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EU pension rules changes could inflate UK funding shortfall to £450bn Preliminary findings of quantitative impact study flag up potentially damaging results for defined benefit schemes UK companies could see their defined benefit (DB) pension scheme deficits soar by £150bn to a total of £450bn under proposed changes to European Union pensions legislation, the European Insurance and Occupational Pensions Authority (EIOPA) has revealed. EIOPA has published the preliminary findings of the quantitative impact study that it ran in eight countries to assess the impact of planned changes to the Institutions for Occupational Retirement Provision Directive. In the UK, the Pensions Regulator calculated the impact of the plans against three scenarios using data from 6,432 DB pension schemes, with additional information provided by some of the largest UK schemes. Together, these schemes had a deficit of £300bn at the end of December 2011. Under the European Commission’s plans for sponsors to hold additional capital to protect their schemes from uncertainty – the solvency capital requirement – the funding shortfall increased to 24%, or £450bn. While EIOPA stressed the preliminary nature of the results and the need to treat them “with caution”, CBI director of employment Neil Carberry said they showed just how damaging the proposed changes could be. For more on this story, visit bit.ly/ZkxHsr
MPs on select committee call for fresh look at cost of state pension shake-up Early implementation of single state pension threatens both employers and industry with ‘significant burden’ The government should provide an updated assessment of the costs of creating a single-tier state pension after bringing forward the date for the change by a year, MPs have said. The work and pensions select committee said the plans to introduce the new single state pension in April 2016, and not April 2017 as originally planned, could have “significant implications” for the public, pensions industry and employers. The decision to bring forward the reforms was announced by Chancellor George Osborne in his March Budget. The move to a single state pension will bring an end to workers being able to contract out of the second state pension and instead receive payments through their workplace scheme. Both the employee and employer then pay lower National insurance contributions. Having one less year to prepare for this would impose a “significant burden” on employers and the pensions industry, MPs said. “We believe it is therefore the government’s clear responsibility to work with these key stakeholders to ensure that the transition to the ending of contracting-out is as smooth as possible,” the committee’s report explained. For more on this story, visit bit.ly/Za2xne
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New record for reinsurer capital The amount of capital held by reinsurers worldwide increased to a record $505bn (£330.5bn) last year as reinsurance companies more than recovered from the record catastrophe losses seen in 2011, Aon Benfield has said. The consultancy detailed a $50bn (£32.7bn) increase in reinsurers’ capital last year from the total recorded at the end of 2011 – equivalent to 11% growth. bit.ly/16KnRpR
Buy-in and -out deals hit £4.5bn Pension schemes shifted almost £4.5bn of their liability risk onto insurers last year using buy-in and buy-out deals, according to figures published by Hymans Robertson. The consultancy’s latest quarterly Managing Pension Scheme Risk report shows that almost half of this activity was recorded in the final quarter of 2012. bit.ly/XbcJzn
One in four has ‘lost’ pension pot Almost a quarter of UK adults have lost track of at least one of their pension schemes, according to research published by Age UK. In total, 23% of respondents to the charity’s survey on people’s attitudes to and plans for retirement said they had no idea what had happened to at least one of their workplace pension pots. The problem was particularly prevalent among younger savers, with 37% of 18- to 44-yearolds having lost track of at least one scheme. bit.ly/10VsPN3
First quarter of 2013 brings highest deaths since 2005 The first three months of this year saw the most deaths registered in a quarter for eight years, according to an analysis of official figures published by Towers Watson. Provisional estimates from the Office for National Statistics indicate that 144,299 deaths were registered during the first 13 weeks of 2013. This is 6% higher than the 135,583 recorded over the same period last year, the consultancy’s analysis shows. Most of the 8,716 increase occurred, like most deaths in general, among the older sections of the population, with a 7,444 (6%) increase in deaths among people aged 75 or older, and a 5,277 (10%) increase among those aged 85 or more. Matthew Fletcher, a senior consultant at Towers Watson, said that the increase in deaths among older groups could not be blamed entirely on the prolonged cold weather in light of the overall population growing in size and age. But the cold start to the year did appear to have had a “significant impact”, he added. For more on this story, visit bit.ly/Zxu4QE
Focus on risk management boosts resilience of SMEs Five years of economic stagnation and volatility have forced small- and mediumsized enterprises (SMEs) in the UK to significantly change their approach and attitude to risk management, according to research published by insurer Zurich. Adapting in Tough Times: The Growing Resilience of UK SMEs details a major shift in how insurers manage risk, with 53% of businesses surveyed spending more time on their business strategy and risk management than they did before the financial crisis. More than one-third (35%) of those questioned are doing more long-term financial planning and 33% are considering their business continuity plans more frequently than five years ago, such as by planning for the failure of key suppliers. According to the report, which was written by the Economist Intelligence Unit, this shift is “a hugely positive step for the long-term resilience and sustainability of SMEs and the UK’s SME economy”. However, the research also found that SMEs had become more conservative in their approach to risk taking, with 25% rating themselves as risk-averse compared with other companies in their industry. For more on this story, visit bit.ly/15md5s7
THE ACTUARY • May 2013 www.theactuary.com
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