FCA, we have authorised 4 LTAFs so far. We have also broadened access to retail investors as well as self-selected DC (Defined Contribution) pension savers and Self-Invested Personal Pensions. Feedback from firms confirms that demand is picking up.

Making regulation more efficient
Many of the regulations that apply to asset management are contained in EU law with a forest of acronyms such as UCITS, MIFID and AIFMD.

We published a discussion paper last year on updating and improving the regime.

We are working our way through, retaining, repealing, and replacing EU legislation.

We agree there are benefits to making the system more proportionate for alternative managers whilst keeping in place other rules to avoid unnecessary disruption. We are ensuring that our policy has regard to the global distribution models of many of our asset managers.

How the FCA is preparing for the future
To support this demanding agenda, we must also retain our focus on the FCA’s operational effectiveness.

One of the top concerns was our authorisations times, and we have sped these up significantly. Between January and March this year, 98.1% of authorisation applications were determined within the statutory deadline. We have started to introduce automated forms which will make the process even more efficient.

We also recognise that a few years ago a significant concern for the industry was the size of the Financial Services Compensation Scheme (FSCS) levy and we set ourselves a goal of reducing it over time.

We wanted to take steps to make sure that the 'polluter pays' principle applied – so that the cost was distributed in a fair way. And this was achieved by prevention, by deploying more assertive supervisory action, a more robust yet efficient authorisations gateway as well as through our aim to make the 'polluter pay', with a more proactive approach to redress where there has been the risk of significant harm.

We recently closed a consultation on whether investment advisers should set aside a buffer for potential redress liabilities.

We have stepped up significantly work on tackling fraudulent financial promotions and seen reducing harm, as measured by complaint levels in relation to principals of appointed representatives.

We welcome the news earlier this month, that the latest estimate for the FSCS annual levy in 2024/25 is £265m, the lowest for a number of years.

Asset management is a great British industry. Trusted round the world. It supports growth, gives people financial security. It is a lynchpin in our financial services industry.

We have shown – whether that is on LTAF, tokenisation, on other reforms – that we make most progress when we agreed shared goals and work together with open minds.

By Matt Tickle, FIA, Partner and Chief Investment Officer at Barnett Waddingham.

Source: Caldara, Dario and Matteo Iacoviello (2022), “Measuring Geopolitical Risk”

However, while the humanitarian impact is always terrible from any conflict, the unfortunate reality is that for most recent conflicts the economic impact has been limited.

Another source of uncertainty are elections. These can dominate headlines with coverage of often small changes in opinion polls and campaign promises that are not always enacted.

In contrast, seemingly small and lightly reported policy changes or rising geopolitical tensions between major economies can have a substantial economic impact.

In this blog we explore how investors can make better decisions by taking a step back from those geopolitical developments that will dominate headlines, but that are unlikely to reward the time spent following them, and instead focusing time and energy on those developments that could have the largest impact on your portfolio.

Conflict in the Middle East
Conflict in the Middle East tends to generate a huge amount of attention and press coverage, with a focus on the humanitarian tragedy and the extreme downside risks of a major escalation. However, in the most likely scenarios the economic and market impact is likely to be more limited.

Energy markets
Memories remain of the impact on global energy markets, and the knock-on inflationary impact, from previous conflicts in the Middle East and from the recent Russia/Ukraine invasion. However, there are reasons to be less fearful:

The world is far less dependent on oil overall than it used to be. The amount of oil required per unit of global GDP is less than half of that required in the 1970’s.

The US is the world’s largest oil producer for the first time since the early 1970’s. Therefore, the world is far less dependent on Middle Eastern oil than it was in the 2000’s at the low point of US production.

Despite heavy sanctions since 2022, Russian production has barely fallen, although the ultimate destination of the oil has changed.
While Iran remains a significant oil producer, its share of global markets is low, partly because of existing sanctions. It already sells very little oil to western markets, with the majority sold directly to China, so exports are unlikely to be significantly disrupted by further sanctions.

Source: Refinitiv, International Energy Agency

There is a risk to this view however, stemming from the disruption of maritime trade, particularly through the Strait of Hormuz. The Iranian-backed Houthis have shown their ability to disrupt shipping elsewhere, in the Red Sea, which has raised shipping prices, albeit with prices remaining far below the post-pandemic high points of 2021 and 2022.

However, fully blocking this chokepoint would likely dramatically escalate the conflict, potentially bringing Saudi Arabia and the other Gulf states into direct confrontation with Iran. Because this would be such a huge escalation, markets consider it unlikely and have done little to price in this outcome. Instead energy markets have continued to move more in line with changes in macroeconomic factors such as global growth.

Investors’ exposure to the region
Because of stock market capitalisation, the direct exposure of most investors to the region is usually small, and smaller than the direct exposure to Russia (now sanctioned) and Ukraine. Israel is the region’s largest equity market, but makes up only 0.25% of global equities, and Iran has been under heavy western sanctions for many years and investors are likely to have no direct exposure whatsoever.

2024: the year of elections
In 2024, countries representing 40% of the world’s population and GDP will take part in national elections, heavily influencing global policy and geopolitics over the next four years.

Source: World Bank, Barnett Waddingham

Instead of focusing on elections, we feel investors should spend more time thinking about individual policies as they are implemented and try to look ahead at the wider implications of those policies as they come into force.

What Geopolitical factors have been driving markets?
Whilst we have cautioned against over-reacting to election news, or the market impact of conflicts, there are nevertheless several less headline grabbing geopolitical factors clearly impacting markets.

These measures are all part of a global “re-shoring” trend. Countries are looking to bring production back under domestic or allied control, particularly for “strategically important” industries. This has contributed to a stagnation in global trade in recent years. If tensions continue to rise, particularly with China which is the world’s largest exporter, then this trend is likely to continue with potential - albeit contained - implications for global growth and inflation and monetary policy, and on corporate revenues and profits.

Source: Barnett Waddingham, World Bank; Federico & Tena, 2018, "Federico-Tena World Trade Historical Database : Openness"

Defence spending
As geopolitical tensions have increased another notable change in policy has been an increase in defence spending across the world. For example, Rishi Sunak has pledged to increase defence spending to 2.5% of GDP by 2030. In a historical context this would leave still leave UK defence spending at a relatively low level.

Source: World Bank

However, because defence spending has been so low, even a relatively small increase translates into a substantial increase in revenue which is shared between a handful of large aerospace and defence companies. Since the Russian invasion of Ukraine, the FTSE World Aerospace and Defence sector has outperformed the FTSE World Index by 24%.

For investors with exclusions from defence industries this is likely to harm returns relative to the overall index; albeit the impact is likely to be modest as the sector makes up only 1.9% of the FTSE World equity index. So even this political act is unlikely to materially drive overall portfolio level returns.

Conclusion
We are in an era of elevated geopolitical risk that is changing the nature of globalisation and leaving many investors feeling cautious. Whilst some caution may be warranted, and portfolios should certainly be alive to the changing shape of globalisation, we encourage investors not to sit fearfully on the sidelines due to the predominance of headlines on these topics. Doing so may well mean material lost opportunities as the headlines, tragic and worrying though they may be, far outweigh the actual economic and market effects.

This article features contributions from Callum Smith, Senior Research Analyst.

The cost of car insurance for a 17-year-old motorist who has just passed their driving test has reached £3,075 on average, according to new research from Compare the Market. This is a substantial £1,071 increase in the typical cost of car insurance for a 17-year-old from last year (£2,004).

The average cost of car insurance for a driver with a provisional licence (all ages) is £726. This typically increases to £2,731 when a driver passes their test and receives a full licence. Car insurance is more expensive when drivers pass their test as they are no longer being supervised by an experienced driver. However, the cost of car insurance is £771 cheaper after a motorist has earned a year of driving experience.

Compare the Market: Cost of car insurance for new drivers (all ages)

As the cost of car insurance has increased for new drivers, the proportion of young people learning to drive has steadily declined. The latest figures from the Department for Transport show just 27% of 17- to 20-year-olds hold a full driving licence, compared with 37% of 17- to 20-year-olds in 2018.

Motorists who decided to learn to drive later in life could benefit from cheaper car insurance. While the average premium for a newly passed 17-year-old is £3,075, this falls to £2,503 for a newly passed 22-year-old. For a newly passed 27-year-old, the average cost of car insurance is £1,089 cheaper, costing on average £1,986.

Compare the Market: Cost of car insurance for new drivers by age

Julie Daniels, Motor Insurance Expert at Compare the Market, said: “The significant increase in the cost of car insurance could make driving prohibitively expensive for lots of teenagers. Newly passed 17-year-olds must now pay more than £3,000 on average for their first year’s car insurance. This will put substantial strain on their or their parents’ finances. However, premiums for new motorists with no claims should then hopefully fall in subsequent years. People should encourage any young drivers they know to look for savings online. Shopping around for a cheaper policy is one of the best ways to try and save money on car insurance.

“As the cost of car insurance continues to increase, it may force some potential young motorists to delay learning to drive. Our research shows that these drivers could benefit from cheaper premiums if they decide to learn in their twenties instead. For those eager to get on the road sooner, choosing a telematics policy may be a good option for some young motorists, whose premium could be reduced if they demonstrate they are a safe driver.”

Drivers in Oldham, Birmingham and Luton are significantly more likely to be in a traffic collision than any other place in the UK. Oldham in Greater Manchester has on average a 35% higher chance of collisions and resultingly more claims on car insurance. Interestingly, the likelihood of having one here is 11% higher than in the second most likely place on the list - Birmingham.

By contrast, drivers in Shrewsbury in Shropshire are 38% less likely to be in a collision, reducing the likelihood of them making a claim on their insurance. Southport, York, Chester and Worcester also ranked low on the list.

Full results

The findings, which come from analysis through CRIF’s Traffic Exposure Score service, draws on a wide range of data sources, providing insight into the factors that can contribute to a road collision. These major risk factors include proximities to:
• Bus stops
• Tube stations
• Train stations
• Motorway junctions
• Speed cameras
• Built-up areas

Rising costs
The cost of insurance for motorists has increased by 46% in just one year from 2023, with the Association of British Insurers (ABI) announcing plans to work with the industry to bring down costs.

To develop the most accurate premiums, insurers will usually estimate the risks of driving in certain areas. However, with CRIF’s Traffic Exposure Score the ability to access and analyse more factors and data points helps to reduce costs for certain drivers, as it helps insurance companies create a more accurate view of the risks motorists may face, in turn helping prevent those drivers who are lower risk from paying higher than necessary premiums.

Sara Costantini, CRIF’s Regional Director for the UK & Ireland, said: "Our research paints a clear picture of where drivers are more likely to experience a traffic collision. Motorists in areas like Oldham, Birmingham, and Luton will see themselves at the highest risk of a collision. By contrast, towns like Shrewsbury, Southport, and York offer some of the safest roads in England and Wales.

“However, this doesn’t always translate into tailored premiums. With the cost of insurance skyrocketing in recent times, it’s more important than ever for insurers to take account of as much granular data as possible. By doing so, they can create a more precise assessment of our roads and offer fairer premiums for motorists”.

Reducing loss ratios
CRIF’s Traffic Exposure Score service only requires an insurer to provide a postcode for where a driver lives. With that it can provide a granular geographical score (from 1-14, where higher numbers mean higher risk), based on factors such as:

• Density of traffic-related points of interest (like nearby tube stations, bus stops and crossroads).
• The socio-demographic profile of the residents (which affects car protection levels).
• Other variables such as the make-up of the area (city centre, suburbs, industrial, etc.).

Having previously launched in other European countries, Traffic Exposure Score can help insurers to reduce their loss ratio by between 1.5% and 2.5%.

As part of LCP’s annual survey of pension scheme trustees, which will be released in full this month, 25% of trustees surveyed said there should be a new interpretation of the fiduciary duty to enable trustees to consider climate and other systemic risks. A further 44% said that they believe considering climate risk in this way is already a route available to trustees.

The survey results also show that the number of large schemes (over £5bn) that have set a net zero target has increased from last year, perhaps influenced by the TCFD reporting rules that they now have to follow. Furthermore, the survey reveals that there has been an increase in the number of smaller schemes (under £500m) that have set a target despite the fact there is no regulatory pressure to do so.

LCP’s CEO Aaron Punwani has been leading industry calls to update the current interpretation of what trustees’ fiduciary duty is to enable them to take a long-term approach.

LCP notes that currently, the majority of UK pension assets are held by closed Defined Benefit (DB) pension schemes, many of which may be considering a buy-out in the short to medium term. In instances like these, a trustee’s primary fiduciary duty is to make their own members’ benefits secure. The fact that their holding in growth assets is both small and temporary means they may feel limited in their ability to influence climate change outcomes.

Clarifying that fiduciary duty includes consideration of members’ best financial interests over the remainder of their lifetime, so that DB trustees can and should legitimately consider outcomes beyond buy-out, would help to combat this. Reinterpreting the duty to say that trustees should have regard to the real-world impact of their investment decisions, not just the impact that external factors – such as climate change – have on their scheme’s investments, would also help to shift changes in behaviour.

Aaron Punwani, LCP CEO, commented: “It’s good to see that there is an increase in schemes setting net zero targets, even amongst smaller schemes that have no current requirements in this area. But let’s be open about the fact the current compliance-focused reporting requirements are not going to be of much help to the planet and society unless they are also accompanied by meaningful real-world action, which we believe a re-interpretation of trustee duty would drive.

“The survey results show that there is support for trustees to have a longer-term view around managing systemic climate risk and for this to be a legally safe interpretation of their duty. Ultimately, schemes have the power to really impact the future. Redeploying assets and effective stewardship can change the outlook for climate change, and as an industry, we need to be on the front foot when it comes to how we can best work to facilitate this and encourage a longer-term outlook.’’

Nearly three in 10 retirees (28%) over the age of 55 said that that they had withdrawn money from their pension before they retired. Almost a third (32%) of this group said they needed the income to bridge the gap to State Pension age or because of redundancy or lower earnings, and more than half (52%) said that they had retired sooner than they had expected.

Stephen Lowe, group communications director at retirement specialist Just Group, said: “Our research shows about one-third of over-55s took pension money before giving up work - some because they wanted to and some because they needed to.

“It seems that accessing pensions before retiring from full-time work is helping significant numbers of people cope with rising day to day living costs and sudden or unexpected events such as redundancy or ill-health.

“Around 45% of those withdrawing pension cash before leaving work said it was simply to take tax-free cash, but a significant minority of about a third are doing it to supplement their income.

A good place to start is first to check whether State Benefits might be available to provide extra income. If people do decide to make any lump sum withdrawals from their pension then they should work out how to do that in the most tax-efficient way.

“When times are tough the pension pot can look like an easy solution to an immediate problem – but it’s important that isn’t the default solution,” he said. “People may well have other options and it’s important they’re fully aware of all the choices available to them and that they understand how decisions made now are likely to impact their lives 10, 20 or 30 years down the line.

“We would urge all those considering their pension options to take advantage of the government’s free, independent and impartial guidance service Pension Wise, which can give a helpful overview of available options in the run up to and at retirement.”

There are a range of resources to provide information and guidance:
• Free, impartial and independent guidance is available to retirees through the government-backed Pension Wise - https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise
• Organisations such as the MoneyHelper and charities such as Citizens Advice and Age UK can be good sources of assistance.
• Professional advisers will charge but can provide regulated advice alongside information about benefit eligibility.

Budget 2023 abolished the lifetime limit on tax-privileged pension savings. Labour has committed to reintroducing it. Would that be a good idea?

What is the pensions lifetime allowance?

The lifetime allowance was a limit on the total value an individual’s private pensions could reach before high tax rates were applied. Between 2006–07 and 2022–23 (inclusive), it applied when funds in a pension were first made available for withdrawal (crystallisation) and/or on reaching age 75 (or at death for those who died before age 75). If the value of the pension was above the lifetime allowance then the lifetime allowance charge was levied at a rate of 55% on the value of the fund above the lifetime allowance if taken as an otherwise tax-free lump sum, or 25% if taken as taxable income (which equates to 55% if combined with higher-rate income tax or 40% if combined with basic-rate income tax). For example, if the lifetime allowance was £1 million and someone had a pension worth £1.2 million when they crystallised it, they might have to pay up to £110,000 (55% of £200,000) tax on the excess.

As shown in Figure 1 the value of the lifetime allowance changed substantially (in nominal terms) over its 17-year existence:

It was first introduced by the then Labour government in April 2006 at £1.5 million, which in real terms is equivalent to £2.5 million in April 2024. In its first few years it was increased relatively rapidly, reaching £1.8 million in April 2010 – equivalent to £2.7 million in today’s prices.

It was then cut substantially by Conservative Chancellor George Osborne so that it fell to £1 million in April 2016.
Subsequent Conservative Chancellors increased the allowance modestly in cash terms, so that it reached £1,073,000 in April 2020.

The lifetime allowance was then frozen.

Then, in another change of direction, in his first Budget of March 2023, Mr Hunt announced that from April 2023 the charge on pensions worth more than the lifetime allowance would be set to zero, and that from April 2024 the allowance would be abolished.

Figure 1. The nominal value of the lifetime allowance from 2006 to 2022

The number of people paying the charge varied correspondingly over this period, rising from under 1,000 a year in the late 2000s to over 11,000 in 2021–22. But that is not a good measure of the number of people affected by the lifetime allowance (and its abolition), since a large part of its effect will have been to discourage people from exceeding that level. In the extreme case, if everybody chose to stay below the lifetime allowance in order to avoid the charge, nobody would have paid the charge but that would not mean it had no effect: quite the opposite. It is difficult to know how many people would have saved more than the lifetime allowance in a pension in the absence of the charge.

Alongside the abolition of the lifetime allowance, Mr Hunt introduced a new cap on the amount of pension income that can be taken tax-free. Previously, up to 25% of an accumulated pension could be withdrawn entirely free of income tax. This is now capped at 25% of the old value of the lifetime allowance, £1,073,000, so that an individual can take a maximum of £268,275 from their own pension free of income tax.

In 2021–22 £500 million was paid in lifetime allowance charges, implying an average charge of just over £40,000 each for the 11,000 individuals that paid it. The upfront cost of abolition is higher than that, as some people will save more in a pension in response to the reform and will therefore get more upfront tax relief. The Office for Budget Responsibility costed the abolition of the lifetime allowance (combined with the introduction of the new cap on tax-free withdrawals) as an £800 million a year tax cut. But some of this upfront give-away will be recouped later, as the people saving more in a pension in response to the reform will pay more tax on their pension income in future.

Would it be a good idea to reinstate the pensions lifetime allowance?

Pensions policy is about long-term decisions. So – as far as possible – stability is desirable. Reintroducing the lifetime allowance would represent yet another change in direction, following the period of instability shown in the Figure above. However, all else equal, there is a case for a lifetime allowance. In a report published a month before Mr Hunt’s surprise decision, in research funded by the abrdn Financial Fairness Trust, we set out a detailed blueprint for the taxation of pensions in the UK. This put forward a set of reforms that would rebalance the incentives provided by the tax system to save in a private pension so that it no longer provided ‘overly generous tax breaks to those with the biggest pensions, those with high retirement incomes and those receiving big employer pension contributions’. We argued that, once they had implemented our recommended reforms, policymakers could be much more relaxed about the lifetime (and annual) limits on pension saving.

Nothing like our proposed package of reforms has been implemented: the pensions tax regime is still overly generous to those who already have big pensions, those with high retirement incomes and those getting big employer pension contributions (as these escape National Insurance contributions). It remains the case that such a package would represent a major improvement and would be the most desirable course of action for this or any future government.

But in the absence of an appetite for comprehensive reform, there is a case for restricting the amount of tax-relieved pension saving that an individual can do. For example, again as an earlier IFS report pointed out, we currently have ‘the bizarre situation where pensions are treated more favourably by the tax system as a vehicle for bequests than they are as a retirement income vehicle’. The abolition of the lifetime allowance provides high-wealth individuals with even greater ability to reduce the inheritance tax on their estate by simply using defined contribution pensions for this purpose. Therefore the Labour Party has some justification for suggesting that there is a role for a limit – though, to repeat, a more thoroughgoing reform to create a more rational system and reduce other elements of excess generosity to the wealthy would be preferable and would reduce the need for a cap. We now consider some of the key questions around how this policy might best be implemented.

How should the lifetime allowance be reintroduced?

One option would simply be to reinstate the lifetime allowance at around its previous level of £1,073,000. Costing such a reform is difficult, but given that the Office for Budget Responsibility’s assessment was that abolishing the allowance cost £800 million a year in the medium term, reversing it might be expected to raise almost as much. This would be a plausible way to proceed. However, it would raise some tricky, though not insurmountable, transitional issues. In particular:

How should individuals whose pension wealth is above (or in future grows above) the reinstated lifetime allowance, perhaps as a result of contributions made following the March 2023 Budget announcement, be treated?
What about those who had large uncrystallised pension pots but who have made withdrawals – or turned age 75 – since April 2024 when there was no lifetime allowance in place?

With the first, the question is how we ought to treat pension accumulation that occurred during the period when the lifetime allowance was not in place. This was an issue when the lifetime allowance was first introduced and when it was subsequently lowered. A similar approach to the special protections put in place at those times (for example, allowing those whose pension wealth was already above the newly introduced/reduced allowance to avoid the charge, provided they did not make any further pension contributions thereafter) could be taken again, complex and imperfect though they were.

With the second, the issue is that (for example) the tax treatment of those with big pension pots who first access their pension this year (when the lifetime allowance is not in place) could be much more generous than those who did this in 2022–23 or after the lifetime allowance is reintroduced. This means that, if people are expecting the reintroduction of the lifetime allowance, they may access their pension now in an attempt to reduce their subsequent tax bill. The expected reduction in tax from doing so could be as much as 25% of withdrawals made above the value of the reintroduced lifetime allowance, although whether this turned out to be the case would depend on the final details of Labour’s policy. An incoming Labour government could simply accept this, and that reintroducing the lifetime allowance would raise less revenue as a result; if it wanted to prevent that outcome and attempt to count withdrawals made now towards a reintroduced lifetime allowance, it would – as set out in this briefing by former pensions minister Sir Steve Webb, who is now a partner at Lane Clark Peaco*ck – probably need to introduce some ‘pretty rough-and-ready rules’ to do so.

A trade-off that Ms Reeves would face is that the more generous any transitional provisions, the longer it would take for the full revenue impact of reinstating the lifetime allowance to materialise. These transitional issues also mean that she would be best advised to implement any change as swiftly as possible in order to reduce the amount of time in which pension pots can rise above the value of the reinstated lifetime allowance or that individuals could have first withdrawn funds from their pensions.

An additional way to ease the transitional issues would be to reinstate the lifetime allowance but at a higher level than £1,073,000. This could, for example, take into account reasonable asset returns and the fact that the annual allowance (that is the maximum amount that can be contributed to a pension in a given year) is £60,000 (and was £40,000 prior to April 2023). In this context it might be worth noting that the last Labour government set the lifetime allowance at £1.8 million in April 2010; it could, for example, reintroduce it at that level – or the equivalent adjusted for inflation, which would be around £2.7 million today.

Options for going beyond a simple reintroduction of the lifetime allowance

Of course, the higher the level at which a lifetime allowance is reintroduced, the less revenue it would raise. But there are features of the system that could be improved, and in a way that raised revenue.

The lifetime allowance valued defined benefit pensions at twenty times the pension income that they provide (plus any tax-free lump sum). Given actuarially fair annuity rates this was – and were it to return would still be – overly generous. It is also particularly generous for those taking their defined benefit pension earlier. Addressing this – by increasing the multiple from twenty (making the lifetime allowance treatment of defined benefit arrangements less generous) and increasing it by more for those making earlier withdrawals – would be sensible. One advantage is that it could alleviate the extent to which a reinstated lifetime allowance might induce some high skilled individuals such as NHS clinicians to retire early: those drawing their pension later would be rewarded with a boost to their lifetime allowance.

Our earlier report argued that, rather than having a lifetime limit on the value of pensions, it would be better to have a lifetime limit on contributions to defined-contribution pensions and benefits accrued in defined-benefit pensions. These are easier to measure accurately and transparently and would have the advantage of not distorting the investment decisions of those with large pension pots.

Mr Hunt’s new cap on the amount of pension from which 25% can be taken tax-free means that those with, say, £900,000 in a private pension can still receive a tax subsidy on additional pension saving. In our February 2023 report – prior to the March 2023 Budget announcement – we pointed out that, for example, a cap of £400,000 would still allow individuals to withdraw a six-figure sum entirely free of income tax. This would only affect about one-in-five of those retiring in the next few years (although almost half of those who had been employed in the public sector).

Pension pots should be included in the value of estates at death for the purposes of inheritance tax. If the government were not willing to do this, it could introduce a cap on the amount that can escape inheritance tax, and this cap could be set at a lower level than a reinstated lifetime allowance. For example, a cap on the amount of pension wealth that can escape inheritance tax could be aligned with a reduced cap on the amount of pension on which a 25% tax-free lump sum can be taken. Such a cap set at £400,000 would mean that a homeowning couple could still bequeath up to £1.8 million in total free of inheritance tax, but those with more could face an additional bill.

One potential criticism of reintroducing a lifetime allowance will be that it might lead to some, such as highly skilled NHS clinicians, retiring earlier. It should however be remembered that many of the issues with the tax treatment of doctors resulted from the annual allowance and how it is tapered down for high-income individuals, rather than from the lifetime allowance. For example, while the section on ‘pensions tax’ in the 2023 submission from NHS England to the Review Body on Doctors’ and Dentists’ Remuneration claimed that ‘the impact of pension tax charges appears to be influencing staff behaviour’ it only actually described the annual allowance, not the lifetime allowance. Alongside the subsequent announcement that the lifetime allowance was to be abolished, the annual allowance was substantially increased (from £40,000 to £60,000) and its tapering has been made much more generous, with the minimum taxable income plus pension contributions among those affected having been increased substantially from £150,000 in 2019–20 to £260,000 in 2024–25.

It remains the case that it makes more sense to have a lifetime allowance than to have an annual allowance, and it makes no sense for the annual allowance to be tapered down for those on very high incomes. More generally, this is a reminder that any change to the lifetime allowance should not be seen just as a means of raising some extra revenue over the Treasury’s scorecard period, but should ideally be part of a broader – and clearer – strategy for pensions taxation.

Conclusions

Absent more radical reform, there is a case for placing a limit on the amount that individuals can accumulate in tax-favoured private pensions. There is therefore a case for Labour’s proposed reinstatement of the lifetime allowance and, were Labour to form the next government, it would be best advised to implement any reform swiftly. It would also be sensible to go beyond a simple reintroduction of the lifetime allowance at its previous level. One option would be to reinstate the lifetime allowance at a higher value than its old level alongside a reduction in the new limit on the amount of pension from which 25% can be taken free of income tax and a new limit (ideally zero, but any limit would be an improvement) on the amount of pension that can be bequeathed free of inheritance tax.

A reinstated lifetime allowance should also be less generous for defined benefit pensions (relative to defined contribution pensions) than the one that was in place from 2006 to 2022, and particularly so for those who take their defined benefit pensions earlier. It would also be worth considering reintroducing the lifetime allowance as a cap on contributions to defined contribution pensions and accrued benefits in defined benefit pensions, rather than on the pensions’ estimated value.

The ASI defines this as the point at which the state will be spending more on welfare payouts, the greatest proportion of which is the State Pension, than it will be receiving in National Insurance tax receipts;

This could happen as early as 2035. This is a crisis point for fiscal rules and Treasury spending commitments;

The increasing unaffordability of the State Pension is in great part due to the ratcheting effect of the ‘triple lock’;

In an accompanying research paper, report author Maxwell Marlow calls on the next government to urgently reform the State Pension; for example, through moving to a ‘double lock’ or smooth earning link, or by means-testing the State Pension.

In 2021, the last time that it was measured, the State Pension had a total obligation to the British people of £8.9 trillion- three times the UK’s current GDP. This is set to balloon even further, due to the ratchet effect of the triple lock.

The State Pension is paid from current tax revenues, rather than from money set aside in a dedicated pot built up during a person’s working life. In fact, the average person born in 1956 will receive £291,000 more than they put in. This is creating an economic burden on working-age people.

This will be exacerbated by Britain’s demographic trends. By 2040, we are likely to have 22.7 million claiming the benefits including the State Pension (but only 34 million people of working age to fund it.)

The Adam Smith Institute’s dynamic model takes into account this demographic deficit alongside a number of other factors including, but not limited to, data from the ONS, OBR and HMRC, on population growth forecasts, State Pension contributions, workforce participation, and aggregate pay. It found that the State Pension could become financially unsustainable by 2035, meaning that the Treasury is spending more on welfare, the greatest proportion of which is the State Pension, than it is receiving in National Insurance tax receipts.

The author of the accompanying report, Maxwell Marlow, urges politicians to have a full and honest debate with the public about the future of the State Pension, and to consider a number of reforms, including means-testing the State Pension, transferring to a ‘double lock’ or smooth earnings link, and moving towards a Swedish-style pension system.

Maxwell Marlow, report author and Director of Research at the Adam Smith Institute said: "It should alarm us all that the state pension could become fiscally unsustainable within the next 10 years.

"Working-aged people are already taxed to the hilt in order to universally subsidise pensioners, and this inherent unfairness within Britain’s economy will only become more entrenched as our demographic deficit worsens.

"The government should look to review the state pension as a matter of urgency, either through means testing so that those with a net worth of more than £1 million are ineligible, or by moving to a double lock system to avoid the destructive ratcheting we see today."

Floods have always been part of life on earth, but recent events in Australia, Brazil, Dubai, and Texas have been significant, sudden and caused major disruption. Changes in the world’s climate are making previously unusual events into something we all need to be prepared for. Insurance and risk management has a positive role to play in supporting aviation organizations as they strive for resilience.

Dubai’s recent deluge was particularly eye-catching because it occurred in a region that is famously arid. The UAE has minimal annual rainfall, typically around 78mm/year (for comparison, the UK’s average rainfall is around 1,220mm/year) and rainstorms are rare in the region. When they do occur though, they are often intense, and what is concerning is that records related to the intensity of rainfall in the region that were broken in 2022 have been broken again less than two years later.

An estimated 1,244 flights were cancelled over the initial two days of the incident, and there are likely to have been subsequent delays and cancellations throughout global networks. While it’s possible that organisations may be able to recoup some incurred costs from insurance – given there was limited or no physical damage to aircraft there is likely to be financial costs that are not recoverable from insurers.

Insights from WTW’s ARI
According to data collated from WTW’s Airport Risk Index, which leverages scientific analysis from 110 global airports, despite the generally arid climate in the region, intense rainfall events and flooding pose a credible threat to operators in the Middle East alongside other more familiar environmental threats such as heatwaves.

ARI’s data on flooding scenarios for airports in the Middle East shows that returning to normal operating conditions could take anywhere from 11 days to a full year, depending on the scenario severity level, operator resilience and vulnerability characteristics. Airports that have not recently faced a flooding event should assess and enhance their resilience to these disruptions.

Though the ARI model isn’t a definitive indicator and not all operators in the Middle East will experience all of the scenario levels, it serves as a useful tool for stress testing and making comparative analysis. It helps identify potential vulnerabilities to facilitate site-specific investigations to enhance airport resilience which can help tailor insurance coverage to realistically reflect airports’ flood risks. It also serves as valuable benchmark for thinking about future disruption from climate risks: having a clear picture of today is essential to understand which events might increase or decrease in severity in the future.

Why is it happening?
Dubai experienced a similar rainfall event in 2022, and there are other records of high intensity rainfall events in the region, so the 2024 event is not without precedent. However, climate change is leading to an increase in significant rainfall events globally. A warmer atmosphere holds more moisture, resulting in heavier rainfalls when they occur. This trend indicates that the Middle East should prepare for more disruptions as the climate continues to change.

Additionally, rapid urbanization means that 85% of the UAE’s population lives in flood-prone areas. As we discussed in recent articles that you can read here and here, urbanization is creating a similar story in many parts of the world. Areas that would have previously been naturally available for water to run off and absorption have now been built on.

More moisture in the atmosphere combined with less ground to absorb it when it falls as rain means there is an increased likelihood, visibility and impact, of significant flooding. While these events are relatively infrequent, the risk is expected to increase without further interventions in engineered solutions, such as enhanced drainage, resilience measures for communities and buildings, and investment in forecasting and early warning systems.

Parametric insurance comes into its own
The maturity of the aviation insurance sector can be helpful because relationships between airlines and their risk management and insurance partners tend to be relatively open and positive. Parametric or index-based insurance programmes can offer support in the event of major rain-related cancellations in arid regions for airlines facing a diverse and changing natural operating landscape.

Parametric insurance can be designed to address loss of income or increased costs associated with adverse weather. They are typically based upon robust, independently recorded data, which makes them simple to design and tailor to an insured’s geography, risk exposure, risk appetite and budget.

Most weather-related events can be used for a parametric index. This includes catastrophe events such as tropical cyclones, floods, forest fires, drought and hail, but weather extremes of temperature, rainfall, river height, windspeed and wave height can also be covered.

Claims are triggered if the measurement of an agreed reference index moves above (or below) an agreed trigger point, with the claim amount calculated according to a pre-agreed scale.

The benefits of a parametric approach
There are several benefits to taking a parametric approach to insurance to manage flood and other weather-related risks for aviation organizations. It offers protection against direct and indirect economic loss from adverse weather and there doesn’t have to be direct damage to insured assets to trigger a policy. This means that non-damage business interruption can be covered.

Payouts can be scaled and tailored to provide coverage for specific scenarios and intensities of event. The clearly defined parametrics remove the need for onsite loss adjustment, allowing claim payments within days or weeks. With an unrestricted use of claim proceeds, organizations can use payments as they see fit, whether that’s to replace damaged assets, supplement revenue, pay for additional expenditure, invest in risk management, service debt or provide financial support for customers, employees or communities. This is a highly flexible form of financial protection.

Robust partnerships
The recent floods in Dubai and further afield highlight the importance of maintaining strong relationships with insurance partners and making sure that risk management and risk financing are fit for the needs of aviation organizations in the current, changing environment. Insurance brokers are a good place to find the expertise to conduct assessments and advise on both risk mitigation options and transfer solutions.

Rising prices in several parts of the aviation insurance sector have attracted capacity across the market, and in some cases this competition is in the process of driving down the cost of insurance. This can create a temptation to select insurers based on price alone, but this should only be one aspect of the consideration.

Working with trusted partners that embrace innovation, ensure that an insurance policy is appropriate, and keep a weather eye on what the challenges are today and what they could be in the future, must be a key consideration when formulating a risk management and insurance strategy. The future landscape changes the assumptions and cost-benefits of risk management measures, and these should be appropriately accounted for.

Events such as the recent flooding highlight the importance of accurate risk assessment models that incorporate changing climate conditions and urban development patterns. Historical data is always useful, but understanding how it could change, and being ready for it to change, is likely to become increasingly important.

Jenny Gibbons, Head of Pensions Governance, Nicola van Dyk, Governance Generalist and Catherine Ryder, Governance Generalist at WTW

The term most often seems to be invoked to mean “lighter touch”. But it’s important to consider that proportionality works both ways – demanding more in some areas even if less in others - and seeing it purely as an opportunity to scale back ambitions runs the risk of missing out on valuable opportunities to make improvements, or the risk of failing to meet TPR’s expectations. The key, for us, is focussing your efforts in the right areas.

In this article we’ve considered how a proportional approach to compliance with the General Code might be applied to a fully bought-in scheme, and how to adapt your governance journey plan for your scheme’s circ*mstances.

Fully bought-in schemes transitioning to buyout
The Regulator has been very clear that the expectations of the Code still apply to fully bought-in schemes – there will be no free passes for trustees in these circ*mstances. And, we’d argue, the need for a proactive and nimble risk management framework and robust Effective System of Governance (ESOG) is as sharp as ever.

While a full buy-in mitigates many of a scheme’s financial and demographic risks, a large number of operational and administrative risks remain. Some risks are arguably exacerbated; for example the transfer of member data from the scheme to an insurer can lead to additional data and cyber security risks. Furthermore, trustees of fully bought-in schemes that are nearing their endgame will need to make irreversible decisions about the future of the scheme that will have a direct impact on members. It is therefore more important than ever to give heed to those parts of the Code that relate to decision making and communications.

Trustees of fully bought-in schemes that are nearing their endgame will need to make irreversible decisions about the future of the scheme that will have a direct impact on members.

Focussing in on decision-making, the General Code states that trustees should “have enough skills to judge and question advice or services provided by a third party” and that they should “regularly carry out an audit of skills and experience to identify gaps and imbalances”. Transitioning from full buy-in to buy-out is a significant project often involving a range of activities that many trustees will be unfamiliar with, such as negotiating with the sponsor and making decisions on the use of residual assets, dealing with member representations or seeking insurance protection for trustee liabilities post wind-up. It will be important to review the skills and experience within the trustee board to establish any gaps ahead of a critical period of decision making (and to arrange for focused buy-out and transaction training where necessary).

From an operational perspective, good record keeping in which there is clear documentation of decision-making processes, delegations and the way in which any conflicts of interest have been managed will also be important for trustees to protect themselves from the risk that their decisions or approach are questioned down the line.

And finally, winding up a scheme brings with it particular member communication requirements. The General Code states that trustees should “ensure that all communications sent to members are accurate, clear, concise, relevant and in plain English” and, of course, that they comply with legislative requirements in relation to timing and content (which are more onerous if any residual assets are to be returned to the sponsor).

Figure 1. Change in balance of governance priorities for a fully bought-in scheme moving to buyout

Adapting your governance for your circ*mstances
From the example above it is clear that governance should continue to be a priority for fully bought-in schemes transitioning to buyout. But how should schemes look to adapt their governance according to their individual circ*mstances?

While each situation will be unique, we would encourage trustees to consider where they are and where they wish to be on their governance journey. This provides a framework within which to prioritise governance activities.

Figure 2. A sample prioritisation framework (client specific examples would include scheme specific descriptions in each cell)

Even within the categories listed in figure 2 there will be opportunities for prioritisation – for example bringing forward those ESOG policies and processes that do the most ‘heavy lifting’ for the scheme or deferring further review of those that have been looked at relatively recently. And, of course, ‘efficiency’ forms a useful complement to ‘proportionality’ – so schemes can ask their advisers for tailorable policy templates, inexpensive ESOG front sheets (like our ESOG HomeSpace ) and simple and accessible risk register formats to make Code compliance easier.

Conclusion
It’s clear that many schemes are at a critical point in their governance journeys. With endgame on the horizon for some, bringing with it important decisions about the future of the scheme, proportionality should not equate to complacency. Honing in on the areas of the Code that are of most relevance, such as cyber risk and governance, improving trustee decision-making, and enhancing member communications, could be key to obtaining the best outcome for members and trustees alike.

And whilst there isn’t (and shouldn’t ever be) a one-size-fits-all approach, taking a step back to consider how your governance journey plan can best support your wider scheme objectives will be time well spent.

If you have any questions or would like to discuss the General Code further, please contact your WTW consultant or one of the contacts below.

Contacts

By Tom Lawrie-Fussey, senior director of product management, U.K. and Ireland, LexisNexis Risk Solutions

On the flip side, insurance providers are also fighting hard to balance the books. In April, the Association of British Insurers (ABI) announced a 31% rise in vehicle repair costs and an 18% rise in motor insurance claims payouts year on year. When adjusted for inflation, since 2014 the average cost of a car insurance claim has outpaced average premium increases.

To help keep motorists mobile, the ABI launched an affordability roadmap to tackle insurance costs , outlining 10 steps with a combination of actions that industry, government and regulators could initiate or improve upon. Data enrichment also has a pivotal role to play in three of the ten points – namely - helping consumers make more informed decisions; tackling fraud; and advocating for safety-focused vehicle technology. Data solutions can work to improve pricing decisions, lower the risk of claim and improve the customer experience. Ultimately, the astute use of data has the power to reduce loss costs for motor insurance providers and in turn, lower premiums.

Help consumers make more informed decisions
The ABI suggests that the industry be more transparent around which vehicles are costly to insure, so consumers can make more informed decisions surrounding vehicle purchase. The good news is that insurance providers will soon have streamlined and automated access to Thatcham Vehicle Risk Data (VRD). The VRD is used to assign an industry-standard ABI Code and Group Rating score to vehicles and is integral to how insurers assess and rate risk for all wheels-based insurance products. Insurance providers will also be able to benefit from our extensive linking and data normalisation expertise to match vehicles to Thatcham VRD with greater consistency.

By being more transparent with this data in terms of how it is used and its accessibility, insurance providers can build awareness and trust amongst consumers. Ultimately, the more intelligence insurance providers can access on the vehicles they are insuring, the more accurate the premium and the more likely they are to be able to deliver a swift claims experience.

Tackle fraud and uninsured driving
There are macro-level strategies which the ABI is pursuing to help drive down fraud, such as working with the government on its fraud strategy and developing an Insurance Sector Fraud Charter. As these longer-term initiatives develop, judicious use of data in the meantime can help tackle fraud and minimise the number of uninsured drivers on UK roads.

Examples include the use of email address intelligence which is already flagging the risk of fraud at the point of quote for insurance providers in a seamless and frictionless way. Highly granular cross-market claims data will add further detail to the picture, helping insurance providers identify fraudulent behaviours, from quote to claim.

As consumers seek to lower their premiums, many financial advice websites now encourage motor insurance buyers to think carefully about how they describe their job role and offer unique tips on how to answer questions on proposals ‘to get the cheapest quotes’ . Yet, fraud prevention also extends to quote manipulation. In fact, in our 2022 study of motor insurance buyers, 21% confirmed they think it is completely acceptable to manipulate the information they provide for a cheaper motor quote. Responding to this challenge, insurance providers can now access data to identify potential misrepresentation, including the possibility of fronting, through changes to declared information for proposers and named drivers between quotes. This helps protect insurance providers from inaccurate pricing and potential fraud, while consumers avoid their policies being rendered null and void if deliberate misstatements are uncovered at claim.

Advocate for safety-focused vehicle technology
Cars with Advanced Driver Assistance Systems (ADAS) are a third less likely to have a claim, according to our data. As the ABI pushes for making safety features, including advanced driver distraction warnings and intelligent speed assistance, mandatory in new cars as they are in Europe, data providers have been working tirelessly to ensure the insurance sector understands this technology to price effectively. Knowing precisely how certain ADAS features reduce accident risk is vital for fair and accurate pricing, which is why many insurance providers now use a point of quote solution to confirm the presence and purpose of ADAS at the Vehicle Identification Number level – in other words, the ADAS for that specific car, not one like it.

This level of detail also gives insurance providers the perfect opportunity to increase pricing transparency and make customers aware of the ADAS fitments that reduce claims. This might encourage greater adoption and use of existing technology on their vehicle, helping to cut insurance claims across the board.

According to The Joseph Rowntree Foundation , the average family is still spending £270 more a year (2024 prices) on essentials compared with Q1 2021, meanwhile the cost of essentials was ranked No.1 concern by the public, and a total of 73% were either worried or very worried about essentials given their personal circ*mstances. These stark facts, coupled with the significant and sustained cost pressures faced by insurance providers, serve to remind us that using all the tools in the data toolbox is imperative.

Only then can insurance providers help to reduce their own losses while helping to keep essentials like car insurance affordable for all.

The firm has appointed five new equity partners as part of its 2024 promotions. These partners will play a key role in leading the firm’s expansion across various key markets.

The new partners appointed are Alex Toney, Collette Graham, Kathryn Rushton, Mark Norquay, and Vivienne Maclure.

Additional promotions: In addition to the new equity partners, there have been twelve principal promotions and twenty-six associate promotions.

Over the past 12 months, the business has seen its fastest growth in its 35-year history, with revenue climbing 20.7% to £146m last year. Underpinning this is an unwavering dedication to nurturing its people; it is this investment in its staff that has been the catalyst for the forty-seven senior promotions this year. This new leadership, overseen by the four new managing partners who are responsible for spearheading the ambitious strategic plans at the firm, put the consultancy in good stead to hold its market leading position in the future.

The Society of Pension Professionals (SPP) has today announced the election of Sophia Singleton as its next President. Her two-year term commenced on 1 June 2024, succeeding Steve Hitchiner, partner at Barnett Waddingham, who has held the role since 1 June 2022.

Under Steve’s stewardship, the SPP has continued to grow both its reach and influence. Over the last two years, the SPP has seen its membership grow by approximately 20%, and has driven a regular drumbeat of activity including events, consultation submissions and meetings with a range of industry stakeholders, all underpinned by a growing profile in the media.

This has helped the SPP continue growing as an influential voice for the whole UK pension industry, furthering its track record of influencing the effective functioning of policy and leading debate within the sector. Sophia will build on these successes, to increase the SPP’s profile and influence while aiming to establish the SPP as a champion of EDI within the industry.

Sophia is a partner and head of DC at XPS Pensions Group. She joined XPS to head up its DC business in 2020, which is when she joined the SPP Council. At XPS, she advises trustees and corporates across all areas of their DC benefits, with a particular focus on benefit design, investments, member engagement, data analytics and scheme governance.

Sophia Singleton, President-elect of the SPP, said: "On behalf of the SPP Council, I’d like to extend my gratitude to Steve for his outstanding leadership of the SPP over the past two years, which has seen the SPP build on its position as a leader and influencer within the industry. I look forward to building on this track record of success during my tenure as President.

“Looking ahead, I will work closely with industry stakeholders and policymakers to stimulate constructive policy analysis and debate to achieve the best possible outcomes for our members. In particular, I’d like to focus on ways consumer support and protections can be strengthened to improve DC outcomes, focusing on reviews of auto-enrolment, development of long-term retirement solutions and exploring how to improve investment outcomes, all while ensuring security for DB members remains a priority. We will also strengthen our role as a representative of all parts of our industry, engaging with the next generation of industry professionals and championing EDI."

Fred Emden, CEO of the Society of Pension Professionals, said: “Working with Steve for the past two years has been a privilege, and I am immensely proud of what the SPP has achieved during his tenure. I am similarly excited for the next chapter of the SPP under Sophia’s leadership. I look forward to working closely with Sophia to achieve her Presidential objectives, which will help continue to drive positive change for the SPP and industry.”

Lee Bartholomew, 45, of Lockside, Tonbridge, Kent, former company director of 1066 Target Sports Ltd in St Leonards, East Sussex, appeared at Lewes Crown Court on Friday 31 May 2024, in a prosecution brought by TPR. He was fined £7,500 and ordered to pay costs of £7,500.

At a previous hearing at Lewes Crown Court on Friday 26 April 2024, Bartholomew pleaded guilty under section 77(5) of the Pensions Act 2004 to intentionally and without reasonable excuse suppressing documents he was required to produce under section 72 of the Pensions Act 2004.

TPR formally requested the information on 10 June 2020 as part of an investigation into allegations of fraudulent evasion relating to employee pension contributions. The court heard that Bartholomew intentionally failed to provide the information required by TPR by the deadline of 8 July 2020, suppressing the material sought without reasonable excuse.

Following his guilty plea to the charge under s.77(5) Pensions Act 2004, TPR is no longer prosecuting Mr Bartholomew for fraudulent evasion of his duty to pay money deducted from the salaries of his employees as pension contributions into a workplace pension scheme within a prescribed period under section 49 of the Pensions Act 1995.

In his ruling, His Honour Judge Mooney told the defendant: “You took the decision to suppress, i.e. deliberately not provide, documentation you should have done because you knew to do so would alert the Regulator that you weren’t paying money where you should have done.” The judge added that as this hadn’t been done, he could not know where the money went at that time.

He continued: “This caused a degree of distress to the people affected, as the money they thought was going into their pensions didn’t. It caused them real concern.”

Judge Mooney said Bartholomew's decision not to provide the information required a sentence that serves as a punishment and also as a deterrent to others from doing the same thing, thereby emphasising the importance of regulatory compliance.

Joe Turner, Head of Automatic Enrolment Compliance and Enforcement at The Pensions Regulator, said: “This case sends a clear warning that we do not hesitate to prosecute companies or individuals if they refuse to give us the right information when requested and/or try to frustrate our aim to protect pension savers.

“We attempted to use our civil powers to put things right in this case, but this was ignored. Anyone refusing to comply with our requests for information without good reason should take note that they could find themselves in court and with a criminal conviction.”

In a new report analysing annual reports published by FTSE 350 companies with 31 December year-ends, WTW has found that:

1. 2023 saw the biggest ever year-on-year fall in expected lifespan for newly retired pensioners. 65- year-olds were on average assumed to live five months less long, compared with 2022 disclosures.

2. Disclosed liabilities would be around 7% higher if companies had used the same assumptions about mortality rates in 2023 and beyond that they were using in 2014. Aggregate funding levels were 109%, so this change can explain the lion’s share of pension surpluses in these companies’ accounts.

3. For the first time, companies sponsoring defined benefit (DB) plans paid more into defined contribution (DC) pension plans than into their DB arrangements.

4. For the time in two decades, the proportion of schemes closed to future accrual (72%) did not increase. However, this follows a rapid rise over the previous 10 years – at the end of 2012, only 26% of these companies had closed their schemes to existing members.

5. 61% of companies disclosed an accounting surplus. WTW expects that where pension risk is transferred to a third party, some companies might seek in advance to publish supplementary numbers to strip out any distorting effect on key metrics such as Profit & Loss and to explain further the benefits of such transactions versus the value of balance sheet surpluses.

Life expectancy

Male scheme members aged 65 were on average assumed to die aged 86.7 years, down from 87.1 in 2022. Women were expected to live to 88.5 on average, down from 88.9. These numbers have been declining since 2014.

WTW estimates that if companies still used the assumptions about mortality rates in 2023 and beyond which underpinned their 2014 disclosures, men aged 65 in 2023 would be expected to live an extra 2.2 years on average and women an extra 1.9 years. This would increase the present value of pension liabilities by around 7%. Aggregate assets at the end of 2023 were 9% higher than liabilities.

Bina Mistry, Head of UK Corporate Pensions Consulting, WTW, said: “The change between 2022 and 2023 may partly reflect companies initially waiting to revise down their assumptions and then doing so once they had more data.

“Mortality experience in 2024 has so far been similar to 2014. Because improvements anticipated a decade ago did not materialise, companies are projecting forward from a lower starting point and taking a gloomier view about what will happen next.

“A recent update to the Continuous Mortality Investigation’s projections model, which employers use to set life expectancy assumptions, should lead to a further small fall in life expectancy in December 2024 accounts. However, this is very sensitive to beliefs about how much weight to put on experience in the couple of years after the pandemic. Companies looking the move pension liabilities off their balance sheets may find that insurer pricing anticipates longer lifespans.”

DC spend overtakes DB; DB plan closures pause

FTSE 350 companies in the analysis paid a total of £6.6bn to UK DC plans in 2023, compared with £5.1bn to their DB plans. This is the first time that DC spend has exceeded DB spend amongst DB sponsors.

Mistry said: “Some companies have been able to switch off deficit contributions, and 2023 did not see the big one-off cash injections reported in some earlier years. Meanwhile, more employees are in DC plans and higher interest rates have pushed the cost of funding ongoing DB accrual right down: this cost fell by almost half between 2021 and 2023.

“Cheaper accrual also helps explain why no employers in this analysis closed their DB schemes to existing members in 2023 – the first closure-free year in two decades.

“In some cases, using a surplus to pay for DB accrual will have been the only way for the sponsor to benefit from it immediately. Proposals to make it easier for employers and trustees to share surpluses could change that, depending on how they get taken forward after the election – but employers persuaded to run their schemes on for longer would have another reason to keep accrual going.

“As DC increasingly becomes ‘where the money goes’, we need more attention on how to deliver the best balance of risk and return, and on how to support members seeking to make a pot of ever-changing size last over a retirement of uncertain length.”

Investor communications in the ‘surplus era’

61% of companies analysed recorded a surplus on their balance sheet. Meanwhile, pension risk transfer transactions hit a record high in 2023.

Mistry said: “For years, the investor relations challenge for DB sponsors was explaining a large and volatile hole on their balance sheet. Now, it is more about communicating whether the company expects to benefit from a net asset, and the impact strategic pension decisions will have on this.

“Where the aim is to transfer assets and liabilities to an insurer, the way this affects key financial metrics such as Profit & Loss can depend on the circ*mstances surrounding the transaction, and some directors may want to publish in advance alternative metrics and encourage investors to look through any distorting effects on their headline results. Where the aim is to run the scheme on in pursuit of further surpluses, companies may need to explain what they have agreed with trustees about how and when any surpluses will be shared out especially in circ*mstances where these may lead to P&L losses, for example when granting discretionary increases.”

And remember, most people can’t access their pension pots until they reach age 55 (rising to 57 on 6 April 2028).

Keep in mind everyone gets a tax-free Personal Allowance every tax year, in the same way you do when working. For the 2024/25 tax year, the Personal Allowance is £12,570, and it’s been frozen at that level for a few years now. Anything you take above this amount will be taxed as earned income according to your tax band.”

1. Work with your Personal Allowance

“The simplest way to avoid paying too much tax is to make sure you don’t take any more from a pension pot than you need to. Taking it in small, regular chunks could keep your tax bill down.

Remember, you only pay income tax on anything over your Personal Allowance. So, if a pension pot is your only source of income, you could take £12,570 from it each tax year and not pay any tax on it at all.

On the other hand, if you were to take multiple large lump sums from your pot in the same tax year (outside of your 25% tax-free entitlement), you could potentially find yourself pushed into a higher tax bracket.”

2. Combine tax-free with taxable
“Remember you don’t necessarily need to take all of your tax-free lump sum in one go. You can usually take it in chunks over a number of months or years – as long the type of pension plan you have lets you do this.

So you could choose to take a withdrawal from the taxable portion of your pot, and top it up with some of your tax-free amount. In theory, every month, you could take £1,000 from the taxable part of your pot (staying under your £12,570 personal allowance) and £1,000 from your tax-free part. That would give you an income of £2,000 each month without paying any tax at all. This is just an example – you can usually switch up the amounts to suit you.

So, if you’ve got some savings in an ISA, you could think about using them to top up the income from your pension to help keep the tax down. Or you could use your ISA to cover your retirement income entirely before touching your pension.

For some people, the earlier years of retirement can be a bit more expensive, so the amount of income you need is higher. So it could make sense to use the tax-free withdrawals from your ISA to cover this period.

Then, as you get older and further into retirement, you might find some of your costs start to come down. Maybe you’ve paid off the mortgage, the kinds of hobbies you have are less expensive, or your children don’t rely on you for financial help anymore. All of this could mean you can eventually afford to live off a more modest amount from your pension. And, as you know, the less you take, the less tax you pay.”

Hymans Robertson highlights the number of key areas which should be reviewed as part of the valuation. These include considering the huge range of changes in the market, from both a political and regulatory perspective – the forthcoming DB Funding Code – as well as improved funding positions leading to a renewed focus on endgame planning. For schemes with a 2024 valuation, this provides an opportunity to reassess if long-term funding and investment plans are appropriate.

The latest 2024 update in our valuation series can be found here

By Ashley Alder, Chair, FCA Chair

Regulation exists to enhance trust and confidence in our financial markets which is essential for a thriving, competitive financial services industry. We do, however, recognise that the way in which we design our rules to achieve this basic outcome can be the subject of different views.

Design choices have taken on far greater significance given that we are now able to review assimilated EU law. We’re working hard to ensure that feedback from all stakeholders, including input from the soon-to-be established Cost Benefit Analysis (CBA) Panel, will inform approaches to rule making to underpin the healthy development of UK financial services for years to come.

Nowhere is this more important than when designing regulation for the asset management sector. Buy-side firms play a vital role in securing the financial wellbeing of millions of people whilst making decisions that are essential to capital formation in the interests of the wider UK economy.

In this context, many of you will be aware that the FCA is pursuing a set of landmark proposals to enhance UK capital markets, ranging from listing rules and research, to affordable mass-market investment advice and value for money in pension schemes.

But I will focus on regulation of direct relevance to the asset management industry, where the statistics speak for themselves. UK asset managers are now responsible for £11 trillion of mainstream assets and £2 trillion of alternative assets.

It’s also an industry which operates globally, with many UK firms operating as parts of asset management groups serving clients overseas.

We know, however, that despite the continued strength of the sector, the environment in which asset managers operate has been subject to uncertainty and market shocks, and we have seen firms face challenges in raising and maintaining assets.

We’ve also seen the sector respond to these challenges with cost cutting and consolidation, with some deciding to branch out into new lines of business.

We of course want the sector to thrive. So we are using the opportunities presented by the Smarter Regulatory Framework (SRF) to modernise and enhance asset management regulation to meet the needs of the UK market.

We also want our rules to interact effectively with the requirements that firms are subject to in other jurisdictions, recognising the truly global nature of the industry.

Smarter Regulatory Framework
As you know much of asset management regulation is contained in assimilated EU law through an alphabet soup of UCITS, AIFMD and some parts of MIFID, where we are working through a process of repeal and replacement.

Last year we published a Discussion Paper which set out our initial ideas for reform.

It will probably come as no surprise that respondents indicated they wanted us to remain broadly aligned with EU rules, and that was especially true for retail funds, where the undertakings for collective investment in transferable securities (UCITS) framework is seen to offer an established, generally applicable baseline.

However, some saw considerable benefit in making the regime far more proportionate for alternative managers, and we agree this is where there is the greatest potential for reform.

The Alternative Investment Fund Managers Directive (AIFMD) regime was developed mostly for funds with professional investors. But in practice it covers a broad range of fund management including hedge funds and private equity firms, but also some retail funds and managers of investment trusts.

We want to set clear and coherent requirements proportionate to the risks posed by specific business models, recognising that institutional investors have different abilities to manage those risks for themselves.

We of course want the UK regime to continue to support high standards and to be interoperable internationally. And we fully recognise the importance of stability, predictability and proportionality, and will only pursue reform where there are clear benefits of doing so.

Private finance, NBFI and valuations
Whist we work on streamlining the requirements for alternative funds, it is critical that there is sufficient confidence in the quality of an asset management sector where a vast array of different business models straddle both public and private markets.

The term ‘Non-Bank Financial Intermediation’, or NBFI, is used to describe everything from private equity to hedge funds and other sources of non-bank finance.

The level of risk involved really depends on what part of the NBFI sector we are referring to, but a common theme is that regulators need to think about what tools and data they need to oversee these activities more effectively, as well as the private markets in which many of them participate. NBFI regulation should be a global effort to improve the data needed to enable regulators to spot risks in these markets and supervise them credibly.

Whatever terminology is used, these markets matter. Global private finance is experiencing rapid expansion, with annualised growth of nearly 18% since 2017 and private market assets under management reaching US$12.8 trillion by 2022.

As many of you know, we are looking at private markets both on a global and domestic level. Harms can occur due to inherent conflicts, with the potential for incentives to adversely affect approaches to valuations.

While values are ultimately crystallised on exit, there is the potential for inflated values to support borrowing, avoid covenant breaches, and support fund performance and therefore fundraising. Where liquidity is provided to investors this can also result in unfair redemption prices.

These risks cut across all FCA objectives, and it is for this reason we are undertaking domestic supervisory work in relation to valuations. We also co-lead an important workstream on leverage in the non-banking sector for the global Financial Stability Board (FSB).

There are also separate questions about how this translates into risks in fund structures, especially open-ended structures. Much work has been done on this through the FSB and the International Organization of Securities Commissions (IOSCO), and it was good to see consensus reached last year on liquidity management, with a clear position that illiquid assets should not be held in daily dealing structures.

Retail investments
Moving from wholesale to retail markets, it would be remiss of me not to talk about packaged retail and insurance-based investment products (PRIIPs).

We certainly welcome a revocation of the PRIIPs regulation, which has resulted in some instances of cost disclosure not reflecting the true costs of an investment. We want to ensure that any replacement regime gives investors sufficient and meaningful information to inform their decision making.

We look forward to consulting on a new regime that is proportionate and tailored to the market and products here in the UK, and which allows firms to design a more engaging consumer journey.

Together with our work on the advice-guidance boundary, we think that this has the potential to fundamentally re-set how consumers engage with financial products.

Sustainability disclosure requirements (SDR)
Now a word about environmental, social and governance (ESG) disclosures. Investors want to put their money to good use – our research shows over 80% of consumers want their money to do good, as well as deliver a return. The UK’s new disclosure and labelling regime is all about creating a system which supports confident investing for those who want to do right for the people and the planet. It's also about consumers knowing that controls are in place to ensure that firms’ sustainability claims are true.

We recognise that many firms are subject to global sustainability disclosure requirements, especially in the EU. So, at every stage of forming our new rules we have sought to create international interoperability.

We’re continuing to work with other jurisdictions to demonstrate that it is possible to introduce rules that protect consumers but also help the market to grow.

Encouraging international consistency is at the forefront of our discussions, so we’ll continue to engage with our international counterparts as they develop similar rules, as well as continuing to engage with HM Treasury (HMT) as it considers extending the disclosure and labelling regime to overseas funds.

Ultimately, we want to see a level playing field for all firms operating across the UK market to maximise the benefits of the regime for consumers. We aim for all schemes that are marketed to UK investors to be subject to the same requirements.

Innovation
Our discussion paper also touched on the opportunities presented by technology.

One special area of focus for us has been on fund tokenisation. Asset managers continue to explore commercial uses for fund tokenisation and there is growing industry interest in the benefits of this technology.

We are observers on the industry-led Technology Working Group of the government’s Asset Management Taskforce, which is considering how to implement tokenisaton in the UK.

The Working Group published its interim report in November last year, which set out how firms can develop models within existing legal and regulatory frameworks.

While the report covering the first phrase did not identify any obvious or significant barriers to adoption in FCA rules, we wrote to firms to set out our own view to help them develop their own models. Further developments, as were set out in the group’s second report, are of course more complex. We will therefore keep our Handbook under review for any changes that may be required to keep pace with this initiative.

Conclusion
As I mentioned at the outset, all this work comes amid a debate about the UK competitiveness, and our role as an organisation having been given a secondary objective to facilitate the international competitiveness and growth of the UK economy.

At every point in our decision-making process, we consider the options that could advance our primary operational objectives and weigh up which of them could advance growth and competitiveness.

You can’t grow sustainably without stable markets, and effective competition which raises quality, drives down prices and prompts innovation. Better outcomes for all consumers are good for growth.

I don’t have enough time now to cover our decision last year to enable greater retail access to long-term asset funds (LTAFs) or how we and HMT are implementing the important Overseas Funds Regime.

Suffice to say that each of these are part of our overall aim to ensure that the asset management sector continues to thrive and grow, delivering for the end consumer and the UK economy as a whole.

"The regulator will need to consider more wide ranging guidance if they want to improve overall confidence in sustainable investing and better outcomes for investors."

The UK’s 5,000 corporate defined benefit (DB) pension schemes on average continue to have a significant surplus above the expected cost of ‘buyout’ of their pension promises, according to PwC’s Buyout Index, which recorded a surplus of £255bn in May.

As the high levels of surplus for schemes continue to increase, so too do questions of how best to use these to benefit members and sponsors.

John Dunn, head of pensions funding and transformation at PwC UK, said: “With funding levels of the UK’s DB schemes recording a record level of surplus of £400 billion on our Low Reliance Index this month - the debate around how to best utilise this surplus is intensifying. From the sponsor’s perspective, the surplus is often ‘trapped in the trust’ and new rules are needed to allow surplus to be released while the scheme is ongoing. There are further barriers to giving surplus to members by increasing pensions, through accounting rules that determine how ‘discretionary’ pension increases are treated in the sponsor’s books.”

Brian Peters, head of pensions financial reporting and partner at PwC, added: “Using surplus to grant members additional pensions would typically result in a P&L (profit and loss) charge for the sponsor under the current UK and International accounting standards. In our discussions with sponsors, any P&L hit is often a complete red line - which can take additional ‘discretionary’ pension increases off the table, even if they are paid out of the pension scheme’s surplus assets.

“The accounting standards setters are unlikely to change established rules and practice so companies will need to balance the accounting treatment of granting additional benefits to scheme members against the extent to which the company and members will also benefit from the release of surplus. Understanding and communicating the potential impact on the P&L will be key to helping companies assess the merits of different ways of using surplus that has built up in their pension scheme.”

The PwC Low Reliance Index and PwC Buyout Index figures are as follows:

The latest funding improvements come as gilt yields rise and high equity values hold, leading to the highest reported month end funding position, and exceeding 110% for the first time during April

The LGPS faces an immediate challenge – how to balance a long-term funding approach with a short-term opportunity to lock in equity market highs and protect current surpluses

Three in four workers (75%) would be more likely to vote for a political party that reforms defined contribution (DC) pensions, according to new research from TPT Retirement Solutions, one of the UK’s leading providers of workplace pension schemes. It reveals that voters want reforms to workplace pensions to be included in the upcoming political party manifestos and that doing so could have a substantial impact at the ballot box. Nearly nine in ten working people with DC pensions (88%) want whichever party wins the general election to do more to help people save for retirement.

Workers aren’t saving enough for retirement
The research shows workers want the next government to reform pensions. Many are concerned about their retirement savings, with almost six in ten (57%) workers worried they are not saving enough for retirement. A further 45% fear people will face pension poverty if the system isn't fixed, while 55% are concerned about retirement costs.

Therefore, working people want the Government to act on this issue as 71% believe politicians are responsible for ensuring access to adequate pensions. As a result, 96% of workers support reforms to increase retirement savings, such as expanding auto-enrolment or increasing minimum contributions. More than four in ten working people (44%) also favour maintaining the triple lock on the state pension to ensure adequate retirement incomes.

Pensions are too complicated
TPT’s study also finds that many people struggle to understand their pensions and subsequently find it difficult to make retirement decisions. One in three workers (30%) believe pensions are too complicated and 96% would support policies to make pensions simpler to understand. So, how can the industry make pensions easier to understand? One popular option (59%) to simplify pensions is to encourage schemes to introduce a default decumulation option to make it easier for people to choose how to use their pension pot when they retire. Similarly, over half (55%) are behind proposals for a pension pot for life system, to make it easier for people to keep track of their pension savings.

It’s too difficult for people to invest more in their pensions
The tax system's complexity can also discourage people from investing more for their retirement. TPT’s research echoes this view, as 91% of workers support tax reforms to make it easier for people to invest more in their pensions. Introducing a tax-efficient form of sidecar savings is one option that could appeal to 36% of workers. More than four in ten workers (44%) also oppose the return of the Lifetime Allowance.

David Lane, Chief Executive of TPT Retirement Solutions, comments: “Our research shows working people want the government to reform the pension system. Currently, most people are not saving enough for retirement and many struggle with retirement decisions. Any political party that tackles these issues could be rewarded at the ballot box. Following our research, we have drawn up our own top ten recommendations to improve the pension system. We believe these policy changes could significantly improve the retirement savings of millions of people.”

TPT’S TEN POINT PLAN TO FIX DC PENSIONS

Help people to save more for retirement

1. Increase the legal minimum for auto-enrolment contributions until it reaches 12% of earnings, with employers and employees contributing 6% each. The minimum contribution should be ratcheted up by half a per cent each year to reach this new minimum to make the change more affordable.

2. Expand auto-enrolment to everyone in full employment at age 16 or older. AE should also apply to anyone working part-time, earning more than £500 per month.

3. DC Contributions should be based on all earnings rather than qualifying earnings. The lower Earnings Limit and Upper Earnings Limit should be scrapped. Employers should support all employees in funding their retirement regardless of how much they earn, especially when income levels fluctuate through careers. Lower earners will struggle to retire without additional savings beyond the state pension.

Simplify pensions to help people make better retirement decisions

4. All DC schemes should be encouraged to introduce a default retirement solution that is designed for their members. This will probably be a decumulation-style drawdown product that can be easily selected without the need for formal financial advice. The features of these drawdown products should meet minimum standards and their implementation should be overseen by the Pensions Regulator.

5. Create some form of pot for life – this will help young people to start saving, taking their pot with them as they move jobs. It will make it easier for people to see how prepared they are for retirement.

6. Ensure the new Value for Money metrics are embedded in the Pensions Dashboard to make it easier for members to compare their pension schemes and consolidate their pots.

7. Encourage innovation around insurance products. New forms of insurance could be developed to offer policyholders a guaranteed income for life without having to pay a large lump sum for an annuity.

8. Address the financial advice / guidance boundary to allow employers and pension providers to give more tailored support to employees making retirement decisions.

Encourage people to invest using their pensions

9. Introduce sidecar savings for DC pensions. Anyone choosing to save more income into their pensions - beyond the level where their employer matches their contribution - should be able to easily withdraw these additional savings. However, the pension savers should only be able to withdraw the amount they invested in the sidecar. Any investment returns from these savings would remain in the scheme. People would feel more confident increasing their pension contributions to save for retirement, knowing they could withdraw the money if needed elsewhere.

10. Don’t bring back the Lifetime Allowance. People shouldn’t be penalised for saving more for their retirement.

Kim brings over 25 years of insurance industry experience to the new position - including 15 years with BW. This track record will be instrumental in helping clients capitalise on the market opportunities of today’s fast moving insurance sector.

Kim replaces Scott Eason, whose appointment as one of four new Managing Partners at BW was announced this month. As New Business Area Leader, Kim will be responsible for further strengthening BW’s client first strategy in the insurance space and working with Scott to extend the consultancy’s footprint in both the Life and GI markets.

The move comes at a pivotal time for the insurance industry where economic uncertainty, technological advances, the impact of regulatory changes and the growing prevalence of bulk annuity deals are reshaping the market. This seismic shift is prompting high demand for BW’s insurance and longevity consultancy services and has resulted in over 30% growth in 2023. Designed as a “one stop shop” for insurance companies, Kim’s team has earned wide recognition for the quality of their work handling a range of actuarial and risk projects and is well placed to target more high value business with Kim at the helm.

“We have always viewed ourselves as an extension of our clients’ teams, not just consultants. Our holistic approach provides value across the board, for clients of all sizes. I’m thrilled to be part of this success story and to contribute to the growth of our talented team.”

This month’s cover story is from WTW’s Matthew Edwards and Arlen Galacia on how life insurers are leveraging the power of generative AI to revolutionise the entire value chain. And in a WTW double bill we have another article, examining Life insurance, from Niamh Carr on the greatest challenges facing Chief Risk Officers in 2024.

As per usual our regular columnists give their insights into various areas of our industry from Dale Critchley at Aviva looking at cutting your retirement cloth to fit your pension to Alex White examining surplus sharing options for DB schemes.

We look forward to welcoming you back next month when we may have a new Government or not as the case may be.

News

Movers & Shakers

City Dealings

How Life Insurers Can Leverage the Power of Generative AI-WTW

Life Insurance:The Greatest Challenges Facing CROs in 2024-WTW

Pension Pillar-Aviva

Insurance Insights-LCP

Retirement Puzzle-Redington

Information Exchange-LexisNexis Risk Solutions

Lights, Camera, Actuary-Bolton Associates

After notable rate increases in 2022 and 2023, Howden Re, the reinsurance and strategic advisory arm of Howden, has observed a moderation in the property-catastrophe reinsurance market pricing at 1.6 2024, with average risk-adjusted property-catastrophe reinsurance rates-on-line 5% lower within a typical range of -7.5% to -2.5%.

A period of adjustment
The reinsurance market is experiencing a period of adjustment, due in part to a resurgence in dedicated sector capital, which now exceeds 2021 levels. This recovery, supported by strong ILS inflows, has increased capacity at the top of programmes and led to risk-adjusted rate reductions in higher layers.

Buyers and sellers engaged early in the year, with cedents targeting better terms and conditions to address previous increases in limits and attachments, as well as narrower wordings. Reinsurers exhibited a proactive stance by completing many programmes early, enabling the deployment of increased retrocession capacity as the renewal drew near. This strategic approach enabled some buyers to achieve more favourable terms in what remains a cautious market.

Wade Gulbransen, Howden Re Head of North America, commented, “It is crucial that our clients secure optimal coverage in this rapidly evolving landscape. This means not only finding capacity, but also ensuring it aligns with their risk profiles and financial objectives. Our focus remains on providing innovative thinking alongside dynamic placement strategies to meet these challenges head-on.”

Figure 1: Risk-adjusted property-catastrophe reinsurance index at 1 June

 
Increased capacity, shifting focus
The ILS market saw a notable increase in activity and competition, with over USD 3 billion of issuance covering Florida perils alone so far this year. Larger Florida carriers have been particularly active in issuing catastrophe bonds, contributing to the increased supply in higher layers. Collateralised retrocession capacity has likewise expanded, with capital providers’ assets under management growing significantly.

Some reinsurers have begun to re-focus on property risks, aiming to grow in peak zones including southwest wind. This shift follows strong performances in 2023, with many reinsurers reporting their best financial results in decades in terms of combined ratio, return on equity, and economic value added. The increased level of ILS interest reflects a broader market trend towards diversified alternative risk transfer mechanisms, offering reinsurers and cedents more options to manage their exposures.

Countervailing factors
Several factors could nevertheless exert short-term rating pressure. Forecasts indicate the potential for a notably active 2024 hurricane season. This follows weakening El Niño conditions and a 60% chance of La Niña developing midseason, which typically portends stronger storms. Additionally, Hurricane Ian loss estimates have risen, and there are persistent challenges in lower layers, especially below the 10-year return period. These elements underscore inherent market volatility and the need for strategic resilience.

David Flandro, Head of Industry and Strategic Advisory at Howden Re, added, “The reinsurance market is at a critical juncture. While the recovery of dedicated capital and increased capacity signal a potential softening of rates, the forecasted active hurricane season and other market pressures could counteract these trends. Strategic adaptability and expert guidance are essential in navigating these dynamics.”

Conclusion
Whilst there are signs of downward pressure on property-catastrophe reinsurance rates due to capital recovery and increased market capacity, reinsurers remain vigilant. The anticipated active hurricane season and other market factors could still present significant challenges. Howden Re is committed to closely monitoring these developments and working with clients to navigate the evolving market landscape.

PensionBee’s analysis revealed that an 18-year-old entering the National Lottery ‘Lotto’ draw once a week, has roughly less than a 0.05% chance of winning a prize pot of £10,000 at least once by the time they reach the average retirement age of 66.

However, if someone instead contributes the cost of a weekly lottery ticket (£2) into their pension each week from the age of 18 until they retire at 66, they could boost their eventual pension pot by an extra £9,958.

Those entering the lottery twice a week could have an additional £19,930 in their pension pot by age 66 if they contributed £4 a week into a pension from the age of 18.

Becky O’Connor, Director of Public Affairs at PensionBee, commented: “It’s hard to overcome the allure of receiving millions of pounds overnight, which is why so many of us play the lottery week in week out, even if we rarely win anything. But there’s more chance of ‘winning’ big with a pension than there is entering the lottery - the catch is that you have to wait until you reach retirement to reap the reward.”

Tips to help you boost your pension savings

Consider boosting your monthly pension contribution by 1%: While this may seem like a modest adjustment, even a small increase today can have a significant impact on your future pension pot due to the power of compounding. This is hopefully a manageable change that shouldn’t drastically impact your current lifestyle but lays the groundwork for greater financial security.
Maximise employer contributions: Employers are required to pay a minimum of 3% into a workplace pension, but some may be willing to pay more or even offer match contributions should you wish to increase your pension contributions. Contribution matching can help build your retirement savings faster, so it’s always worth asking your employer if this option is available.
Check the type of investment plan behind your pension: If you are at least ten years from giving up work, a medium to high growth plan that comes with a bit more risk is likely to generate higher investment returns than a cautiously invested plan. Many schemes automatically 'lifestyle' older workers into more cautious plans, however there is controversy over this as it means some savers may miss out on the opportunity to maximise growth. It's worth checking to see if you have been moved into a more cautious set of investments unnecessarily early, based on your circ*mstances.
Combine your pensions where it makes sense to: With at least 4.8 million pension pots considered to be ‘lost’ in the UK, it’s important to keep track of all your old workplace pensions to ensure you’re not missing out on any hard-earned savings. Combining your old pensions into one can help you assess if you’re on track for the lifestyle you want in retirement, or if you’ll need to increase your contributions.

Commenting on his election, Stewart Hastie, said: “I couldn’t have picked a more interesting time to take on this role and I’m honoured to be given this opportunity. Actuaries have a big contribution to make when it comes to dealing with the savings adequacy crisis, which I think is the defining challenge of our generation. The balance of actuarial pensions work in recent years has been about protecting past benefits. With DB schemes now in a good position and well-funded in the main, actuaries have an important role to play in helping organisations shape future pensions provision to deliver better and more equitable outcomes for their workers and savers. I’m looking forward to working closely with our industry partners as we move into a new era of UK pensions.”

Reflecting on the ACA’s policy priorities for his two-year team as Chair, Stewart Hastie added: “We recently launched the ACA’s own Pensions and Savings manifesto, which spells out our recommendations to the political parties on where they should head with any future reforms once several key policies – which appear to have broad all-party support, are completed. It must be a priority to complete these without any further delay.

“Then the ACA’s overall goal is to help deliver a sustainable and equitable long-term workplace savings environment: bringing responsible stewardship of pension schemes and promoting joined up policies that help future generations build adequate pensions and savings”.

ACA manifesto sets out pension reforms that can strengthen the employer/employee link to provide adequate future pensions and savings

“The ACA manifesto recognises the DWP’s own research that suggests some 12.5 million working age people are under saving for retirement. The ACA continues to support a phased stepping up of auto-enrolment minimum contributions. But we also believe that DB schemes have a positive role to play in terms of supporting future growth and adequate pensions provision. We call for the recent DWP initiative to encourage and facilitate the greater use of DB surpluses to be fast tracked. Unlocking surplus from DB schemes, for some employers, could help meet the costs of higher levels of pensions contribution for today’s workers.

“ Second, the new DB funding code and regulatory regime (now delayed by the general election) needs to be finalised as soon as possible but positively support the remaining open DB schemes and other emerging risk sharing arrangements.

“Third, we need any new government not to delay expanding and bringing forward legislation on CDC schemes and other forms of risk sharing scheme, so that multiple employers can access and help provide meaningful alternatives to DC for today’s private sector workers.

“We would also like to see longer-term planning around how employee engagement within DC schemes can be improved, including introduction of the ‘sidecar’ savings facility and making it easier for employers to make available greater support for employees and members. It is our collective responsibility to understand and reduce the gender and ethnicity pension gaps.

“There are also a few things that we see as potentially counter to addressing the savings adequacy objective: the political temptation of a new government to find ‘new money’ through changes to pensions tax, and proceeding with new initiatives that would weaken the employer/employee link such as the ‘pot for life’ model and a public sector consolidator that isn’t limited just to those schemes that have no other options.

“And lastly, we support wider calls for better social care; that nettle needs to be grasped by whoever ends up in power, and we need to work together to find cross-party support for a long-term plan.”

At the ACA AGM, Chintan Gandhi (Aon) was re-elected Honorary Secretary, with Debbie Webb (WTW) elected Honorary Treasurer and Steven Taylor (LCP) moving to Immediate past-Chair. Also elected as Committee members are James Auty (Mercer), James Beardmore (Hughes Price Walker), Richard Gibson (Barnett Waddingham), Doug Huggins (First Actuarial), Karen Johansson-Hartley (XPS), Nigel Jones (Broadstone). Vishal Makkar (Buck), Laura McLaren (Hymans Robertson), Saye Mkangama (PwC), Graham Newman (Spence & Partners), Vijay Shah (Capita) and, recently co-opted, James Allinson (EY).

According to a recent survey conducted by PensionBee, a leading online pension provider, nearly three quarters (74%)1 of respondents – equal to approximately 23.6 million pensions savers2 – expressed their support for the resolution.

The shareholder resolution aimed to compel McDonald's to take the risks associated with antibiotic resistance more seriously and to reduce the use of antibiotics in its meat production. However, despite gaining traction and receiving 15% of the vote, the resolution ultimately did not pass.

McDonald's Corporation stands as the largest purchaser of beef and pork globally, and its extensive use of antibiotics in industrial meat production poses a significant threat to public health. The overuse of antibiotics is suggested to be a contributing factor leading to the emergence of antibiotic-resistant bacteria, jeopardising the effectiveness of these vital drugs in treating infections.

This is not the first time such a resolution has been proposed at McDonald's annual general meeting (AGM). Despite the disappointment of the outcome, there is cause for optimism in the trend of voting. Last year, 17%3 of votes were in favour compared to 15% this year.

Despite the slight negative trajectory in support for this proposal, PensionBee voting data shows that savers increasingly desire sustainable and responsible practices within corporations. They also believe that challenging management is essential for shareholder democracy.

Clare Reilly, Chief Engagement Officer at PensionBee, commented: “The outcome of this shareholder resolution will come as a disappointment for pension savers. Our research suggests overwhelming support from nearly three quarters of pension savers which underscores the urgent need for corporations to take responsibility for their impact on public health and the environment.

“Although the trend of voting from last year shows positive movement, more work is needed - and fast - for these benefits to truly come to fruition.”

Almost two-thirds (63%) of those aged 18-34 say they don’t know when they’ll receive their state pension, while over half (54%) of 35-49-year-olds admit they are in the dark. More worryingly, 28% of people aged 50-64 admit they don’t know their state pension age. Furthermore, almost a quarter (23%) of 18-34-year-olds who say they know their state pension age wrongly believe it is 65 – three years sooner than the current legislative timetable. Approaching three-quarters (72%) of all UK adults expect their state pension age to rise, pointing to the uncertainty that exists over a central pillar of people’s retirement income plans.

Results point to a ‘ticking timebomb’, with savers either needing to boost their contributions or delay their planned retirement to cover the income gap. Government should urgently consider reviewing existing state pension age communications in light of the findings to forestall a repeat of the WASPI issue. Anyone who isn’t sure of their state pension age can use this tool to find out: Check your State Pension age

Tom Selby, director of public policy at AJ Bell, comments: “Millions of Brits risk sleepwalking into a retirement shock, with almost half of all adults under state pension age admitting they don’t know when they’ll receive their state pension. This likely in part reflects a lack of engagement with pensions, particularly among young people, and in part the lack of certainty that exists around state pension policy.

“There is also evidence that a sizeable proportion of people who think they know their state pension age have not taken into account planned state pension age hikes. For example, almost a quarter of 18-34-year-olds who said they know their state pension age think it is 65, with just 11% correctly stating that it is 68. If these people base their retirement saving plans on this misunderstanding, they will be left with a black hole of almost £35,000** in their pension plans when they reach age 65.

“Perhaps more worrying is the fact that a significant proportion of those aged 50-64 are also unsure of when they will receive their state pension.

“Brits can be forgiven for being in the dark because state pension ages have been changing regularly in recent years. In particular, the women’s state pension age increased from 60 to 65 between 2010 and 2018, before state pension ages of both men and women rose to age 66 by 2020. Further increases are scheduled to age 67 between 2026 and 2028, and age 68 between 2044 and 2046.

“There is also the spectre of further increases in the state pension age to balance the books, with some calling for the state pension age to rise to age 70 or even higher in the coming years. Given this backdrop, it is not surprising almost three-quarters of people expect their state pension age to increase before they have reached it. Add to this the lack of clarity over exactly what the state pension is going to be worth and the triple-lock, and the foundation upon which people’s retirement plans are built feels anything but stable.”

The need for policy stability and ramped-up state pensions communications

“The message to politicians is clear – millions of people simply have no idea when they will receive the state pension. With future increases in the state pension age inevitable, there is a danger the WASPI issue, which centred on poor communication of changes to the state pension age, will be repeated. State pension communication efforts need to be reviewed and ramped up to ensure understanding is improved.

“In addition, the next government must put stability and predictability at the heart of state pension policy. To plan for retirement over decades, people need to have at least a decent idea of what they can expect to receive from the state and when they will receive it.

“The triple-lock, and more recently Rishi Sunak’s proposed quadruple-lock, do not provide that certainty. They merely allow politicians to avoid addressing the vital question of what a fair value for the state pension would be and how long people should, on average, be in receipt of it.

“Given the grip the triple-lock has on state pension policy at the moment, an independent review will likely be needed if we are to get anything resembling the cross-party settlement required to deliver long-term stability.”

Tom O’Connor, Chair of the Board of Trustees of the Plan, said: “I’m delighted that we have successfully completed this buy-in, which insures the benefits of all our Plan members. I am grateful for PIC’s work in achieving this outcome. I want to thank my fellow Trustee Directors, including Dan Gilmour and Akash Rooprai of Independent Governance Group, and our professional advisers, Isio, Baker McKenzie LLP and Mercer for their role throughout the process in scoping and executing the transaction. Our members have been at the forefront of our mind throughout this process, so communication has been a key consideration.”

Paul Robinson, Origination Transaction Manager at PIC, said: “We are proud to have concluded this buy-in with the Arqiva Defined Benefit Pension Plan. The Trustees and the Company were well prepared, which paved the way for a smooth transaction, providing security to all their members in the long-term. The rate at which well organised schemes are entering the pension risk transfer market in 2024 continues apace.”

Andrew Cooper, Director at Isio, said: “It’s been great to lead the broking process to secure members’ benefits with PIC. All parties worked collaboratively throughout the process to ensure a thorough and efficient process to reach this fantastic outcome for the Plan. PIC received legal advice from Herbert Smith Freehills LLP.

The latest data set shows that digital processes are embedded throughout the insurance customer journey, and this includes the adoption of the chatbot as a core piece of technology. In fact:

• Over 98% of leading UK insurers offer the ability to purchase their products through digital channels

• More than half of leading UK insurers have implemented an AI chatbot to improve efficiency in customer operations functions

• Around half of leading motor insurers have scored very high in the Digital Bar’s UX assessment, but this is reduced in Home insurance, where less than a third score very high (>80%).

However, the latest Digital Bar data also highlights the fact that since the jump in online support during Covid, there has been a lack of further evolution in customer journeys online. Even the top performing Insurers in the research still have some way to go to provide a truly digitalised experience. In spite of design facelifts, especially on direct ‘quote & buy’ journeys, where over half of the leading car insurers in the Digital Bar research scored over 80% on Altus’s bespoke UX assessment, supported by an increased use of automation in the back office; the fundamental journey that a policyholder takes has not changed.

Most Extreme G5 Geomagnetic Storm Since October 2003

The National Oceanic and Atmospheric Administration's space weather-prediction centre warned on May 10 that a large sunspot cluster had produced a series of strong solar flares, several of which - with associated coronal mass ejections (CMEs) - were headed toward earth. CMEs are explosions of plasma and magnetic fields from the sun's corona which can cause magnetic storms on earth and have the potential to affect infrastructure in near-earth orbit and on the planet's surface, with the potential to impede communications, electric power grids, navigation, radio and satellite operations.

G5 is the space weather prediction centre's highest level on its scale of geomagnetic storm warnings. The last G5 storm in October 2003 led to power outages in Sweden and damaged transformers in South Africa, notes BI.

Charles Graham, BI Senior Industry Analyst – Insurance, said: “Evidence from May 10-12 suggests the level of disruption caused by the solar storm on this occasion was relatively modest. There were no significant power failures, though extreme deviations in electrical wave patterns were widely observed across the US. Elon Musk's Space X Starlink internet constellation reported a degraded service, but it quickly returned to normal. The storm was also sufficient to result in navigational errors in tractors and other equipment relying on GPS and drove some farmers in the US and Canada to halt planting. Aircraft were also diverted to reduce the exposure of passengers and crew to radiation.

“The outcome could nevertheless have been much worse, which explains why the UK regards space storms as one of the highest priority natural hazards in its National Risk Register.”

AI Helps NASA Improve Solar-Storm Warnings

The early warning of solar-storm events may prove key to protecting an increasingly digitally connected world, adds BI. The globe is protected by a network of space weather-prediction centers including the National Oceanic Atmospheric Administration in Boulder, Colorado, and the Met Office in the UK. A key focus of their work is monitoring solar activity to identify when solar flares and coronal mass ejections may be heading toward earth.

Graham added: “NASA is using artificial intelligence to analyze spacecraft measurements of solar wind to predict when an impending solar storm might strike. The technology could provide 30 minutes notice of where a geomagnetic storm is likely to occur anywhere on earth, enough time it is hoped for power grids and other critical infrastructure to take preventative measures.”

By Paul Leandro, Partner at Barnett Waddingham

Drastic changes have also been made to the UK’s pension system, and we have now adopted the lifetime pensions pot model. But how does this look – and have we learnt anything from the Australian system?

Employers
The role of the employer has changed seismically in a decade. The lifetime model essentially removed employers from the pension decision-making process, putting the onus entirely on the employee. Employers still have to choose the right default in the absence of an employee decision, which keeps a level of fiduciary responsibility, but their governance has plummeted; at the basic level, employers just need to pay their contributions and facilitate employee contributions.

However, the workforce is increasingly made up of workers over 50, providing businesses with a challenge to recruit and retain older employees. Pensions are at the forefront of people’s requirements when considering remuneration packages. As a result, good employers see pension provision more as a strategically important employee benefit and pay higher contributions as a result, and the best use auto-escalation – that is, an automatic increase in contributions with length of tenure - which we took from the success in the US.

Alongside this natural shift, there’s far greater regulatory pressure, which has made employers address pension gaps, across gender, ethnicity, disabilities, and anything that could be a discriminating factor. As a result, contributions are higher for things like parental leave.

Providers
The DWP and the regulators have finally got their wish of a more simplified pension system. The 2035 lifetime pots landscape now consists of a handful of behemoth master trust providers, which qualified to receive contributions through the clearing house. Over the last decade, these trusts swallowed up many smaller ones along the way and essentially all look very similar – consisting of similar admin systems, investment solutions, operating models and products.

"There has been a huge increase in direct-to-consumer marketing activity, as each provider spends millions on advertising, branding, and sponsorship – Liverpool FC has one master trust on its kit, and Manchester City another."
Savers are as loyal, and divided, as sports fans. While this spend is regulated, it brings an opportunity cost, with less money to spend on innovation to improve member outcomes.

We now also see providers doing more – beyond financial performance and marketing – to hang on to clients for as long as possible. Virtual reality retirement communities have launched, where people have access to forums and advice, and can interact with other users and experts. Retirees have access to flexible benefit schemes via their pension plan membership. Master trusts have taken advantage of economies of scale to source insurance and other benefit products at competitive prices, so people can continue to be covered after they leave employment.

Beyond master trusts
There have been considerable implications for retail pension providers. Looking around the market, there are only a handful of group personal pensions, and the SIPP market has become even more regulated. Retail providers who spent a decade focusing on innovative products and finding smart ways to deliver value successfully drew members away from the master trusts.

SIPPs offer a place for people who like to invest outside of the hom*ogeneous master trust market. SIPPs still have a role to play, due to the loosening of shackles which previously bound workplace pensions to employers. They are largely attractive to affluent individuals and people looking to invest on behalf of their family, especially where platforms allow individuals to manage wealth holistically across tax wrappers.

However, this is predominantly in the at-retirement space; SIPPs have far less traction with members in the accumulation phase. The exception here is the self-employed - as casual working patterns have evolved, SIPPs provide an invaluable outlet to self-employed savers looking to build a healthy retirement pot.

Markets
In this new world of bigger consolidated pots, 2035 has offered pension funds a better opportunity to invest in illiquid assets like infrastructure without unreasonable risk to members. As a result, we have seen a dramatic improvement in infrastructure investment opportunities. A decade ago, UK infrastructure was an international playground – slowly but surely, UK schemes have been buying back UK assets, but there’s a long way still to go.

Separately, we’ve finally seen the “death of ESG” – no, not the way the wealth managers have been hoping for. It’s no longer talked about as a ‘concept’ - it’s the bare minimum industry norm. Default funds all have ESG foundations that have to comply with stringent regulations. ESG investment solutions make up a significant proportion of funds, and increased visibility on a smaller group of pension providers has left nowhere to hide.

These are of course positive shifts, but they come with a cost – literally. The days of defaults running with a sub 0.3% annual management charge are a distant memory – given the added complexity and higher costing assets, we’re looking at annual fees of 1.2%+ across the industry. But at least this has come with better measures of value for money; individual consumers have, mostly, been happier to bear the higher charges because these have been commensurate with the long term returns the illiquid investments produce.

At retirement
"The ‘at retirement’ landscape in the UK in 2024 was a mess and required radical change. The lifetime model has been one of the key catalysts of that change."

Solutions at retirement are now a lot more sophisticated as well as user-friendly, putting the consumer at the forefront of thinking. With the pensions dashboard launched and embedded at last, we’ve seen much more effective, transparent, and accessible ways developed for people to visualise their income shape. Medical testing at retirement is commonplace, giving people indications of their longevity.

And the State Pension … the current format is now untenable, and the Government has introduced a purely means tested system. 50% of the population is ineligible for the full amount.

Tech and regulation
Technology continues to be at the forefront of change, and increased use of open banking has become more prevalent in the pensions sector. As a result, consumers now have much better visibility, and AI is well-adopted into financial services, helping people make better, faster decisions as well as offering easily accessible advice.

As part of this, and as a result of the Advice Guidance Boundary Review, we now see loosened regulation on guidance versus advice, although this still needs to balance with Consumer Duty. Pensions information is now much more accessible for all users, with a focus on what retirement means from an overall perspective (health, wealth and purpose), not just limited to specific products. This requires more flexibility and easy access to all relevant communications material, as well as better safety nets for people unwilling or unable to make decisions without support. Information is provided in real time and people who want to make changes simply need to speak instructions into their phone - gone are the days of staring at incomprehensible graphs on screens.

Of course, some more confident - or less informed - savers have delegated planning for their future entirely to their AI assistants. Financial services providers are equipped to have decision-making conversations entirely in virtual reality, and with AI-driven avatars. Only advisers who have innovated to operate in that space have survived; laggards have been replaced.

Products
In the lead up to 2035, we saw a raft of new products enter the market. An uptick in longevity pooling products has effectively replaced annuities. There has also been a major increase in people drawing income from their homes, so more home equity products now fall inside the pensions framework.

And in good news, pension schemes now include more creative benefits for members at retirement. For instance, corporate life insurance and critical illness policies are usually lost when employment ends, but these often now come included as part of new inclusive pensions products. As a result, the select providers in the lifetime model have had to massively ramp up scale in order to provide the best and most competitive insurance costs for customers.

We also have more inclusive default investment funds. Gone is the sole option of default funds built as a catch all, which assume a linear working pattern for all - now funds better serve people on lower-incomes and those who take career breaks. There are even default vegan funds, LGBTQ funds, and FIRE funds - high risk, high reward. The use of alternative assets providing stable, longer term returns without the need to de-risk is much more prevalent, ideal for those having fewer regular contributions and an unknown retirement date.

Has it worked?
There’s no doubt that the lifetime model has brought seismic change. It quite simply had to if it was going to work. But unfortunately, no Government in the last decade has been bold enough to fix the right problems with the right solutions.

"Even with the right clearing system, new products, worthy providers, and better investments, the ‘pots for life’ model hasn't tackled the core issues which made up the UK’s looming pensions crisis."

DC contributions are still much too low, by several percent per person. Huge numbers of people in their 40s and 50s are still renting, leaving them set for extremely high costs in retirement and no home equity to lean on. People are starting to retire on a DC pot of next to nothing, and we still suffer from apathy in the face of the ticking time bomb that is mass pensioner poverty.

The ‘pots for life’ solution has directly solved none of these problems – and the Government has no real moves to solve them independently either. There was an opportunity in 2024 to go all-in with pension reform. To regulate for higher contributions, including auto-escalation as standard. To ensure that people could afford homes, and be able to afford to save in retirement; this was no mean feat with the cost of living crisis barely cooled. And to inspire a solution to apathy, creating genuine engagement and enthusiasm about saving for retirement.

Alas, despite putting many eggs into the ‘pots for life’ basket, the decision-makers of 2024 failed to put a stop to the ‘ticking pensions timebomb’. The timebomb has exploded, and the industry is asking the same question: will the 2035 Government Budget legislate at last to increase contributions?

By Bob Tyley, Head of Credit Risk and Sarah Clare, Senior Consultant at Hymans Robertson

It is becoming gradually clearer that many scenarios do not adequately capture the downside risks of climate change. Therefore these scenarios cannot be used effectively to control the risks of climate change or optimise portfolios and investment decisions to support positive change.

Article from the Bank of England
On 17 April 2024, the BoE released a paper exploring the use of scenario analysis for measuring firms’ climate-related financial risks. The context was the increasing focus on climate-related factors by financial institutions and the BoE considered the application of scenario analysis to the financial risks to which it is exposed. We believe the conclusions, if not the specific examples, are relevant to all financial institutions considering these risks.

Our key takeaways from this bulletin are that the BoE believes that current mainstream scenario analysis:

provides a useful starting point for assessing climate-related financial risk exposures but they do not generally provide the level of detail firms require
only captures a subset of chronic and acute physical risks, rather than all relevant climate risks faced by a firm and that climate risks may be underestimated as these scenarios don’t allow for tipping-points or the possible non-linearity of risks
doesn’t account for the heterogeneity of assets within a portfolio whereas risks and opportunities will differ between companies within the same sector or sub-sector
doesn’t include projections of all variables needed for granular asset-level analysis, so firms will need to construct or acquire additional variables.

The paper focuses on the asset classes the BoE is most exposed to, ie sovereign bonds, corporate bonds, and residential mortgages, and includes examples of how they have approached extending the NGFS macro-scenarios to undertake asset-level analysis.

Sovereign Bonds

The NGFS scenarios only provide projections of short-term rates and a 10-year rate. The BoE has sought to build a yield curve through interpolation and extrapolation of these rates. They have also highlighted the need to extend scenarios to include the data needed to evaluate changes in credit rating of the sovereign over time, such as gross domestic product (GDP) and government debt factors. With these extensions to include various maturities and forecast credit rating changes, and along with assumptions about the impact of sovereign credit rating changes on their yield, the BoE were able to calculate the changes in sovereign yields along the scenarios.

Results showed a portfolio of 20-year sovereign bonds losing:

over 9% of value in all scenarios
over 20% in the Divergent Net Zero scenario, ie a scenario reflecting divergent policies across sectors and regions represented as carbon price variation, leading to a disorderly transition to net-zero.

Looking at implied changes in credit ratings, the largest downgrades are seen under scenarios where current policies persist, leading to a higher degree of warming and greater physical risks. Under these scenarios, some sovereign credit worthiness would be downgraded by a couple of whole letter ratings.

Corporate Bonds

The BoE noted that key challenges in applying climate scenario analysis to bond-level assessments included the level of granularity needed and capturing intra-sectoral variability. It is noted that this data is often developed by third party providers rather than in-house due to the data intensive approach required.

The BoE suggests that scenario analysis for corporate bonds should incorporate:

the impact of carbon pricing on the issuer
the impact of other transition risks and opportunities on the issuer
the impact of physical risks, including to the issuer’s office location and supply chain
the economy-wide interdependencies between different corporates, recognising that the scale of costs and benefits will be a function of impacts across the issuer’s supply chain.

Having calculated these factors' impact on relevant financial metrics, the BoE expects financial institutions will be able to integrate them into existing financial modelling toolkits, albeit evaluating credit changes may require further assumptions. The biggest impact was seen on the electricity, industrial and transport, and energy sectors, while the BoE found the most striking result to be the significant variability between firms within the same sector, demonstrating the critical need to incorporate firm-specific considerations.

Residential Mortgages

Similar challenges were noted for residential mortgages, particularly the need to extend macro scenarios to capture impacts at a sufficiently granular level. For example, incorporating Energy Performance Certificate (EPC) ratings is required to assess the impact of changes in energy costs on specific households, and possible costs to improve the energy efficiency of properties. The estimated impacts vary by EPC rating, from a 14% increase in the proportion of household income used to meet mortgage payments for F-rated properties to 4% for B-rated properties.

Similarly, incorporating flood data can improve assessments on changes in the cost and availability of insurance for specific properties following the run-off of FloodRe. FloodRe ensures flood insurance is widely available and that premiums are capped for many properties in flood prone areas. However, this guarantee will end in 2039. The BoE’s scenario analysis estimates changes in insurance availability and cost could lead to a fall in house prices for the 10% of areas that are most vulnerable to flood risk that is 6.5 times larger than that for an area with the median level of flood risk.

Discussion paper from the Basel Committee on Banking Supervision
In the same week as the BoE published their paper, the BCBS issued a discussion paper seeking feedback on the use of climate scenario analysis to strenghten the monitoring and management of climate-related financial risks. The BCBS’s focus is on banks and their supervisors, however there is a clear read-across to the use of climate-related financial analysis by insurers in both the key features and the usage-specific considerations that they are discussing. Similar to the BoE, the BCBS recognises there are challenges with the application of climate scenario analysis and have requested feedback in a number of areas. However, the paper also notes the objectives and benefits of effective use of climate scenarios, such as helping firms identify risk exposures, informing risk management processes, and assessing the resilience of their business model to climate risks. The closing date to provide feedback on the discussion paper is 15 July 2024.

What are we doing at Hymans Robertson?
Hymans Robertson has been carrying out climate scenario analysis for our clients for a number of years. Our in-house climate scenario model assesses investment portfolios under three climate scenarios and has been used by a range of clients to assess their climate strategies, and for inclusion in their Task Force on Climate-Related Financial Disclosure (TCFD)-reports. We’ve long been vocal about the importance of interpreting climate scenario modelling with care, recognising that it’s an area where both understanding and methodologies will develop through time. We recognise the need to evolve.

In 2023, we developed our approach to climate scenario modelling to include more detailed narrative scenarios – ‘stories’ that help explore the complex interactions that traditional modelling cannot capture. With the help of these narratives, we are helping to educate our clients on limitations in current modelling approaches and to develop their own scenario analysis approach. We published details of our approach in September 2023, inviting feedback from the industry.

We see many benefits to firms in developing narrative-based scenarios, including gaining insights into the broad drivers of risk, the behaviour and interconnectedness of risks, and more granular risk management.

Conclusion
It’s clear that climate scenarios are firmly on the regulatory agenda, and we can expect further guidance on their use over coming months.

Firms have an opportunity to get ahead of regulations by starting to:

ensure that those that rely on the output of such scenario analysis are fully aware of the limitations inherent in the scenarios
explore what is needed to expand their scenarios to overcome some of these limitations
consider developing narrative-based pathways.

While we recognise the development of asset-level climate scenarios is challenging and resource-intensive, we believe the benefits far outweigh the challenges.

HMRC has proposed three options to address the problem. These are:

1) to introduce compulsory membership of a recognised professional body
2) joint HMRC/industry enforcement or
3) regulation by a separate statutory government body.

The Society of Pension Professionals (SPP) has responded to the consultation stating that they share the government’s commitment to making the tax system fairer and simpler and to monitor and enforce minimum standards for tax practitioners but adds, “There is a tangible risk of pensions professionals, who are not the intended target audience for these proposals, being inadvertently captured by the proposed new regulatory regime.”

At a time when threats from cyber criminals are increasing, the Association of British Insurers (ABI) commissioned research to assess customer awareness and understanding of insurance fraud. Almost one third (31%) of UK adults polled said they had never heard of online insurance fraud, prompting the trade association to launch a new campaign.

To test how many people could tell the difference between a real and fake insurance advert, the ABI also showed participants one of each, with roughly half struggling to assess the validity of either.

Even among those who have heard of online insurance fraud, knowledge of specific types was very low, with the results showing that:

69% were unaware of investment fraud – where a fraudster mirrors the documentation and website of a legitimate provider to trick people into investing in products that do not exist.
78% had not heard of data farming – the use of direct marketing or cold calling to encourage otherwise innocent individuals to make false or exaggerated claims.
81% were unaware of ‘account takeovers’ – where a scammer will take over a policy or claim to either misdirect a premium refund or claim payment.
And 90% had not heard of ‘ghost broking’ – a term used to cover a range of tactics used by scammers to sell fraudulent insurance policies.

Mark Allen, ABI Head of Fraud and Financial Crime, said: “At a time when household budgets are already being squeezed by the cost of living, no one wants to get caught out by the scammers. From deals that look too good to be true, to opportunistic claims companies praying on people when they’re at their most vulnerable, we’re calling on everyone to be alert and don’t fall foul of the fraudsters.”

Ursula Jallow, Director at the Insurance Fraud Bureau (IFB), said: "Online insurance scams are widespread and are becoming increasingly sophisticated, so it's really important to stay cyber savvy and know the difference between a real deal and one that shows signs of something not being quite right.

"This campaign is shining a spotlight on some of the most devastating scams out there, so we encourage everyone to follow ABI’s tips to avoid being targeted. If anyone thinks they have seen an insurance scam they can report it to our confidential CheatLine."

Detective Chief Inspector Tom Hill, from the City of London Police's Insurance Fraud Enforcement Department (IFED), said: "Falling victim to insurance fraud can have a profoundly distressing impact. People who click on spoof adverts under the impression that they'll be directed to their insurer’s website can end up significantly out of pocket. People who buy motor insurance from ghost brokers often don’t know they’ve paid for a policy that isn’t worth the paper it’s been printed on.

"Insurance is a safety net that so many of us use. While IFED works with partners and social media companies to make it more difficult for fraudsters to operate online, by removing the websites and profiles used to target victims, we encourage everyone to learn how to protect themselves against insurance fraud.”

With scammers using the internet to target customers in a variety of ways, the ABI wants to ensure that consumers are equipped with the knowledge and tools to guard against being scammed.

As part of a new campaign, the ABI is looking to raise awareness of types of fraud carried out online and through social media. By using case studies, digital adverts and partnering with influencers it aims to help customers spot the signs of fraud and know how to avoid it.

For more information on the different types of online insurance fraud and how to avoid being targeted, visit the ABI website.

If you suspect you have been a victim of insurance fraud, report your concerns to Action Fraud on 0300 123 2040, or at actionfraud.police.uk.

Or you could contact the Insurance Fraud Bureau via its confidential Cheatline on 0800 422 0421 or at insurancefraudbureau.org

Aviva will insure the defined benefit liabilities for around 500 members, removing the investment and longevity risk. Members will see no change in their benefit entitlement as a result of the transaction.

Sean Rooney, BPA Senior Deal Manager at Aviva said: “We’re delighted the Trustee selected Aviva to secure member benefits, and we’ll continue to work closely with them to ensure a smooth transition. The process was well managed and completed quickly, thanks to all parties collaborating to reach a successful outcome. We look forward to welcoming Telereal members as Aviva customers in due course.”

Carl Clissold Chair of Trustees of the Telereal Pension Plan, said: “The Trustees are delighted to have reached this significant milestone for the Members and would like to thank all parties, including the Plan’s sponsor Telereal Services Limited, who have all collaborated in closing this transaction within a short timescale. Our work will continue as we prepare the Schemes for buy-out with a smooth transition and the delivery of Member benefits.”

Joe Hathaway, Associate Partner at Aon, said: “Achieving attractive terms for the Trustees was contingent on a quick execution and relied on all parties working extremely hard over just a few weeks. The straightforward execution offered by Aon’s Pathway service – which is specifically designed for schemes of this size – was vital in allowing us to move quickly.”

At present, a full new State Pension is worth around £11,500 per year and the income at which everyone – working people and pensioners – start paying Income Tax is £12,570. Those who are entitled to a full new State Pension who also have a workplace or private pension income of less that £1,275 per year do not currently pay income tax but rises in the State Pension due to the Triple Lock put them at risk of doing so in the future.

The plans announced today by the Conservative Party, if they win the General Election, would ensure this group of pensioners will never face paying income tax. Pensioners who have a full new State Pension and an annual workplace or private pension income of over £1,250 are currently liable for paying Income Tax. However, the Conservative Party’s plans would result in them paying less tax in future as the income at which they would pay tax would rise in line with the State Pension Triple Lock.

Nigel Peaple, Director of Policy and Advocacy at the PLSA said: “Currently only half of pension savers are on track to achieve the retirement income identified as adequate by the influential and independent Pensions Commission, and we at the PLSA estimate that 20% of pensioners currently have an income below the Minimum Retirement Living Standard of £14,400. Today’s announcement will help many pensioners who have workplace or private pension income keep more of it by ensuring future increases in the new State Pension do not in themselves result in pensioners paying more income tax than they do now. This is likely to be welcomed by pensioners.

However, it is also important that the main political parties commit to improving the workplace pensions of younger workers by increasing the value of automatic enrolment pension contributions, gradually, over the next decade, from 8% to 12% of salary, with most of the rises falling on the employer.”

Joe Hathaway, associate partner in risk settlement at Aon, said: “The pension scheme risk settlement market is buoyant and, although there is some noise about small schemes being crowded out of the market by all the mega deals, this is not what we are seeing in practice. In fact, there are increasingly more options and resources available for schemes that are under £150 million in size. This expansion in capacity across the industry is welcome as it is really needed to support the increasing level of demand across the full range of scheme sizes.

“Most significantly, the market is especially active for schemes that have prepared correctly and which have been taken to market in the right way. As schemes navigate new forms of volatility, we find there are always subtle changes to the market year-on-year and 2024 appears to be no exception. We have seen some distinct trends emerging.”

These include:
• Insurers are streamlining their broking processes to make it easier for them to quote on more deals at the smaller end of the market - but each insurer proposition is different. This is positive in that a wider range of schemes are being catered for - but it does mean clients need to be well-informed from the outset.
• More insurers are now considering quoting for smaller transactions - either existing insurers developing their own streamlined process or new entrants to the market setting up to quote for smaller deals.
• Insurers are increasingly engaging with a wider range of schemes on an ‘exclusive’ basis – so schemes may be encouraged to select one insurer at the outset to provide a quotation. Aon’s Pathway approach helps schemes to assess the options available to them based on the latest market dynamics and then develop a strategy that will deliver the best outcome for the scheme’s own circ*mstances.

As they contemplate their endgame options, and, in particular, as they move to the bulk annuity market, Aon is suggesting some ‘dos and don’ts’ for sub-£150 million-sized schemes.

Joe Hathaway said: “All these thoughts come under the general heading of ‘Prepare’ - but the way the market is developing we would suggest:

Do
1. Ensure all stakeholders are aligned – make sure you get the relevant training and understanding upfront.
2. Have a clear strategy. Not just for the transactions but for post-transaction work as well - on which insurers are currently very focused. The member experience has to remain central throughout the entire process.
3. Be flexible for the best results and insurer engagement.
4. Make sure you and your advisers are aware of all the solutions out there, that way you can find the best fit for your scheme.

Don’t
1. Be afraid to ask – the processes may be streamlined but one size does not fit all. Do not just take what you are given.
2. Worry about complexity – there is some flexibility and willingness to find solutions to problems even for smaller schemes, for example, in relation to deferred premiums and solutions for defined benefit/defined contribution underpin schemes.
3. Spring surprises on insurers – which will not be the case if schemes follow the ‘do’s’. Insurers have a close eye on their capacity, so planning and meeting deadlines is important to keep your place in the queue.

To restart sales, firms need to demonstrate that their GAP products provide fair value to customers, in line with FCA rules.

Firms that have resumed sales of GAP insurance have done so with materially lower levels of commission being paid out to those selling GAP, improving value for customers.

Following this action, customers purchasing GAP insurance can expect to receive better value cover which is suited to their needs, and receive better outcomes.

Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said: “We took action when our data showed that customers were not getting a fair deal. “I’m pleased that, following constructive engagement with industry, a significant proportion of the market is now able to restart sales.

“GAP insurance can provide a useful service to customers and we continue to work with the rest of the market to address our concerns.”

In February the FCA announced that multiple insurance firms had agreed to pause sales of GAP insurance, following a request from the regulator. This was followed by a second tranche of engagement in March with the rest of the market

In 2022, according to the FCA’s value measures data, there were over 2.4 million GAP policies in force.

This data showed that in 2022 only 6% of the amount customers paid in premiums for GAP insurance was paid out in the claims, with some firms paying out as much as 70% of the value of insurance premiums in commission to parties involved in selling GAP insurance.

The FCA will continue to consider the remaining firms’ proposals to improve value for customers.

• The FCA’s decision to allow these firms to continue selling GAP reflects its assessment at a specific point in time. The FCA expects firms to regularly assess whether their products are providing fair value to customers and update their approach where appropriate.
• On 9 February 2024, the FCA announced that multiple insurance firms had agreed to pause sales of Guaranteed Asset Protection (GAP) insurance.
• On 4 March 2024, the FCA confirmed that it had sent further requests to the remaining firms to pause sales of GAP insurance, in a second tranche of engagement.
• You can read more about our insurance value measures data here.

54% said that around half would do so and a further 15% said that more than three quarters of their schemes would do so.

Funds should not, however, start a compliance assessment straight away. Instead, they should implement a four-step action plan that starts with training to ensure officers, committees and boards understand the regulator’s expectations. They are:

By David Fairs, Partner at LCP

It is tempting to think that all the policy items currently in train will be swept away and that a new Government will start with a clean sheet of paper. But the temptation to use pension assets to help boost the UK economy in some form is likely to persist whoever forms the next Government. That also means that the building blocks to facilitate investment in productive finance will also be on the next Government’s agenda.

So, we are likely to see a focus on consolidation, the adaptation of the Pension Protection Fund to establish a public sector consolidator and a full authorisation regime for superfunds and even potentially the facilitation of the extraction of surplus in order to incentivise pension schemes and their sponsors to think of wider investment strategies.

The development of multi-employer CDC and at-retirement CDC plans is also likely to be on the next Government’s agenda. They have garnered cross-party support, and as well as improving potential outcomes for members, will also potentially support investment in assets that will support economic growth.

CDC is not the only area that seems to have cross-party support; pension dashboards, value for money requirements, and implementation of the 2017 Automatic Enrolment reforms are also likely to be adopted by a new Government. Although timing of introduction of the Automatic Enrolment reforms might be influenced by other spending plans.

It seems likely that a future Government will have to think carefully about where its financial priorities lie. Unfortunately, tight Government finances might well mean an early review of pension taxation could be on the agenda. Changing an already complex system will take time to think through and implement and is not something likely to be considered close to an election given the inevitable winners and losers that it is likely to create, so it might well be something kicked off early in the new Government’s term of office.

Perhaps the most interesting pension policy issue impacted by the timing of the election is The Pensions Regulator (TPR)’s new Funding Code. The Regulations bringing the new regime into force on the 22nd of September have already been laid. TPR’s plan was to lay the new Code during June in order to give the necessary 40 days for the Code to come into effect for the September implementation date.

But even if TPR could magically lay the Code before the end of the week, there will not be enough time for the Code to be effective for the September date. So, we are likely to have a slightly uncomfortable position for those schemes with valuation dates shortly after the 22nd of September, to have to comply with new Regulations without having the benefit of the guidance from the Code on how TPR expects schemes to interpret them.

It is perhaps not widely appreciated that Schemes legally have to comply with the Regulations but don’t have to comply with the Code. TPR will take the view that if a Scheme has followed the Code, then it will also have met the requirements of the Regulations. But it is feasible that a Scheme could meet the requirements of the regulations without being compliant with the Code. The price to be paid is greater regulatory scrutiny. However, if there is no Code, schemes may find it a challenge to minimise the risk of greater regulatory scrutiny.

TPR is not likely to be open to accepting valuations under the new regime until sometime in 2025, given that it will need to settle the information that it wishes to collect and develop the necessary IT systems. During that time, it might well be that a new Government will facilitate the laying of the Funding Code. So, whilst it might not be in place for the 22nd of September, it might well be in place by the time Trustees are ready to finalise their valuation and Funding and Investment strategy. That is assuming that the next Government will want to follow a similar approach to Defined Benefit Funding and Investment. If the next Government wants to pursue a different approach, there could be a significant delay before the new Code is laid. In those circ*mstances, the Trustees might have to rely on the draft Code that was consulted on at the end of 2022, also taking account of changes from the draft to the final Regulations.

Pensions policy has been a fascinating and busy area in recent times, and it looks like it will continue to be fascinating in the foreseeable future.

By Nikhil Patel, Principal and Senior Risk Transfer Actuary and Rosie Fantom, Head of Bulk Annuities and Risk Transfer Partner at Barnett Waddingham

The risk transfer market is continuing to break records, and this will continue in the coming years based on the transactions already in the pipeline and as insurance ultimately remains the right solution for many schemes.

The number of deals completing in any year is another important indicator of busyness and capacity. With over 225 deals completed in 2023, up from 200 transactions in 2022, this shows insurers and advisers are continuing to add capacity and becoming more efficient, whilst servicing the whole market.

For schemes where buy-out is now the right answer other options are increasing in scale. Clara Pensions has now completed their second deal with the Debenhams Retirement Scheme, which now takes on the benefits for over 20,000 members, and follows the Sears deal which completed in 2023.

More choice = more for clients to think about
After seven years of eight insurers in the bulk annuities market, the last six months has seen a “frantic” change in the insurer landscape with new entrants and consolidation. In reality, these are considered changes that have been in the pipeline for several years but no doubt the launch of new propositions has come at a time when choice can only be beneficial to schemes seeking to insure risks.

Who’s in?
M&G, writing business through its insurance business Prudential Assurance Company Ltd, (re)entered the market having completed two transactions in 2023 and recently announced a third transaction of c£300m in March 2024.

Royal London announced its entry to the market in March 2024 having completed two transactions for its own pension schemes and are actively quoting on new opportunities.

Canada Life began writing deferred transactions in 2023, including a shortly to be announced £80m full buy-in led by Barnett Waddingham (BW), so could be considered a new entrant to the full scheme market.

Utmost and potentially 2-3 other insurers are gearing up to enter the market.

What does this mean for schemes seeking to insure risks?

More price competition
Although these “new entrants” may be more selective on the cases they pursue in the early stages as they grow their teams and capacity, a greater number of insurers in the market can only lead to more quotations being delivered and increased price competition may be a result.

More choice but greater comfort needed on non-price factors
Trustees and sponsors will need greater reassurance in several areas when comparing a new entrant to an established bulk annuity provider.

Administration capability – member experience is a critical consideration in choosing an insurer. Whilst new entrants are likely to use third party administrators with significant bulk annuity experience from other roles, setting up and running payroll and member calculations is a significant task. Schemes will need advice on how administration services will be run and assurances around the service levels, which cannot necessarily be demonstrated based on past performance.

Commitment to the market, financial strength and depth of teams – given the long-term relationship between the insurer and the members/policyholders, credibility is important. Being one of the first schemes to transact with a new entrant will mean that trustees and sponsors will need comfort on the long-term commitment to the market from the wider business. The credibility and experience of the personnel involved is likely to be important in given trustees comfort.

Timeframes to moving to buyout – less established policies and practices mean the insurers need time to move schemes from buy-in to buyout. The ability to make this transition in a reasonable timeframe will be a commitment that insurers will need to make to manage stakeholders expectations. However, given the level of post-transaction data and admin work required, a 12-18 month timescales is likely to satisfy the majority of schemes.

Member communications – trustees will be conscious that they will need to explain the purchase of the bulk annuity policy and that future security will be provided by the insurer, rather than the employer covenant. The insurer regulatory regime and the cover provided by the Financial Services Compensation Scheme (FSCS) is important but the brand and market standing of the insurer will also be considered. Good communication is not a barrier to any insurer transacting with a scheme, but some will need to work harder than others.

Who’s out?
In March 2024, Lloyds Banking Group sold the £6bn in-force Scottish Widows annuity portfolio to Rothesay, which is expected to result in Scottish Widows formally exiting the bulk annuity market. Like the purchase of the Prudential £12bn back book in 2018, Rothesay will become responsible for these policyholders’ benefits following the normal Part VII transfer process.

Scottish Widows have historically been selective about the size and profile of schemes insured, so whilst the number of active participants in the market has reduced, the choice for schemes may not be impacted significantly and could be more than offset over time by the new entrants.

Inflow of capital to the bulk annuity market is expected to continue with potential M&A activity further supercharging the market. However, the limitation of human capital within the insurer, adviser and administration teams will continue to limit the volume of deals, by both size and number, at any given time.

Insurers are continuing to invest in people and systems in this area. The challenge could be taking the £50bn+ of transactions each year through to buy-out. This could lead to schemes being in the buy-in phase for longer than anticipated, incurring the costs of running on.

We believe there should be early engagement with advisers on what is important, and this is communicated to insurers as part of a selection process. These thorough preparations not only help get the best outcome for the buy-in transaction, but can also help schemes to be more nimble and transition to buy-out quickly. Please reach out to our team if you would like to know more.

Nicholas Clapp, Commercial Director of TPT Retirement Solutions, said: “The announcement of the general election means the progress of several important pension reforms is now up the air. The expansion of automatic enrolment to those aged under 22 and those in part-time work will now be delayed until we know the result of the election and the administration’s intentions, which will delay people from building up their savings for retirement. We were also expecting a draft of the multi-employer Collective Defined Contribution (CDC) scheme regulations to be published in the coming weeks. These rules would have made it possible for all employers to provide their staff with a CDC pension scheme rather than just the largest employers who it is currently more suited to.

Proposals to give DB schemes more flexibility to access surpluses will also be delayed. These reforms would have created a much greater incentive for schemes to consider run-on, serving as an alternative solution to an insurer buyout.”

Tim Middleton, Director of Policy and External Affairs at the Pensions Management Institute, said: “The Pensions (Extension of Automatic Enrolment) Act 2023 gained Royal Assent in September last year, but as yet we are still awaiting the Regulations needed to implement the changes. It would be extremely frustrating for these overdue reforms to be delayed any longer. When the coalition government came to power in 2010, one of their first reforms was to the drawdown rules. I would hope that an incoming government would consider reforms to the Freedom and Choice regime as a priority. There is clear evidence that members are making poor decumulation decisions and an initiative to address this would be most welcome. Perhaps my biggest concern at this point is that there is no Shadow Pensions Minister. This is something that must be rectified as a matter of urgency.”

In the nationally representative survey of 1,000 working-age UK adults, nearly a quarter (23%) admitted they were unsure of the total pension pot size required to achieve their desired retirement income. The next most common response (15%) was ‘less than £150,000’.

According to the Pensions and Lifetime Savings Association’s (PLSA) Retirement Living Standards, £150,000 could only fund a ‘minimum’ retirement standard for around 10 years, covering all basic needs but allowing little room for extras.

This suggests many savers may be underestimating the true cost of retirement, risking a pension shortfall, as the average retirement lasts approximately 15 years, assuming retirement begins at 66 and life expectancy reaches 81. Fewer than half (49%) of respondents estimated they would need a total pot of around £250,000 or more, which would be necessary to sustain a basic retirement, longer than the 15 year average.

In general, there was a lack of clear consensus among respondents regarding their desired annual income in retirement. The top three responses clustered around an annual income of £15,000 to £30,000, which includes the State Pension if eligible and other benefits and income from savings or investments.

While the upper limit aligns with the average salary in the UK, it falls short of the PLSA’s ‘moderate’ standard, in which retirees would see their annual food and clothing budget increase, in addition to a two week holiday in Europe as well as a long weekend in the UK every year.

Only 15% of respondents indicated a desired income of over £45,000 a year, exceeding the PLSA’s ‘comfortable’ standard, in which retirees would see their annual food and clothing budget increase again, in addition to a two week holiday in the Mediterranean, with a budget to replace their kitchen and bathroom every 10 to 15 years and car every 3 years.

When asked if they felt on track to achieve their desired retirement savings, almost half (43%) of adults noted that they didn’t feel on track with their retirement savings. More respondents felt unsure about their progress (30%) than confident they were on track (27%).

Becky O’Connor, Director of Public Affairs at PensionBee, commented: “It’s hard to plan for retirement without an idea of how much you might need, yet most Brits seem to be unaware of - or worse, dangerously underestimate - the true cost of retirement.

A good pension pot is one that can provide enough money for the duration of retirement. As this exact amount will vary based on individual circ*mstances, pension calculators can be a helpful tool in setting financial goals and adjusting behaviours to achieve them.

However, one rule is broadly true: the earlier individuals start paying into a pension, the more likely they are to be able to afford their desired lifestyle, as their pension has longer to grow and the amount they’re required to save each month reduces.

Consolidating old pensions into one easy to manage plan can also simplify the retirement planning process, by providing greater visibility, to make it easier to stay on track for later life.”

July election means delays to DWP Pension transfer regulations, advice limit for safeguarded benefits and multi-employer CDC.

FCA Value for Money Framework consultation for contract-based schemes hopefully to go ahead, but may be pushed back.

Auto-Enrolment Reforms, Pensions Dashboards and Advice-Guidance Boundary likely to go ahead regardless of election outcome due to cross-party support.

Kate Smith, Head of Pensions at Aegon, calls on Rishi Sunak and Sir Keir Starmer to give 'absolute clarity’ on pensions policy ahead of the newly-announced general election:

“With the Prime Minister having declared that the UK will go to the polls on 4 July, sooner than expected, the government’s attention will now shift away from current legislative and new initiatives, towards promoting its election campaign.

“Given their importance to the public, pensions policy will likely play a prominent part of the electoral debate, as each party seeks to convince voters they’re the people to make positive changes to the support available in retirement.

“As such, a major priority within each political party’s manifesto should be to give absolute clarity on their plans for the vitally important issues of the State Pension Triple Lock and the funding of Social Care.

“So far, both the Conservatives and Labour have verbally committed to maintaining the Triple Lock in its current guise, but with the State Pension being the foundation of most peoples’ retirement plans, we need concrete commitments as whether they will keep or reform it. This is especially important as the Triple Lock has become a highly controversial policy, with the recent period of inflation and earnings volatility having generated abnormally high, and costly, increases to the State Pension.

“Despite the calls for reform, its popularity with pensioners could well be the deciding factor in which position each party takes.

“Also at the heart of manifestoes, should be any plans for how they will fund the growing demand for social care. The Conservatives’ funding deal, with an £86,000 cap on eligible care costs, was originally set to be implemented in October 2023, but was then delayed until October 2025. Little has been heard of it since, and Labour have yet to show their hand.

“Aegon’s own Second 50 research highlighted that 75% of the UK’s 50- to 59-year-olds haven’t factored social care expenses into their retirement savings. And yet, an increasing number of us will need – and have to pay for – some form of social care in our lives. So it’s vital the issue of a funding split between individuals and Government is addressed in party plans.”

Kate also outlines how a July election affects the timeline for ongoing pensions initiatives: “Given this summer was set to be an important period for pensions regulation, the timing of the election will mean delays to key pensions initiatives.

“Originally expected for May and June, the DWP’s consultations on pension transfer regulations, multi-employer CDC, and the £30,000 advice limit for safeguarded benefits are all now expected to be delayed as government goes into purdah until after the election.

“In addition, the FCA is due to consult on the Value for Money Framework rules for contract-based pensions over the next few weeks. We’re hopeful this will still be published, but there’s a chance it may be pushed back too.

“The good news is that a number of pension-related initiatives already have cross-party consensus and, as such, will likely go ahead without major change – although timetables may still be affected, regardless of the election outcome. These include the 2017 Auto-Enrolment Reforms, Pensions Dashboards and Advice-Guidance Boundary programmes, the Value for Money Framework, Scheme Consolidation Agenda, and pension scheme investment in Productive Finance – all of which have been backed by Labour.”

The study looks at emerging AI risks across ten industries, exploring the probability and severity of various AI-related loss incidents due to data bias, cyberattacks, algorithmic and performance-related risks, among others.

Christoph Nabholz, Chief Research & Sustainability Officer at SwissRe, said: "While IT services are currently the most affected by AI risks as a pioneer in this area, this is set to change as the use of technology becomes more widespread across all industries, such as in health and mobility. Insurance companies are therefore starting to introduce specific cover for AI performance failures – one of the biggest risks for all industries."

As the health industry increasingly uses AI technology to streamline functions such as administration, patient monitoring, diagnosis, and drug development, the risks are also rising and consequences can be serious or even fatal. For instance, flawed or biased AI algorithms could result in misdiagnosis, leading to serious illness or loss of life.

Other industries most at risk of the adverse effects of AI technology over the next eight to ten years are 'mobility and transport' and 'energy and utilities', which rank second and third respectively. The mobility and transport sector will be highly exposed to AI risk, largely through the use of AI-powered connected and automated driving which poses challenges in highly diverse urban settings. Energy is likely to be another sector to utilise AI extensively, particularly as the ongoing net-zero transition necessitates electrification and the creation of smart grids.

Pravina Ladva, Group Chief Digital & Technology Officer at Swiss Re, said: "The benefits of AI are significant for a broad range of industries, but there are also risks that can lead to potential vulnerabilities. Given its role as a shock absorber, the re/insurance industry has an important role to play in addressing AI-related risks and helping build the digital trust needed to harness the full potential of such emerging technologies."

Swiss Re Institute's publication "Tech-tonic shifts: How AI could change industry risk landscapes"

That’s according to the 2024 Global Food and Beverage Risk Outlook, published by WTW.

Navigating turbulence and potential disruption has become the new normal in the sector, against a backdrop of global instability, conflicts, climate change and the cost-of-living crisis.

Companies are understandably cautious in their outlook. More than 4 in 10 (41%) food and beverage companies feel the need to increase liquidity among their top strategic objectives for the next two years, giving them the financial firepower to manage through any further shocks. Other priorities include reducing costs (38%) and stabilising the business (35%).

Additionally, companies are growing doubtful over their ability to keep pace with the rapid change of consumer tastes and preferences, named as a risk by a third of companies (36%). But this is also an area of opportunity, as firms pivot to take advantage of latest consumer trends.

More than half of businesses (53%) said embracing sustainability and health and wellness was a leading opportunity. In comparison to 2022, there is less enthusiasm for plant-based meat substitutes and increased interest in gut health, nutrition and sustainable production among consumers.

Despite challenges, food and beverage businesses are taking action to build resilience, with 47% reviewing their business continuity plans every six months and 31% quarterly. However, more than a quarter of businesses (29%) said their insurance includes damage to property only in the event of extreme weather, with no cover for business interruption, which is a key factor in recovery and resilience.

Simon Lusher, Global Food and Beverage Leader at WTW said: “Many of the challenges food and beverage firms face today are of a different order from those they have overcome before. Geopolitical instability, conflicts and cost-of-living crises, alongside climate change, digitalisation and keeping up with the needs and wants of consumers is getting harder in a fast-changing world.

“While our survey shows that businesses are taking steps to become more resilient in the face of these challenges, as part of the process it’s a good idea to reassess the critical issues in the business, areas of focus, how they can manage the key risks they face, and where they might need more protection. That way, businesses are prepared for almost every outcome and operations can keep moving forward.”

Sarah Coles, head of personal finance, Hargreaves Lansdown: “As politicians limber up for an election race, they’ll be hoping to kit themselves out with the policies that stand them in the best possible stead to get them first past the post. With money so tight for so many millions of people, and so much uncertainty for us all, all eyes will be on the impact on our finances. There are ten key things to watch.”

Helen Morrissey, head of retirement analysis, Hargreaves Lansdown:

1. The state pension

"The future of the state pension – most notably the triple lock – is a major issue. There’s support for it from both Labour and the Conservatives, but it’s a divisive policy with younger generations shouldering the ever-burgeoning cost. Recent research from HL showed just 16% of the 18-34 age group would be more likely to vote for a party pledging to keep the triple lock. This compares to 54% of the over 55s.

Regardless of who wins this election, people need certainty as to what they will receive from the state pension, and when, and we need a long-term plan. The eventual victor needs to implement a review of the state pension system and the triple lock’s role within it to give people comfort that they can plan for their future without any nasty surprises.

2. Auto-enrolment

Auto-enrolment into workplace pensions has been a great success so far, but it needs to go further. The AE Extension Bill has the capacity to do this, as it enables people to be auto-enrolled from the age of 18, as well as allowing pension contributions from the first pound of earnings.

The Bill received Royal Assent last year, but all has gone quiet since, with the Pensions Minister admitting it might not be implemented for some time. However, it’s an important issue and it’s to be hoped this is prioritised by either party post-election.

3. Lifetime Allowance – and broader pension taxation

The outcome of the general election will bring some much-needed clarity on the Lifetime Allowance. The Conservatives scrapped it, but Labour has said it wants it reinstated. As yet, we don’t know how they would do this. Such confusion brings unnecessary complexity to people’s long-term planning, and we look forward to its resolution. Any reform of the pension tax system should be done with the aim that people are properly incentivised to save for their futures, without having to worry about being tripped up by complex rules.

4. Annuities

The annuity market has been riding high in recent years off the back of interest rate rises. The most recent data from HL’s annuity search engine shows a 65-year-old with a £100,000 pension could get an income of more than £7,100 per year from a single life level annuity. The expectation is that as interest rates start to decline then so will annuity incomes. However, given that a general election makes the prospect of a rate cut less likely this summer then we could see annuity rates stay higher for a bit longer.”

Mark Hicks, head of Active Savings, Hargreaves Lansdown:

5. Savings

“The savings market moved quickly in response to the election announcement. The Bank of England is going to want to skip changing the base rate around the time of an election, to avoid the risk it becomes politicised. As a result, the savings market has now fully priced in a delay to September. Before the announcement, August was still a reasonable possibility, and June was an outside chance. All that has changed.

Savers could stand to benefit, because it could mean a pause in rate cuts, so easy access savers would continue to earn rates at or above 5% for a while longer. If you have cash you can tie up for a period, it also opens the window of opportunity, because fixed rates around 5% could hang around for longer too. However, it’s still worth acting sooner rather than later. The last week or so has shown how quickly expectations can change, so it’s worth taking advantage while you can.”

Susannah Streeter, head of money and markets, Hargreaves Lansdown:

6. Investments

“The next few weeks might see some market ups and downs, because investors don’t like uncertainty, and the run up to a General Election always brings its fair share of that. However, the markets are relatively politically agnostic, particularly the FTSE 100 with its international focus, so whoever wins, it will settle down. As always, it’s worth taking a long-term view. A decisive victory by one side or the other will tend to bring more settled markets than a close-run thing.

7. ISAs

The other thing investors should keep an eye out for is ISA announcements. ISAs are increasingly important to the UK investor at a time of rising taxes. Labour has spoken about the need for simplification in the past, while the Conservative government is currently consulting on the British ISA. It will be interesting to see how this shakes out, and we can only hope that any changes end up making the range even simpler and easier to use, rather than accidentally introducing needless complications.”

Sarah Coles

8. Tax

“Jeremy Hunt has already pledged that the Conservatives will move gradually towards lower taxation, and you can expect Labour to have tax firmly on the agenda too. Right now, neither party has a vast amount of cash to play with, so we might end up with vague promises about general approaches rather than any very specific tax cut pledges at this stage. They will also have to factor in the real pressure on public services. ONS figures show that almost as many people are as worried about the state of the NHS (88%) as they are about the money in their pockets (89%).

We have seen taxes on investments increased over the past couple of years, so there’s the hope that whoever wins the election will revisit that decision and whether it’s the right thing to encourage investment within the UK. This is also an opportunity to consider cutting stamp duty, to further support retail investors.

9. Property

The struggle to afford a place of our own means that housing is has been named by the ONS as the fourth biggest issue facing the UK at the moment, with two thirds of people worried about it. It hasn’t taken centre stage yet, but it will have a time in the spotlight. Incentives for first-time buyers may well be part of the picture, and there’s the hope that any new government will revisit the Lifetime ISA, including the limit on the value of property that can be bought through the scheme. This hasn’t changed since the LISA launched, and without a link to house prices, it risks falling behind.

10. Mortgages

Now that the forthcoming election has pushed rate cut expectations back as far as September, it’s going to mean bad news for anyone on a variable rate deal. Plenty of people remortgaged to these more than six months ago, in the hope that a rate cut was around the corner, so yet another delay will be a real blow. For those on a fixed rate mortgage, who need to remortgage in the near future, the picture is equally bleak, because fixed rate deals are unlikely to be falling any time soon.”

Danny Vassiliades, Partner at XPS Pensions Group, commented: “The ONS has today announced that CPI inflation fell to 2.3% in the year to April 2024, the lowest annual rate since July 2021. All eyes are now turning to the potential timescale of interest rate cuts, with hopes buoyed by the deputy governor of the Bank of England’s comments that summer cuts are “possible”.

Falling inflation represents good news for many private sector defined benefit members who have recently experienced inflation above their maximum guaranteed pension increases for the first time in decades. With the lowest such guarantees typically around 2.5%, defined benefit pensioners will be hoping that inflation remains at its current levels to protect against a repeat of the real income cuts they have experienced over the last two years.”

Chris Arcari, Head of Capital Markets, Hymans Robertson, said: “Headline inflation fell to 2.3% year-on-year in April, from 3.2% in April, but by less than expected (the BoE and economists had expected inflation to fall to 2.1%). We still expect headline inflation to fall close to, or even below, target in the coming months, as energy prices and goods and food price disinflation weigh on the year-on-year comparison. However, we expect the Bank of England to pay close attention core and service-sector inflation, as a better guide to underlying inflation pressures.

Today's announcement marks the 12th transaction since the Fund entered into an umbrella agreement with Legal & General in 2014. To date, Legal & General has completed transactions totalling £7 billion in aggregate with the Fund and covers around 70% of the Fund’s total liabilities.

Legal & General's long-standing relationship and collaborative approach with the Trustee ensured a smooth and efficient transaction to meet the Fund’s de-risking objectives.

LCP and Allen & Overy have advised the Trustee of the Fund on all twelve of the Fund’s buy-ins with Legal & General, Macfarlanes provided legal advice to Legal & General.

It warns that not doing so could leave firms open to potential consequences of non-compliance. These could include the significant financial and time costs to rectify any errors, as well as possible sanctions from multiple regulators. This is because greenwashing risk can be difficult to assess and, therefore, manage effectively. The leading pensions and financial consultancy says, insurers should prepare thoroughly as greenwashing is a focus, not only for the FCA, but for several other regulators in the UK market such as the Advertising Standards Authority. This will likely mean further regulatory scrutiny in the future as the landscape evolves.

Given as much as 90% of international trade is transported across oceans, maritime safety is critical. Thirty years ago, the global shipping fleet lost around 200 large vessels a year. This total fell to a record low of 26 in 2023, a decline of more than one third year-on-year and by 70% over the past decade. However, the fact that shipping is increasingly subject to growing volatility and uncertainties from war and geopolitical events, the consequences of climate change, as well as ongoing risks resulting from the trend for larger vessels means the sector will have its work cut out to maintain this status quo in future, according to marine insurer Allianz Commercial’s Safety and Shipping Review 2024.

“The speed and extent of the way the industry’s risk profile is changing is unprecedented in modern times. Conflicts such as in Gaza and Ukraine are reshaping global shipping, impacting crew and vessel safety, supply chains and infrastructure, and even the environment. Piracy is on the rise, with a worrying re-emergence off the Horn of Africa. The ongoing disruption caused by drought in the Panama Canal shows how the changing climate is affecting shipping, all at a time when it is having to undertake its most significant challenge, decarbonization,” says Captain Rahul Khanna, Global Head of Marine Risk Consulting, Allianz Commercial.

Southeast Asia emerges as maritime region with highest total losses

During 2023, 26 total losses were reported globally compared with 41 a year earlier. There have been more than 700 total losses reported over the past decade (729). The South China, Indochina, Indonesia and the Philippines maritime region is the global loss hotspot, both over the past year and decade (184). It accounted for almost a third of vessels lost last year (8). The East Mediterranean and Black Sea ranks second (6) with activity up year-on-year. Cargo ships accounted for over 60% of vessels lost globally in 2023. Foundered (sunk) was the main cause of all total losses, accounting for 50%. Extreme weather was reported as being a factor in at least 8 vessel losses around the world in 2023, with the final total likely higher.

The number of shipping incidents reported globally declined slightly last year (2,951 compared to 3,036), with the British Isles seeing the highest number (695). Fires onboard vessels – a perennial concern – also declined. However, there have still been 55 total losses in the past five years, and over 200 fire incidents reported during 2023 alone (205) – the second highest total for a decade after 2022. Fires remain a key safety issue on larger vessels given the potential threat to life, scale of the damage, and the fact associated costs can be severe, a factor contributing to the long-term increase in the cost of large marine insurance claims.

Consequences of geopolitical conflicts
Recent incidents, such as in the wake of the conflict in Gaza, have demonstrated the increasing vulnerability of global shipping to proxy wars, disputes and geopolitical events, with more than 100 ships targeted in the Red Sea alone by Houthi militants in response to the conflict. Disruption to shipping in and around the region has persisted and is likely to remain for the foreseeable future. The re-emergence of Somali pirates, following their first successful hijacking since 2017, is an additional cause for concern.

“Both the war in Ukraine and the Red Sea attacks have also revealed the increasing threat to commercial shipping posed by new technology such as drones, which are relatively cheap and easy to make, and difficult to defend against without a large naval presence,” says Khanna. “Looking to the future, more technologically driven attacks against shipping and ports are also a distinct possibility. Reports of vessels experiencing GPS interference are increasing, particularly in the Strait of Hormuz, the Mediterranean and the Black Sea.

The report also notes that in the three years since Russia invaded Ukraine the gradual tightening of international sanctions on Russian oil and gas exports has contributed to the growth of a sizable ‘shadow fleet’ of tankers, somewhere between 600 to 1,400 vessels. “These are mostly older, often poorly maintained vessels that operate outside international regulation, often without proper insurance. This situation presents serious environmental and safety risks,” says Justus Heinrich, Global Product Leader, Marine Hull, Allianz Commercial. Vessels have been involved in at least 50 incidents to date, including fires, engine failures, collisions, loss of steerage, and oil spills. “The cost of dealing with these incidents often falls on governments or other vessels’ insurers if one is involved in an incident.”

Rerouting brings risks and environmental challenges
Attacks against shipping in Middle East waters have also severely impacted Suez Canal transits – down by more than 40% at the beginning of 2024 – and trade. Coming so soon after the ongoing disruption caused by drought in the Panama Canal, this amounts to a double strike on shipping, causing yet more issues for global supply chains. Whichever alternative routes vessels take, they face lengthy diversions and increased costs, also impacting their customers. Avoiding the Suez Canal adds at least 3,000 nautical miles (over 5,500km) and 10 days sailing time, rerouting via the Cape of Good Hope.

Rerouting also impacts the risk landscape and the environment. Storms and rough seas can be more challenging for smaller vessels used to sailing coastal waters, while infrastructure to support an incident involving the largest vessels, such as a suitable port of refuge or a sophisticated salvage operation may not be available. Environmental gains may be lost as rerouted vessels increase speeds to cover longer distances. Red Sea diversions are already cited as being a primary contributor to a 14% surge in emissions in the EU shipping sector this year.

Green shipping challenges
Shipping contributes around 3% of global emissions caused by human activities and the industry is committed to tough targets to cut these. Reaching these targets will require a mix of strategies, including measures to improve energy efficiency, the adoption of alternative fuels, innovative ship design and methods of propulsion.

Decarbonization presents various challenges for an industry juggling new technologies alongside existing ways of working. For example, the industry will need to develop infrastructure to support vessels using alternative fuels, such as bunkering and maintenance, while at the same time phasing out fossil fuels. There are also potential safety issues with terminal operators and vessels’ crew handling alternative fuels that can be toxic or highly explosive.

“Increasing shipyard capacity will also be key as the demand for green ships accelerates. Such capacity is currently constrained with long waiting times and high building prices,” says Heinrich. Over 3,500 ships must be built or refitted annually until 2050, yet the number of shipyards more than halved between 2007 and 2022. “Capacity constraints on shipyards could have a knock-on effect for repairs and maintenance, with damaged vessels or those with machinery issues potentially facing long delays.” Machinery damage or failure is the most frequent cause of shipping incidents, accounting for over half of these globally in 2023 (1,587).

As the firm releases the latest update to their 2024 Corporate Valuation series, improved funding levels, following on from an unprecedented rise in yields, present an opportunity for DB schemes. However, many do not have appropriate plans in place to ensure efficient use of any emerging surplus, which leads to “trapped surplus”.

“For those schemes where the employer’s long-term objective is to target a run-on strategy, the idea of a trapped surplus is less likely to be an issue. However, for those targeting an insurance buy-out, and are reasonably close to reaching this, a 2024 valuation discussion is a welcome moment of reflection, particularly when viewed in tandem with the potential forthcoming legislative changes signposted by the DWP.

“We would urge employers with DB schemes and 2024 valuations to review their surplus framework as part of their negotiations. In our experience trustees are supportive of these discussions and recognise that the risk of trapped surplus. If this is not managed it could lead to unhelpful sponsor thinking and decision making. It is in everyone’s interests to solve this issue.”

The latest drop in the inflation rate to 2.3% will be widely welcomed as a sign that price inflation is finally getting back under control, helping alleviate the cost-of-living crisis and hopefully paving the way to future falls in interest and mortgage rates. It’s also significant for the State Pension Triple Lock, which grants State Pensioners an annual increase equal to the highest of price inflation, earnings growth or a minimum rate of 2.5%.

“For the April 2024 increase, earnings growth in 2023 produced an inflation-busting 8.5% increase. In April 2023, a spike in inflation the previous year led to a record-breaking 10.1% boost to the State Pension. These increases and the underlying high volatility that was present in both price inflation and earnings growth, have since raised serious questions over longer term affordability of the State Pension, which is paid for by today’s workers.

“With inflation having now fallen below the 2.5% underpin, it’s likely to be earnings growth that determines next year’s Triple Lock increase, as the latest figures have this sitting at 5.7% (for January to March 2024). The specific figure used for determining the Triple Lock will be the year-on-year increase in earnings for the period ending May to July 2024, which will be published in September. Barring a significant drop in earnings growth over the next few months, this figure will likely determine next year’s Triple Lock.

“If price inflation stays low and earnings growth also gradually falls back to levels more typical of the last decade, then the State Pension Triple Lock formula may produce more predictable and affordable increases. This will make it less costly for the next Government to commit to maintain it for a further 5 years. We may see lower rates of increases, but in times of lower inflation, the State Pension doesn’t need to increase by as much to allow pensioners to maintain living standards.

“However, rather than a three-way comparison year on year, we’d recommend averaging the earnings component over a three-year period, which could smooth out excessive volatility and help ensure intergenerational fairness.”

Poorly performing pension schemes will come under ever greater regulatory scrutiny to ensure they meet TPR’s expectations, Ms Delfas told pensions experts in a keynote speech.

She said: “Regulatory compliance is not optional. You will see a step-change in our enforcement approach – going out into the market, at scale, to ensure schemes have high quality data and deliver value for members.

“The stakes have never been higher. Savers will soon be interacting with their personal data as never before through pensions dashboards and the Value for Money framework.

“Failure to meet the deadlines is not an option. That is why we will be engaging hundreds of schemes asking them to account for how they are measuring and improving their data and will be taking action where trustees are failing to meet our expectations."

Recognising that pensions are changing towards fewer, larger schemes TPR will be more forward-looking, to enhance the market, and supportive of innovation.

Ms Delfas added: “I see a role for us to play not only in tackling harm but as a convenor, critical friend and supporter of future market development. Our approach to the market will not be static because we will be flexible and responsive to risks as they emerge.”

She set out TPR’s regulatory roadmap for pensions which drives value for DC savers, security for DB members and higher standards of trusteeship for all.

Not knowing where your pensions are held can lead to you losing track of them, which can affect your retirement income.

Survey of 2,000 people conducted by Opinium on behalf of HL in April 2024.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown: “It’s easy to put off tidying up our pension admin, but doing so risks us losing out in retirement. Almost 40% of people admit they don’t know where their pensions are held, and this puts them at extra risk of losing track of them altogether.

The problem lessens as we get older with only 8% saying they definitely don’t know where all their pensions are held – however a further 18% admitted they aren’t sure. The problem gets much worse for younger people with almost half of the 18-34 age group admitting they either don’t know or aren’t sure where their pensions are held. This could be because older generations have been less impacted by auto-enrolment and so have fewer pensions to begin with. Others may have decided to keep track to minimise the risk of losing them in the run up to retirement.

You might not stay in a role for very long and so think it doesn’t really matter if you lose track of a pension. However, small pensions grow over time and so not keeping track of them could leave you thousands of pounds out of pocket when you come to leave work. The most recent data from the Pensions Policy Institute estimates there is around £26bn of lost pension money washing around the system, with the average lost pension being worth over £9,000 – so it’s well worth keeping track!

Auto-enrolment means many of us will get a new pension with every job we do so we could end our working life with multiple pots. The government is looking at how to introduce a Lifetime Pension whereby people can choose the pension they want their employer to pay contributions into. This will go a long way towards helping people keep track of their pensions, although this will take time to implement.

In the meantime, there are things you can do to make sure you aren’t losing track of all important pension money. Take the time to make a list of where you’ve worked and check to see if you have pension paperwork for each one. If not, contact the Government’s Pension Tracing Service and they will help you find contact details.

Once you’ve tracked your pensions down, it might be worth consolidating them into a SIPP. Having one overarching view of your pension can lead to better retirement decision making and give you a clearer idea of what you have. However, make sure you aren’t missing out on any valuable benefits, such as guaranteed annuity rates, or incurring expensive exit penalties by doing so.

With the most recent HL Savings and Resilience Barometer showing that only 39% of households are on track for a moderate retirement income it is clear we must do all we can to make the most of our savings. Keeping tabs on where we are saving as we go through our working life is an all-important first step.”

The findings came when Aon polled the almost 500 attendees of its annual conferences which took place at six venues across the UK.

Aon asked attendees about their views on the future of pensions in the UK. An overwhelming 94 percent of respondents indicated that UK pensions required some form of further change, with 31 percent expressing pessimism regarding the system. Despite the unprecedented amount of regulatory change experienced in the last few years, just 6 percent of respondents were optimistic about the UK pensions system as it currently stands.

These responses also reflect the findings of the Aon Global Pension Risk Survey (GPRS) 2023/24 which highlighted the industry’s concern with the risk posed to trustees and sponsors from the pace and volume of regulatory change that has recently occurred. This concern featured in the top four for the pensions industry - ahead of more traditional defined benefit (DB) pension scheme risks such as liquidity and sponsor covenant.

When respondents were asked in which areas they wanted to see the Government and the Pension Regulator make changes, the responses were wide-ranging. The top four priorities (respondents could select more than one option) were cyber risks (42 percent), defined contribution (DC) small pot consolidation (36 percent), dashboards (34 percent), and DB refunds of surplus (34 percent)

Matthew Arends, partner and head of UK retirement policy at Aon, said: “Despite significant regulatory change to the UK pensions system in the last few years to both DB and DC pensions, it is sadly telling that over 90 percent of respondents stated that the UK requires yet further changes to its pension system.

“These results are all the more pertinent given that Aon’s Global Pension Risk Survey showed that regulatory burden and political uncertainty are big concerns for schemes. Respondents to the GPRS highlighted both the volume of regulatory change already required of schemes and the full pipeline of changes that are on the way as creating significant resource challenges. Even with this background, our pension conference attendees overwhelmingly responded that further change is needed.”

Matthew Arends continued: “Navigating regulatory volatility is inevitably a concern for schemes, with trustees and sponsors facing challenges in ensuring risks and opportunities are prioritised appropriately. Even so, further changes to the system are still perceived as a way to provide better outcomes."

The study revealed that knowledge gaps have led to a number of misconceptions, the most prominent being that each person’s National Insurance contributions are kept in a personal pot to be accessed when they reach state pension age, when in reality is funded on a pay-as-you-go system by current taxpayers. This was a strongly held belief that impacted people’s views about the fairness of the system.

Will the state pension be enough to fund my retirement? “The reality is there’s a significant gap between what you get from the state pension and what you may actually need or want in retirement. The state pension alone falls short of even a minimum standard of living in retirement according to the Pensions and Lifetime Savings Association (PLSA) and because it only starts in your late 60s, won’t help to support you if you want to retire earlier. It should therefore only form part of your overall retirement plan, and so it’s important to fully understand how much you might need to save into your personal or workplace pension plan to potentially be able to afford the retirement you want. To give you some idea of this, try using a pension calculator which can help you see if you’re on track.”

80% of FTSE100 companies had an accounting surplus on their 2023 balance sheet. While there has been a reduction of £25bn in the surplus from the beginning of 2023 up to the end of the year due to corporate bond movements, valuations for assessing the funding requirements of pension schemes have remained broadly stable.

Other key findings in the report are:

• At 31 December 2023, within the FTSE100 alone, over £250bn of UK pension scheme assets were tied up in bonds and cash, over 9x the amount invested in equities. This ratio has increased seven-fold in a decade.
• The average pension contribution rate for a FTSE100 CEO is 10%, down from 25% in 2018. Around one in three FTSE100 CEOs are now receiving pension contributions in line with their employees – this is up from around one in seven in 2018. In addition, the number of FTSE100 CEOs receiving more than five times the average rate paid to employees has dropped by around 90% over the same period.
• As in previous years, the assumptions connected to life expectancy and how it is projected to change in the future are the most challenging of the accounting assumptions to set objectively and the area where we see the greatest divergence from company to company.
1 in 5 FTSE100 schemes have undertaken an insurance transaction of some kind in 2023 and with strong scheme funding levels, more schemes are looking at their endgame options.

LCP are urging finance directors to incorporate accounting implications into strategic decisions early in the process and to better communicate what pensions accounting surpluses tell investors about the company. Different endgame options have different accounting implications which could impact the sponsor’s debt ratios or cause accounting volatility and have other business impacts.

An accounting surplus has many benefits. The better funded a scheme is, the lower the risk of unexpected cash calls to the sponsor and scheme investments only need to provide AA corporate bond returns in future. This would mean no further contributions would be needed to pay all member benefits. Finance Directors also need to message carefully if they expect to buy-in any time soon. The focus of the messaging then needs to be around management of risks.

Luke Hothersall, Partner at LCP, commented: “From a financial perspective relatively benign conditions means pension surpluses that have emerged over recent years are beginning to look embedded. This relative stability presents an ideal platform for sponsors to review their pensions strategy, and in particular what “endgame” they are targeting for their pension scheme.”

Phil Cuddeford, Partner at LCP, added: “For years, the direction of travel has been towards lower risk and ultimately getting the scheme off the corporate balance sheet by insuring it. There are now a wealth of endgame options and while accounting implications shouldn’t determine corporate pensions strategy, Finance Directors need to actively manage the messaging of accounting surpluses to the markets, rating agencies, and investors.

LCP The New Normal report

By Sarah Pritchard, Executive Director, Markets and Executive Director, International at the FCA speaking at City & Financial Global's City Week 2024

I’m going to let you into a secret.

A fact not known widely about me is my hobby of outdoor cold water swimming.

While getting up early sometimes to delve into icy waters is not everyone’s idea of fun, for me there is a certain exhilaration about those first steps into the water and braving the elements.

This is not a risk free activity – quite the opposite in winter without a wetsuit.

The challenge is in preparing for the elements, being alert to the level of risk, looking at the water thermometer, listening to feedback from my fellow swimmers and my body to work out how long to stay in for – and keeping to a steady rhythm whether the water be covered with ice, or a comparatively balmy 20 degrees.

I have developed a rather consistent and predictable technique for maintaining stamina throughout the winter months – rounding off each swim with a nice warm drink to gently warm up.

I take the same approach to my job. While the economic and financial weather may not always be calm and sunny, we need to make sure that our rules work and can adapt for all types of challenges and can cope with some serious buffeting, at the worst of times.

I also know that regulatory certainty and predictability is important – as well as our ability to adapt and focus on outcomes – whatever the external environment.

Regulation to support efficient capital markets

The FCA is committed to making sure that regulation – and the way we operate as regulators – supports the UK’s position in global wholesale markets as well as facilitating the UK’s economic growth and international competitiveness. As we look to our ambitious agenda for regulatory reform – we start from a strong place.

London is second only to New York in the latest Z/Yen rankings of global financial centres.

But that does not mean there is no scope for further efficiency or indeed reform, and reform which involves a different balance of risk. You will have seen that across the capital markets agenda we are doing just that, through a package of reform which has been well signalled since various government led reviews examining the strength of the UK’s wholesale markets in 2021 – and which are now at the implementation phase.

The reforms include the most significant changes to our listings regime in 40 years, with proposals that would do away with the current separate categories of premium and standard listings for commercial companies in favour of a single category, which will operate with more of a disclosure based philosophy instead of ex-ante controls.

The proposals aim to support investors to make their own decisions on risk and where to invest, based on appropriate disclosure and other safeguards to preserve market integrity and investors’ decision making.

We hope that these reforms will help to boost the UK growth and competitiveness by making our regime more attractive to a wider range of companies, so they are encouraged to list and grow here and so that our framework better aligns with international comparators.

But as we know that these reforms will involve a different balance of risk we have sought to engage extensively across the market, including with investors, to build as much consensus as possible before we reach our final decisions by the summer.

We also know that while regulation can provide the foundations for a successful capital market, it will not necessarily by itself achieve that – other factors are relevant too.

Proportionate capital markets reform
As we take the opportunity of the new smarter regulatory framework, we are busy working on incremental changes where change is sensible to support our objectives – albeit this is not simply change for change’s sake.

We are grasping the opportunities and ambition set out by the government in the Edinburgh reforms. Through reforms that establish a new consolidated tape for bonds, which should result in cheaper, higher quality and more accessible data for its users. To changes to the bond and derivative transparency regime – which aim to recalibrate the regime to drive greater transparency but at a lower cost, for trading venues and investment firms, through more proportionate and better calibrated requirements.

Our work seeks to support transparency through disclosure of relevant, prompt and quality information to investors. This would strengthen investors’ abilities to make decisions and support price formation, market participation and confidence in markets. But in a proportionate manner and cost.

We also know that one size doesn’t always fit all – which is why we have acted quickly in response to the Government-commissioned Investment Research Review, chaired by Rachel Kent, to support greater optionality around how firms can pay for research.

Our proposed reforms seek to give asset managers and others greater flexibility on how they buy research. This greater choice should suit firms of varying business models and sizes, helping to promote competition. It will allow the ‘bundling’ of payments for third-party research and trade execution, and would exist alongside those already available, such as payment from an asset manager's own resources or from a dedicated account.

The new plans are also compatible with rules governing research payments in certain other major jurisdictions, making it easier for asset managers to buy research in the same way, across borders.

Predictable but future focused regulation
Markets are never static and to be efficient they must be able to adapt.

Our shift to outcomes focused regulation is deliberate – we believe that this approach will better support innovation and changing markets, supporting the UK’s growth and competitiveness and helping markets remain efficient.

To be a success, predictability and agility is important. This is not as incongruous as it sounds.

We want to take the opportunity of the reform that is underway, to be as future facing as possible. I do not want us to be regulating for problems of the past – rather using the lessons from the past to help us set the framework and outcomes that we want to see – balancing our objectives for the future to support markets as they develop.

AI is a case in point. We will not be regulating for regulation’s sake and will be guided by our outcomes-driven approach. But we must provide certainty and encourage the safe adoption of AI in UK finance markets, so we must also look at digital infrastructure, resilience, consumer safety and data.

Innovation and international engagement
The FCA innovation services are world leading. Our innovation sandbox is 10 years old this year, and our sandbox model has been replicated by over 95 international regulators.

While the number of applications from wholesale firms, in comparison to all applications, is not as high as we would like as they may not be aware of the opportunities, wholesale firms are in the top 4 sectors that accessed our innovation services in 2023.

Areas where we are providing support are in Distributed Ledger Technology and blockchain technology, mobile application and web platforms, AI and machine learning and Application Programming Interface.

We are also working with leading industry and academic experts to understand future market developments. This year, for example, we have published a paper on Quantum Security with the World Economic Forum, and a paper of Synthetic Data best practice through our Synthetic Data Expert Group.

Our innovation offerings test and encourage innovation and future competitiveness and are a key offering which helps to support new market developments. Through our Early and High Growth Oversight approach we have supported more than 300 newly authorised firms to understand their obligations and meet the standards we expect, particularly innovative firms which may need more support.

The schemes help us understand and adapt to financial technology trends, provide expertise and insights, support agile regulation and enable global thought leadership on innovation. We support new beneficial and responsible business models and services being launched.

A recent paper published in 'Review of Finance' Journal found that firms entering the Regulatory Sandbox see an increase of 15% in capital raised and are 50% more likely to raise capital than their peers, as well as the Sandbox having 'significant positive effect on survival rates and patenting'.

Supplementing our domestic sandboxes and innovation offerings we lead and chair the Global Financial Innovation Network (GFIN) – a global sandbox if you like – bringing together more than 80 members globally, from member jurisdictions which represent around 44% of global GDP.

The GFIN looks to give a more efficient way for innovative firms to interact with regulators, helping them navigate between countries as they look to scale new ideas. This includes the ability to conduct a cross-border test – a solution for firms wishing to test innovative products, services or business models across more than one jurisdiction.

It also aims to create a new framework for co-operation between financial services regulators on innovation related topics, sharing different experiences and approaches.

We have also taken a leading role in areas like environmental, social and governance (ESG) labelling and the Sustainability Disclosure Regime where industry has welcomed our proposals and asked other jurisdictions to follow our lead.

Innovation is key in ensuring our capital markets are, and remain, efficient. And we are committed to continuing to support this – whether that be through regulation (if that is needed) or by a test and learn philosophy through our innovation offerings and international partnerships.

Working together in a changing world
While we concentrate on supporting a healthy and efficient market sector in the UK, we cannot ignore what seems to be an increasingly turbulent geo-political world. Of course, we cannot control world events or the rapid pace of change across economies. We live in sometimes staggering times of technological change, changing demographics and international marketplaces.

There are often differing regimes in place internationally but as the world economy and financial markets are ever more global, we are leading the way in key areas where international cohesion is most important such as digitisation and crypto. We also maintain close relationships with international partners on market risk – which often arises across border.

Having worked in global roles in an international bank, I understand how important it is to be able to have as straightforward an operating model as possible across international borders – and how the ability to do so depends on as consistent standards as possible.

Agreements internationally are never easy and defining rules at home can be challenging too as firms often have different views about what the framework should be, depending on their operating model and geographic footprint.

So how we set rules, test them and engage with the market is vital.

You will have seen us increasingly convene roundtables to discuss our consultation proposals – and sometimes seek to test various options during our consultation process. We want to test that our regulation will drive the right outcomes.

Input from the market as we design our future facing rules is key to avoiding unintended consequences or worse, taking a hammer to crack a nut. Confidence in the market is essential, underpinned by a clear regulatory regime.

On that note, I want to say that I know there have been concerns about our proposals to announce the fact of some enforcement investigations earlier on in the process where it is in the public interest to do so. We recognise that this is a sensitive and emotive issue so we will take time to consider the feedback, engage further with industry and explore thoroughly the concerns and evidence shared with us, with an aim of reaching a broad consensus.

Be assured that we do listen. We are evidence-led so will only act where a failure to do so would cause harm to consumers and undermine the integrity of our markets.

Before I wrap up, I wanted to thank you all for your time today. And for your robustness in engaging with us on our reform agenda, as well as the way we operate, so that we can support the continuation of effective and efficient capital markets.

I welcome that input and engagement.

Please keep speaking to us. It shouldn’t be arduous work. I would like it to be more like the experience of having a warm cup of tea after a challenging outdoor swim.

“Whilst the IMF has on the one hand claimed a ‘soft landing’ is in sight and upgraded growth forecasts from 0.5% to 0.7% in 2024, it remains downbeat about longer term prospects, citing weak labour productivity and higher than expected sickness levels, as the number of economically inactive due to sickness has topped 2.8m. Labour markets are rightly a real focus of its attention, with persistently high wage inflation potentially acting as a barrier to faster and deeper interest rate cuts, amidst skills shortages, higher inactivity and an ageing population. The IMF rightly highlights that migrant numbers are offsetting this to some degree, even as current policies leave many well-qualified migrants unable to have their credentials recognised in the antiquated UK system.

“Encouraging the Treasury to expand the tax net to the tune of £30bn by re-working road taxation, broadening the VAT and inheritance tax base and reforming property taxation, the IMF want to see higher tax receipts to offset the challenge of a growing burden on the public purse, and one it does not believe the UK can currently afford. With taxation already at multi-decade highs at a time of crumbling service provision, news of potentially higher taxes simply to pay for departments at their existing service levels will be bleak reading to many. However, the writing has been on the wall for several years and should come as no surprise to the Treasury, which simply holds itself to fiscal rules that dictate it must bring down borrowing as a percentage of GDP over a rolling five-year basis, a D-day that continuously drifts away and leaves public finances in a permanent state of deniable distress.

“The question will be whether the government that takes the reins by early 2025 is ready to be honest with the public that the UK faces a difficult choice – either accept higher taxes are here to stay, for effectively no improvement in service levels, or expect an awful lot less from the state. The reality is of course that no politician is likely to be brave enough to admit this – meaning the UK economy is likely to struggle on with inadequate funding for over-ambitious services and leave voters in a perpetual state of frustration.”

The UK continues to be Europe’s most attractive location for foreign direct investment (FDI) into financial services – and has accelerated its lead over other European markets – according to EY’s latest Attractiveness Survey for Financial Services. The UK attracted 108 financial services projects in 2023 – an increase from 76 projects in 2022 – and has extended its lead over second-placed France, which secured 39 projects in 2023, down from 45 in 2022.

Germany came in third place, recording 38 financial services investment projects in 2023 – seven more than in 2022. In fourth place, Spain’s 17 projects were down from 31 in 2022.

Total financial services FDI across Europe grew to 329 projects in 2023 from 292 projects in 2022 – an increase of 13% year-on-year. This growth outpaced overall (financial and non-financial) European FDI project growth, which saw a 4% decline during the same period, and contrasts with other professional services sectors, such as tech / digital and business services, which both experienced year-on-year project number declines of 19% and 27% respectively.

The UK is now home to a third (33%) of all European financial services FDI projects, having boosted its market share from 26% in 2022. By comparison, France and Germany each secured 12% of Europe’s financial services FDI projects, and Spain secured 5%.
UK records increase in ‘new’ financial services projects and reaches highest market share of new projects in a decade

Alongside the expansion of existing projects, the number of new financial services projects across Europe and the UK reached its highest level since 2019, rising to 233 projects in 2023 from 215 projects in 2022. The UK recorded 85 new financial services projects in 2023, representing a 25% increase from the 68 projects in 2022, and resulting in the UK market share of new financial services projects rising from 32% in 2022 to 36% in 2023 – the highest level in a decade. In comparison, Germany attracted 32 new projects, up from 12 in 2022, and France secured 22 new projects, down from 26 the previous year.

Job creation linked to financial services FDI increased throughout Europe in 2023, particularly in the UK, followed by Poland and Portugal. Of the projects that disclosed headcount numbers (both new and existing projects), 12,675 jobs were created through financial services investment projects across Europe in 2023 – an increase of 18% from 10,708 in 2022. In the UK, 5,019 jobs were created in 2023 – a sharp rise of 93% from 2022 (2,603 jobs) – meaning the UK generated 40% of all jobs created in Europe last year. 3,259 jobs were created in Poland, 1,340 in Portugal, 1,243 in France, and 418 in Spain.

Anna Anthony, EY UK Financial Services Managing Partner, comments: “The UK didn’t just maintain its lead as the most attractive European financial services market last year, it extended it significantly. Even through challenging macroeconomic conditions and geopolitical uncertainty, the stability of the UK’s financial services sector has ensured foreign investor confidence remains strong.

“However, competition is fierce – both from European peers and further abroad – and increasing market attractiveness must be a top priority for both industry and government. Efforts to boost attractiveness should build on our strengths and focus on what matters most to investors; including shaping future frameworks to drive innovation, leading on gold-standard regulation, and attracting the best local and international talent.”

London remains the main centre for FDI, with more than double the number of projects than Paris
London remains the leading European city for attracting financial services FDI, securing 81 projects in 2023, up from 46 in 2022 (a 76% increase). London’s total number of financial services projects in 2023 was more than double that of second-placed Paris (31 projects), which saw an annual 11% decline (35 projects in 2022 to 31 projects in 2023). Madrid placed third, also recording a fall from 22 projects in 2022 to 11 projects in 2023. Fourth-placed Milan similarly saw projects fall from 16 in 2022 to seven in 2023.
In terms of securing new projects, London attracted the highest number in 2023 (69), followed by Paris (18), then Frankfurt (12), Madrid (10), Amsterdam (8) and Lisbon (8).

However, survey data of investor sentiment finds that Paris is London’s second biggest rival after New York, and investors ranked it above London as the most attractive European city for future financial investment over a three-year horizon.

The US remains Europe’s main source of FS FDI, with the UK the leading recipient
The largest source of financial services investment into Europe in 2023 was again the US, with projects up 15%, from 79 in 2022 to 91 in 2023. This was the highest proportion of US-backed projects in the last decade and represented 28% of all financial projects into Europe. The UK was again the leading recipient of US investment, recording an 81% increase, from 21 projects in 2022 to 38 projects in 2023. Second placed France secured 15 projects from the US in 2023, an increase from 13 projects in 2022.

Omar Ali, EY EMEIA Financial Services Managing Partner, comments: “While FDI in tech and business services sectors fell across Europe last year, it continued to rise in financial services – even amid challenging macroeconomic conditions and geopolitical uncertainty. Foreign investors remain drawn to the trusted capabilities, expertise and skills found in Europe’s major financial centres and place value on the region’s broad business ecosystem that also connects them to leading advisory, legal and tech services. Our future-looking sentiment research finds that investors not only remain confident in Europe’s financial centres today, but that they are looking to increase investment in the region over the next three years – in both established and emerging financial markets.”

The European cities that investors surveyed believe will be the most attractive for financial services foreign investment in the next three years are Paris (40%), London (33%), Barcelona (23%), Zurich and Lisbon (both 20%).

Looking to the future, investors remain confident in the UK and affirm London as most attractive UK region for financial services investment

Further to the European FDI data, a global financial services investor sentiment survey in 2024 examining future investment attractiveness of Europe found that:
• The UK is seen as the most attractive European country for financial services investment in the coming year (40%), followed by France (30%), Germany, (23%) and Spain (20%).
• Three in four (75%) investors think the UK will retain or improve its level of financial services attractiveness over the next three years.
• 57% of investors said they plan to establish or extend financial services operations in the UK over the next year – down from 67% in the 2022 survey.
• The European cities investors believe will be the most attractive for financial services foreign investment in the next three years are Paris (40%), London (33%) and Barcelona (23%).
• The global cities identified as London’s biggest rivals for financial services foreign investment in the next three years are New York (38%), Paris (35%), Frankfurt (30%) and Berlin (30%).
• Investors cite the key areas for future strategic investment as tech and innovation, followed by small and medium sized business support and access to talent.
• At a regional growth level, investors noted they wanted to see regional grants and incentives for investment, a skilled workforce and access to local business partners and suppliers.

It is the world’s largest specialty insurance market – nearly twice as large as its nearest competitor and earns $160 bn in income every year.

Almost three quarters of that is from overseas, making it a key driver of foreign earnings to the UK economy.

The London Market has maintained its overall share of the global (re)insurance market - 7.6% in 2020 increased slightly to 8.3% in 2022.

The London Market Group, the trade body for the specialist commercial (re)insurance industry in London, has published the 2024 edition of its London Matters research. This is the 5th edition of the study and is based on data prepared by Strategy&, a part of the PwC network, and which reviews the size and performance of the London insurance market and gives insight on the key issues that it faces today.

Sean McGovern, Chair of the London Market Group, commented “Although the London Market remains the largest hub of direct insurance and reinsurance when compared to other centres, its rate of growth has been slower than some of its key competitors and over the last decade its market share has remained broadly stagnant. So, we cannot take our place in the world for granted.

“London has historically been a hub of innovation, developing market-leading solutions in areas like cyber. As domestic markets develop their own solutions, however, business tends to migrate from London. To maintain its status, London needs to continue to drive new product innovation in areas like green technology and to ensure it can offer the full range of risk transfer tools.”

“To continue to punch above our weight there is an urgent need to create a regulatory environment that facilitates UK domiciled captives, demonstrating both at home and abroad that the market can respond swiftly and effectively”.

The London Market’s position cannot be taken for granted
• Between 2020 and 2022, the London Market grew by 32%. In the same period, Bermuda saw growth of 39%.
• The market for captive insurance is expected to reach US$161 billion by 2030 – but the UK currently see none of this business.

Talent and skills shortages
Key facts about the speciality insurance workforce from the research.

• Although headcount increased by over 40% in the period 2021-2023, over the past decade the London Market workforce has only grown at c.2% per year, well below the premium growth average of c.7%.
• There are as many people over 50 as under 30 (24% in each age group).
• This compares unfavourably with the financial services average which has 18% of the workforce over 50 and 23% under 30

Caroline Wagstaff, CEO of the London Market Group, said: “The concentration of talent in the London Market is one of its USPs. The intellectual capital and wealth of experience in risk mitigation and transfer amongst London Market businesses means that London provides technical expertise and experience that it is hard to replicate anywhere else.”

“If London is to remain the place where the world brings its risks, we need to take action at both a firm and market level to make specialty insurance a destination career for young people, delivering the diverse thinking that allows us to deliver solutions to current and future challenges.”

London Matters 2024 Full Report

Pension payments are typically linked to inflation, but DB pensions can’t be cut even if inflation is negative. Most often, the increases are also capped, normally at 5%- this is LPI0-5. That means each member is implicitly short an option at 5% and long an option at 0% (and the scheme’s exposure is the other way round). These are options so they have deltas, i.e. they do not move one-for-one with RPI. Intuitively, if 10y inflation were 8%, the cap would always be hit, and there would not be much sensitivity to inflation moving up to 9% or down to 7%. By extension, the sensitivity to inflation changes as inflation moves up or down.

We show this effect in two ways. Using a standard model (Black-Scholes with 1.5% volatility), we first calculate the deltas of 10y LPI0-5 to RPI (i.e. if RPI moves 1bp, how much does LPI move?). We then also calculate a hedging benchmark today (i.e. the RPI cashflows built today to match the inflation sensitivities of the liabilities), and look at how much this would scale up and down if inflation changed.

The exact details depend on the model used, but the bigger picture doesn’t. Since inflation is closer to 5% than to 0%, a small move down would lead to greater sensitivity, and DB schemes buying more inflation . However, for a very large fall in inflation, the floor would be closer than the cap. In this scenario, as inflation fell, so too would sensitivity. Even ignoring collateral impacts, if long-end inflation fell below around 2% there would be a risk of a reinforcing feedback loop whereby falling inflation prices led schemes to reduce inflation exposure (i.e. selling inflation), causing prices to fall further. The mechanism is there.

There are ways to mitigate and manage this risk, and others like it. It’s also not especially likely. But it is precisely the sort of tail risk which could derail even a well-funded, well-hedged scheme.

1 With a symmetric model like Black-Scholes, the highest sensitivity will be when inflation is in the middle, at 2.5%. With a skewed model this peak could be off-centre, but the delta will still be higher at 2.5% than at (say) 4.5%.

A survey of pension savers by PensionBee revealed that almost 60% of respondents – equal to nearly 18.5 million pensions savers – would vote in favour of wanting Shell to commit to reducing its greenhouse gas emissions by 2030. This would align with internationally recognised limits to keep global temperatures from rising to a point that will put human life in danger.

The survey data coincides with Shell's upcoming AGM (scheduled for 21 May), where Shell will be presented with crucial questions – including this one on greenhouse gas emissions – following a series of shareholder resolutions tabled.

The call for Shell to align its business operations with global climate goals is reverberating across the investment landscape. With shareholders increasingly tired of the world’s biggest polluters not being held to account for their actions, the pressure is mounting on Shell to heed the voices of millions of pension savers and embrace a path towards a greener future.

Shell’s shareholders have faced similar shareholder resolutions at previous AGMs, with increasing levels of support. Last year’s resolution for Shell to align its existing 2030 reduction target with the goal of the Paris Climate Agreement won 20% of the vote, requiring Shell to formally engage with, and provide updates to, its investors.

Shell’s profits have reached record highs in recent years.This month it announced it would provide its shareholders with another $3.5bn (£2.8bn) in share buybacks over the second quarter of the year after reporting better than expected profits of almost $8bn for the first three months of 2024.

As of 2024, Shell operates in more than 70 countries and produces 2,791 thousand barrels of oil equivalent (KBOE/D). It also states that it has reduced its net carbon intensity of energy products it sells by 6.3% compared with 2016, while also claiming to have invested $5.6 billion in low-carbon energy solutions.

Clare Reilly, Chief Engagement Officer at PensionBee, commented: “Pension savers are long term investors with a vested interest in ensuring that companies like Shell are not reducing their chances of a healthy and safe retirement.

“The overwhelming response from our survey shows pension savers want to see the big polluters commit to more aggressive greenhouse gas reduction targets by 2030. Savers foresee that a chaotic climate transition will be a costly climate transition, impacting their pots as much as their air quality.”

“Dashboards are a huge opportunity for people to bring their pensions together to better plan for their future. We already see customers connecting their pensions via Open Finance in the Scottish Widows app, demonstrating there is demand for a dashboard that helps people see their savings in one place and better plan for their retirement.”