Bryn Davies Union Pension Services 1 IER Conference - Occupational Pensions - Delayed wages subtracted - March 2010

Pensions and the recession – the background The actuarial pressures  Increasing longevity  Falls equity markets  Lower real yields on bonds The Pensions Regulator  Emphasis on prudence  Reliance on ‘mark to market’  No duty to promote DB provision Employers  Increasing concern about ‘risk’/lack of control  Pressure from accounting standard  Cost cutting and fashion for DC 2 IER Conference - Occupational Pensions - Delayed wages subtracted - March 2010

PPF/tPR Purple Book IER Conference - Occupational Pensions - Delayed wages subtracted - March

The recession IER Conference - Occupational Pensions - Delayed wages subtracted - March

Assets allocation IER Conference - Occupational Pensions - Delayed wages subtracted - March

Investment experience IER Conference - Occupational Pensions - Delayed wages subtracted - March

Funding levels – 31 March 2009 IER Conference - Occupational Pensions - Delayed wages subtracted - March

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tPR’s approach in a recession tPR’s Statement – Scheme funding and the employer covenant (1) The current regulatory framework and approach to scheme funding is sufficiently flexible to cope with current conditions Technical provisions [must] be set prudently [but]there is flexibility in setting a recovery plan to repair a deficit to meet the funding objective Any risk margin in the assumptions for setting technical provisions must take account of the extent to which the employer covenant can support them Technical provisions should not be compromised to make a recovery plan appear affordable; the size of the deficit does not necessarily dictate annual deficit repair contributions to the pension scheme, these must be determined with reference to what is reasonably affordable for the employer Assessing the employer covenant is complex and requires openness and cooperation between trustees and their sponsoring employers. IER Conference - Occupational Pensions - Delayed wages subtracted - March

tPR’s approach in a recession tPR’s Statement – Scheme funding and the employer covenant (2) Where employers are cash constrained, trustees should look at the widest range of flexibility in recovery plans, mindful of their duties to secure member benefits; these can include: lengthening recovery plans, (“... although having a recovery plan of over 10 years is a trigger for us to look more closely at the arrangements, in practice we have considered recovery plans ranging in length from 1 year to over 20 years to be appropriate given the circumstances of the specific schemes involved.”) step-up payments, back-end loading of recovery plans, and further security through the use of contingent assets and the distribution of profits fairly between creditors and equity providers. IER Conference - Occupational Pensions - Delayed wages subtracted - March

Pension funds assets and liabilities IER Conference - Occupational Pensions - Delayed wages subtracted - March

“Mark to market” Valuations What does it mean? “ It is the act of recording the price or value of a security, portfolio or account to reflect its current market value rather than its book value.” - Wikipedia What is the problem?  Over-dependence on the position on a single day  Assumption that it is required by tPR  Does it tell us what we need to know?  Is it relevant during a recession? 12 IER Conference - Occupational Pensions - Delayed wages subtracted - March 2010

13 The front page of the FT on Saturday

IER Conference - Occupational Pensions - Delayed wages subtracted - March PPF 7800 Index – February 2010 Update 24% deficit 6% deficit

Estimated change since March 2009 on technical provisions basis IER Conference - Occupational Pensions - Delayed wages subtracted - March £39m £58m £56m £43m

Pensions and the recession – the results for DB Benefit changes  Increased retirement age  Lower accrual rate  Reduce LPI ceiling from 5% to 2½% ‘De-risking’  ‘Buy-ins’ and ‘buy-outs’  Cease contracting-out Closure to new entrants  What is offered to new entrants?  Impact of two-tier workforce  Longer-term prospects Closure to future accrual  What increases for accrued benefits?  What benefits in future? Closure of the scheme  How are benefits secured?  Employer has to secure benefits  Possible call on PPF 16 IER Conference - Occupational Pensions - Delayed wages subtracted - March 2010

PPF/tPR Purple Book IER Conference - Occupational Pensions - Delayed wages subtracted - March

PPF/tPR Purple Book IER Conference - Occupational Pensions - Delayed wages subtracted - March

PPF/tPR Purple Book IER Conference - Occupational Pensions - Delayed wages subtracted - March

PPF/tPR Purple Book IER Conference - Occupational Pensions - Delayed wages subtracted - March

PPF/tPR Purple Book IER Conference - Occupational Pensions - Delayed wages subtracted - March