1. Southern Pensions conference
Keeping control in challenging
times
Blake Lapthorn, New Kings Court, Chandler’s Ford
24 November 2011
Adrian Lamb
Blake Lapthorn
adrian.lamb@bllaw.co.uk

2. Southern Pensions conference 2011
Agenda and timetable
9.30 am Introduction
9.45 am What really worries me is ……
10.00 am Will I ever know what our liabilities really are? -
Nicola Walker
10.25 am Derisking – what could we do tomorrow? What
can we do today?- Richard Murphy
10.50 am Making assets work smarter – Kevin Frisby
11.15 am Coffee break
11.40 am Auto enrolment, etc. - Andrew Cheseldine
12.10 pm Dealing with older employees – Clare Walker
12.35 pm The future of retirement
12.45 pm Questions and open forum
1.00 pm Lunch!

3. Questions
Is there such a thing as a risk free investment?
Can I ever know what our liabilities really are?
Data, what data?
Can I do anything about this (other than pray)?
Is there such a thing as an equity risk premium now
… or is it just an equity risk?
Can I get smarter with my/our investment strategy?

4. More questions
What does it take to make DC adequate?
What is adequate?
Is auto enrolment just a precursor to more tax?
Can it work?
What do we need to do?
How can we cope with more older workers?
Who can I blame?
Can I sue anybody?

5. Assessing Scheme liabilities…….
or falling down the rabbit hole
Nicola Walker
Blake Lapthorn
nicola.walker@bllaw.co.uk

6. Why worry?
‘Sentence first, verdict
afterwards’

7. Danger areas
Equalisation
GMP equalisation
Drafting problems
Closure to future accrual
Data
Defined contribution or
defined benefit?
CPI/RPI

8. Equalisation
'Ditto' said Tweedledum.
'Ditto, ditto' cried Tweedledee.

9. GMP Equalisation
‘We’re all mad here’

10. Drafting problems
' Then you should say what you mean,' the March Hare went on.
' I do,' Alice hastily replied; ' at least--at least I mean what I say--that's
the same thing, you know.‘

11. Scheme closure
“Begin at the beginning and go on till you come to the end: then
stop”

12. Data
'It is wrong from beginning to end,' said the Caterpillar

13. Defined benefit or defined contribution
‘Let me see: four times five is twelve, and four times six is thirteen, and four
times seven is…oh dear! I shall never get to twenty at that rate!’

14. CPI/RPI
“Curiouser and curiouser!”

15. How to be proactive
‘Oh my ears and whiskers, how late it’s getting’

16. ‘Now, I give you fair warning, either you or your
head must be off!’

17. Blake Lapthorn Southern Pensions Conference
Richard Murphy – 24 November 2011
What to do today and
tomorrow

18. Agenda
UK plc
Why are there DB pensions?
DB liabilities in perspective
The challenges for employers and trustees
Steps today or tomorrow
Certainty from uncertainty

19. Why do employers have defined benefit
pension schemes?
Help Smoothing of
outcome Flexibility of
employees Cost effective Rewards
between timing on
plan for saving members and loyalty
contributions
retirement over time
Simple for Efficient
Rewards Flexibility Employees individuals targeting of
high-flyers for HR like them to death
understand benefits

20. Pension risks and challenges
Benefit Interest Asset
Legislation Inflation
administration rates performance
Corporate
Contingent Turnover of Solvency II
Longevity bond
benefits employees for pensions
spreads
Salary Regulatory Trapped Member
Communication
growth bodies surplus options

21. The big picture
£80bn
Active accruing - DB
Active accrued - DB
£60bn Deferreds
Pensioners
£40bn
£20bn
£0bn
2011 2021 2031 2041 2051 2061 2071 2081 2091
Year

22. So where are we now?
£4000bn
£3500bn
£3000bn
£2500bn
£2000bn
£1500bn
£1000bn
£500bn
£0bn
Total benefit Assets Technical Insurance
payments provisions premium

23. How does it all fit together?
A long-term plan for UK plc Pension Scheme
Progressive buy-ins Insurance premium and
technical provisions
converge
Insurance
premium
? Technical
RPI to
CPI ? “Liability provisions
management”
Assets
Non-cash funding solutions
Auto enrolment demands
on employer cash flow
2011 2030 2060

24. Equities underperform liabilities by 21%
Double whammy over the summer
Equities (GBP, TR) vs Index-linked Gilts
120
110
100
90
80
70
31/12/2010 31/03/2011 30/06/2011 30/09/2011
Global Equities >5Yr ILG Relative
Source: Bloomberg
24

25. What can be done?
By employers
By trustees

26. Government announcements
CPI might help a bit…
Annual increase in Retail and Consumer Prices
Statutory minimum Indices (% pa)
indexation switching
from RPI to CPI Annual RPI inflation Annual CPI inflation
– Average long run 6%
Increase (% pa)
difference 0.7% pa
4%
2%
0%
2005 2006 2007 2008 2009 2010 2011
-2%
Source: ONS data

27. Immediate change
Impact on UK Plc Pension Scheme
Projected benefit payments Insurers not
£4000bn
currently
Pensioners Deferreds Active accrued reducing
£3500bn
Reduction premiums
£80bn for CPI
£3000bn of £360bn
£60bn £2500bn
Reduction
£2000bn
£40bn of £73bn
£1500bn
£20bn £1000bn
£500bn
£0bn
£0bn
2011 2031 2051 2071 2091 Total benefit Assets Technical Insurance
payments provisions premium
Year

28. Probably my most important slide of
the session
The importance of good data
Risk Data issues
Paying the wrong Benefits uncertain
benefits
Lost records
Good
Funding uncertainty
data Spouses’ benefits only
Premium loading on required on the paper record
insurance
Unrecorded benefits
Impact
Cannot proceed with managing risk
Over pay to reduce the risk
Unexpected liabilities emerge

29. Pensioner buy-outs and buy-ins
Overview
Equities 37% 57% Equities Residual
Liabilities Liabilities
Bonds
Bonds
Insurance Pensioner
Policy Liabilities
Before After
For buy-ins trustee (and company) gain exposure to insurer’s covenant
Larger schemes have additional flexibility when structuring transactions

30. Pensioner buy-in pricing

31. Quote
“It is currently the case that for
pensioners insurance may be
cheaper than holding gilts.”
Pension Insurance Corporation – 8 November 2011

32. “Liability management”
Buzzwords for…
Transfer value Member option to convert to a level
exercise pension
8000
Pension per year (£)
Settlement
gain
6000 Highervalue?
Fair pension
Enhancement now
to transfer 4000
Pension value
Fixed for
liability
2000 lifetime
Standard
Transfer 0
Value 65 70 75 80 85
Age

33. Plugging the deficit
Asset backed partnerships and the rest …
Parent company
Sponsoring Pension guarantees
employer scheme
G
R en Negative pledges
rtn d
am
pa ent er Pa mite
er
al
re
ym al P
st
Li
en ar
e
ts tn Triggers for additional
er m
co
contributions
In
Scottish Limited
Partnership Charges over assets
Cross-company
Property Contracts Whisky Brands
guarantees

34. Scope
This generic presentation should not be relied upon for detailed advice or taken as an
authoritative statement of the law.
If you would like any assistance or further information, please contact the partner who
normally advises you.
While this document does not represent our advice, nevertheless it should not be passed
to any third party without our formal written agreement.
LCP is part of the Alexander Forbes Group, a leading independent provider of financial and risk services. Lane Clark & Peacock LLP is a limited liability partnership registered in England
and Wales with registered number OC301436. LCP is a registered trademark in the UK (Regd. TM No 2315442) and in the EU (Regd. TM No 002935583). All partners are members of
Lane Clark & Peacock LLP. A list of members’ names is available for inspection at 30 Old Burlington Street, London, W1S 3NN, the firm’s principal place of business and registered office.
The firm is regulated by the Institute and Faculty of Actuaries in respect of a range of investment business activities. Locations in London, Winchester, Belgium, Switzerland, the
Netherlands, Ireland and the UAE.

35. Blake Lapthorn Southern Pensions Conference
Kevin Frisby – 24 November 2011
Making your assets work
smarter

36. Agenda
Fiduciary Management for DB Schemes
DC Scheme Investing
Life-styling
Default options
Latest investment ideas
Emerging market multi asset funds (EMMAFs)
Diversified growth funds (DGFs)
Switching triggers

37. Fiduciary management for DB Schemes
What is Implemented Consulting / Fiduciary Management?
Rationale
Market providers
Pros and cons

38. Running a pension scheme
How hard can it be?
£1,000m
(£0m)
(£1,000m)
Surplus (Deficit)
(£2,000m)
(£3,000m)
(£4,000m)
(£5,000m)
11
11
11
10
11
11
11
1
1
11
11
r1
l1
n
b
ar
ay
n
ec
ct
p
g
Ju
Ap
Ja
Fe
Ju
Se
Au
O
M
D
M
31
30
31
31
30
28
31
31
30
31
31
Source: LCP Visualise

39. What is fiduciary management?
Asset management
With liability benchmark
Different things to different
people!
Advisory Fiduciary
Fund manager
Fund manager Tactical asset Strategic asset
selection allocation
rotation allocation
Investment objectives cannot be delegated
39

40. Rationale for Fiduciary Management
Delegated low governance alternative
Designed to overcome perceived weaknesses of traditional model which
requires trustees to be ever more knowledgeable about investment
issues in the context of
– Increased complexity of investment strategies
– Desired speed of implementation of decisions
– Greater governance burden
Fiduciary management
– Delegates investment strategy and manager selection decisions to a
single professional provider…
– Who can make and implement decisions quickly and reduce trustee
governance burden

41. Market providers
Investment consultants Asset managers
No two offerings are the same

42. Pros and cons of Fiduciary Management
Faster decision-making Responsibility remains with Trustees
Reduced governance time Conflicts of interest
Greater professional involvement Limited track records
may lead to superior returns Concentration of manager risk
Access to “best in class” Potentially higher fees
managers Complex and expensive to unwind
Access to alternative asset Still requires monitoring
classes for smaller Schemes
Many of the perceived benefits of fiduciary management can be achieved
through the traditional advisory model, such as:
- Triggers for de-risking and hedging
- Diversified growth funds
- Adding more expertise to the trustee group
- Impromptu ISC meetings

43. DC Scheme Investing
Default options / Life-styling
Diversified Lifestyle Option
Relative performance

44. Investment - what do DC members
want?
Focus on outcomes, not inputs
– Eventual pension benefit is the key factor
– Assets used to produce this are merely the means to an end
Most members are risk averse
– Big losses are more significant than big gains
Most members do not feel comfortable taking investment decisions
– Design of the default strategy is therefore crucial
– Most appropriate default strategy is a lifestyle option

45. Traditional Lifestyle option
100%
90%
80%
70%
% Allocation
60%
50%
40%
30%
20%
10%
0%
25+ 20 15 10 5 0
Years to retirement
Global equities Bonds Cash
45

46. Diversified Lifestyle option
100%
90%
80%
70%
% Allocation
60%
50%
40%
30%
20%
10%
0%
25+ 20 15 10 5 0
Years to retirement
Global equities Diversified growth fund
Cash Fixed interest gilts
Corporate bonds Index-linked gilts
46

47. Diversified Lifestyle model
Growth phase – 50% DGFs & 50% passive global equity
– Incorporates a more diversified range of assets than just global equities
– Adding one or more DGFs reduces the risk of unacceptably low benefits
– Passive element keeps costs at a reasonable level
Switching period – 15 years
– Longer switching period (rather than the 5/10 years for ‘traditional’ models)
– Should give more protection in adverse scenarios, although marginal
reduction in benefits in most other conditions
Pre retirement portfolio
– Final portfolio: 75% bonds, 25% cash
– Bonds are half ILGs, quarter corporate bonds, quarter fixed gilts
– Intended to be a reasonable solution for fixed or inflation linked annuities

48. Lifestyle strategies risk vs return
3 years to 30 September 2011

49. Investment ideas
Emerging market multi asset funds
Diversified growth funds
Switching triggers

50. The EMMAF concept
A multi-asset approach to emerging markets
Equities
EMMAF
Currencies Bonds

51. The multi-asset approach
Advantages of multi-asset approach to emerging markets
Diversification – access to a large and growing opportunity set, not
confined to one asset class
Potential for attractive returns with lower volatility - efficient use of risk
budget
Active management – inefficient markets being targeted by skilful
managers
– Managers add value through dynamic asset allocation and stock
selection
Wider stock selection opportunities
– Pick an attractive company, then invest in most attractive part of its
capital structure

52. Diversified Growth Funds
Strong risk adjusted returns over time

53. Trigger based switching strategies
Automated strategic shifts to capture relative outperformance
90%
75%
Relative performance differential
60%
45%
30%
15%
0%
First switch implemented Relative performance
-15%
on 4 Jan 2011
Triggers
-30%
2009 2010 2011 2012 2013 2014 2015
Year
Locks in outperformance of equities relative to
scheme liabilities when affordable to do so
Locks in outperformance of equities relative to scheme liabilities

54. Conclusions
Pros and cons to fiduciary management arrangements
– May be suitable for some schemes
– Most of the benefits can be achieved under the traditional model
Lifestyle and default options remain key for DC schemes
– Diversification of growth and bond elements
– Consider longer switching period to dampen volatility of returns
EMMAFs can provide a risk conscious way to access emerging markets
DGFs continue to provide a lower risk alternative to equities
Automated trigger based switching strategies enable trustees to lock in
outperformance relative to scheme’s liabilities

55. Scope
This generic presentation should not be relied upon for detailed advice or taken as an
authoritative statement of the law.
If you would like any assistance or further information, please contact the partner who
normally advises you.
While this document does not represent our advice, nevertheless it should not be passed
to any third party without our formal written agreement.
LCP is part of the Alexander Forbes Group, a leading independent provider of financial and risk services. Lane Clark & Peacock LLP is a limited liability partnership registered in England
and Wales with registered number OC301436. LCP is a registered trademark in the UK (Regd. TM No 2315442) and in the EU (Regd. TM No 002935583). All partners are members of
Lane Clark & Peacock LLP. A list of members’ names is available for inspection at 30 Old Burlington Street, London, W1S 3NN, the firm’s principal place of business and registered office.
The firm is regulated by the Institute and Faculty of Actuaries in respect of a range of investment business activities. Locations in London, Winchester, Belgium, Switzerland, the
Netherlands, Ireland and the UAE.

56. Blake Lapthorn Southern Pensions Conference
Andy Cheseldine – 24 November 2011
Auto-enrolment and DC
adequacy

57. Agenda
Why auto-enrolment is necessary – DC adequacy
What is auto-enrolment?
Implementation issues for you
Identifying different types of worker
Identifying your staging date
Managing costs
Communication and administration
Case studies – putting these issues into context
What should you be doing now?

58. Why auto-enrolment is necessary –
DC adequacy

59. The international context
Percentage gross replacement rates for average
earners from mandatory pensions
Source OECD, Pensions at a Glance 2011

60. The benefit strain
Millions of people aged 60 and over receiving
income related benefits
Source: ONS, Pension Trends, Chapter 5, 2011

61. Private pensions to the rescue?
Millions of active members of occupational
pension schemes by sector
Percentage of 16 to 64 year olds
contributing to private pensions
Source: ONS, Pension Trends, Chapter 7, 2011

62. Private sector DC provision
Distribution of members by employer contribution rate
Source: ONS, Pension Trends, Chapter 8, 2011

63. The answer is auto-enrolment?
How many will opt-out?
What will 8% of Qualifying Earnings buy at retirement?
How many 22 year olds will have a 46 year contribution history at State
Retirement Age?
What will the 2017 review bring?
– Compulsion?
– Increase in employer contributions?
– Increase in member contributions?
– Widening of Qualifying Earnings definition?

64. What is auto-enrolment?

65. In a nutshell…
From October 2012 onwards UK employers will be required:
– to automatically enrol eligible employees (“eligible jobholders”) into a
pension scheme of sufficient quality (an “automatic enrolment scheme”)
– to automatically re-enrol them every three years if they opt out
– to contribute to that scheme for auto-enrolled employees
But it is not “one size fits all”
– different quality requirements for DB, DC and Hybrid schemes
– clients with dissimilar workforce demographics will probably want
fundamentally different solutions
– don’t forget your existing scheme members; and
– contribution costs will, in many cases, be lower than administration costs in
the early years

66. Implementation issues for you

67. Identifying different types of worker
Age
75
OPT IN
Employer contribution
SPA
OPT IN OPT IN AUTO-ENROL
No employer Employer Eligible
contribution contribution jobholder
(“Entitled
workers”)
Qualifying Earnings (QE)
22
OPT IN
Employer contribution
16 Earnings
£5,715 £7,475 £38,185
Qualifying Earnings Upper
Earnings Trigger Limit
Threshold

68. Staging date flexibility (1)
Company A Company B
PAYE CODE PAYE CODE PAYE CODE

69. Staging date flexibility (2)
Company C Company D
SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY
PAYE CODE PAYE CODE PAYE CODE

70. Quality Requirements - DC
DC and personal pensions – the core requirement
Employer must contribute at least
3% of QE
Total contributions must be at
least 8% of QE
These rates will be phased in
between 2012 and 2017
Employer Employee
Contribution Contribution
3% 5%

71. Staging and DC phasing
Staging date
dependent on no. of
employees
October October October October October
2012 2013 2014 2015 2016
120,000 400
employees employees
Required DC
ER 1% ER 2% ER 3%
contribution rate Total 2% Total 5% Total 8%
(% of QE)
October October October October October October
2012 2013 2014 2015 2016 2017

72. Quality requirements - DC
DC and personal pensions – alternatives to allow certification
7% of pensionable pay (inc minimum of 3% from employer) - subject to 100% of
earnings being pensionable
8% of pensionable pay (inc minimum of 3% from employer) – pensionable pay
can exclude variable earnings subject to pensionable pay constituting at least
85% of total pay bill
9% of “basic pay” (inc minimum of 4% from employer) – pensionable pay can
exclude variable earnings
Notes:
Phasing applies in all three approaches
“Basic pay” is deemed to include all elements of pay that do not vary
(so potentially not just basic salary)

73. Managing costs (2)
Front Sheet Outputs Employer contributions
Minimum Contributions
£300,000 based on Qualifying
Earnings
£250,000 9% Certification
£200,000 8% Certification
7% Certification
£150,000
Existing scheme design
£100,000 Alternative scheme design
£50,000
£0
2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
Note: the above is generic output from LCP’s Auto Enrolment Modeller, the output from which is employer and scheme specific.

74. Managing costs - options
Trust-based
Phasing-in of DC
scheme (short
contributions
service refunds)
Salary sacrifice
Changes to, or
Waiting period for “levelling down”,
membership of existing
pension benefits

75. Communication and disclosure
At least seven different versions of George Bernard Shaw
communication required at staging date Playwright, critic, political activist
1856 – 1950
Early engagement
Consultation The problem with
Communications review communication is the
illusion that it has happened.

76. Administration processes and systems
review
Eligible jobholder?
No
Opt in notice
- Issued by employer
Regular review
- One month
- Returned to employer
Ineligible due to Jobholder information
- Age - From employer to scheme
- Salary
Employer required to pay contributions

77. Administration processes and systems
review
Eligible jobholder?
No
Joining notice
- Issued by employer
Regular review
- One month
- Returned to employer
Ineligible due to Below Qualifying
Jobholder information
Earnings Threshold
- Age - From employer to a scheme
- Salary
Employer NOT required to pay contributions

78. Administration processes and systems
review
Eligible jobholder?
No
Opt in notice
- Issued by employer
Regular review
- One month
Between Qualifying - Returned to employer
Ineligible due to Earnings Threshold
Jobholder information
and Eligibility
- Age Trigger - From employer to scheme
- Salary
Employer required to pay contributions

79. Administration processes and systems
review
Eligible jobholder?
Yes
Enrolment information
Auto-enrol
- Issued by employer
- One week if using waiting
period / month otherwise
- Bespoke
- Details of opt-out
Jobholder information
- From employer to scheme

80. Administration processes and systems
review
Eligible jobholder?
Yes
Opt out form
- Requested by jobholder
Auto-enrol
- Issued by scheme
- One month
- Prescribed format Opt-out?
- Returned to employer
Yes
Employer duty
- Notify scheme of opt out

81. Administration processes and systems
review
Eligible jobholder?
Yes
Scheme actions Auto-enrol
- Membership unscrambled
- Contributions returned to
employer by “refund date” Opt-out?
Employer actions
- Contributions returned to Yes
jobholder

82. Case study
Putting these issues into context

83. Earnings “spikes”
The earnings trigger applies pro-rata in every pay period – so £622.92 in a
month or £143.75 in a week
For example, John normally earns £460 per month, so is not auto-enrolled
as he earns below the Earnings Trigger of £7,475. However in December
2013 (for one month only) John earns £800 – over the £622.92 trigger
John must be auto-enrolled in December even though his total expected
annual earnings are still less than the Trigger. Total contributions are 2%
of £323.75 (£800 less £476.25 QET) – ie £6.48 for the pay period
In January to July 2014 he earns £460 each month, below the QET, so no
contributions are deducted
In August 2014 he gets a 5% pay rise, and earns £483, so contributions
need to be paid in respect of £6.75 of monthly earnings
At 2% that is a contribution of £0.14 for the pay period

84. Case study (A)
A national charity
Background
Characteristics of industry Challenge
Multiple sites and employers Multiple staging dates
Variable earnings System requirements
Paternalistic Cash constrained
Solution
Opted for one staging date to simplify communications
Considering a master trust
Will auto-enrol all employees irrespective of earnings trigger at 5% match on basic
earnings (with option for employee to reduce on a 1:1 basis)
Introducing salary sacrifice

85. Provider update

86. NEST
Occupational DC scheme set up under trust
Designed to help employers meet DC quality requirements (employer
and employees can pay higher contributions)
Maximum total contribution of £4,200 pa per member
A 1.8% contribution charge plus 0.3% annual management charge
Six funds available, with Target Date funds as default
Active members already contributing
Limited employer support

87. Other potential providers

88. What should you be doing now?

89. What should you be doing now?
Understand what
you need to do Understand when
you need to do it
Can you / should
you use existing How much will
Plans? contributions cost?
Who will / can do
the admin and record How much will
keeping? administration cost?
Who will / can
do the project
management?

90. Questions

91. Appendices

92. Identifying different types of worker (1)
£38,185
Upper
Limit
Worker
Jobholder
Total earnings
Eligible
jobholder £7,475
Earnings
Trigger
£5,715
Qualifying
Earnings
Threshold

93. When?
The requirements will apply from October 2012
Subject to:
– staging whereby the duty to auto-enrol will be imposed on employers in
stages
– for DC schemes, phasing whereby the contribution requirements are
phased in
– for DB and hybrid schemes, transitional provisions

94. Staging
Based on number of PAYE employees as at 1 April 2012
Employers due to auto-enrol in 2012 can bring forward their staging date to no
earlier than 1 July 2012
Others can potentially bring forward their staging date to no earlier than
1 October 2012
Example staging dates:
Number of employees Staging date
120,000 or more 1 October 2012
50,000 – 119,999 1 November 2012
… …
800 – 1,249 1 October 2013
500 – 799 1 November 2013
… …
<50 1 August 2014 – 1 February 2016

95. Automatic enrolment scheme
Automatic enrolment scheme Qualifying scheme
must be a “qualifying scheme”; an occupational or personal
must not prevent auto-enrolment, re- pension scheme;
enrolment or opting-in a registered pension scheme
does not require the employee to make under Finance Act 2004
any choices or provide any information meets the quality requirements
in order to remain a member

96. Quality requirements
Five types of quality requirement
DC DB hybrid
personal non-UK
pension schemes
Certification typically required

97. Quality requirements - DB
The scheme is The scheme satisfies
contracted-out OR the test scheme
standard
Accrual rate of at least
Provides a pension
1/120th of average
for life from
QE in the last
State Pension Age
three tax years

98. Quality requirements
Qualifying Earnings
Qualifying Earnings (“QE”)
– earnings between Qualifying Earnings Threshold (£5,715 in 2010/11
terms) and Upper Limit (£38,185 in 2010/11 terms)
– subject to earnings exceeding the Eligibility Trigger of £7,475 (in 2011/12
terms)
Wide earnings definition
eg includes commission, bonuses and overtime

99. Managing costs (1)
£300,000
Alternative scheme
design
£250,000 Existing scheme
design
£200,000 7% Certification
8% Certification
9% Certification
£150,000
Minimum Contributions
based on Qualifying
£100,000 Earnings
£50,000
£0
2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
Auto enrolment year from October
Note: the above is generic output from LCP’s Auto Enrolment Modeller, the output from which is employer and scheme specific.

100. TUPE implications
The minimum contribution rate is 3% from employers and 5% from employees
If you use a trust based arrangement to meet your obligations and then transfer
employment under TUPE
– the employees will typically continue to contribute 5% (through inertia)
– and the new employer will need to increase their contributions to 5%
– because the TUPE minimum (for trust based schemes) is to match employee
contributions up to 6%
That increase in employer costs will be reflected in the sale price of the
business
Alternatively, if you use a contract based arrangement (eg GPP)
– the employees will typically continue to contribute 5% (through inertia)
– and the new employer will can continue contributing 3%
– because the TUPE minimum (for contract based schemes) is to match the
existing level of contributions

101. Non-UK nationals
All eligible jobholders must be auto-enrolled
But of the 29 million people working in the UK, 2.5 million are non-UK nationals
(source: ONS)
Of those 2.5 million, about 35,000 are secondees from other EU countries
(source: DWP). Auto-enrolling these secondees will create a cross-border
scheme
Among the rest of the 2.5 million, almost all will be tax resident in the UK (by
definition). Roughly half (LCP estimate) are likely to be “not ordinarily tax
resident in the UK” and, therefore, most commercial providers (especially GPPs)
will not accept them as members
How can you meet your auto-enrolment duties for non-UK nationals?

102. Case study B
A financial services company
Background
Characteristics of industry Challenge
High earners £4,200 pa limit in NEST
Non-UK nationals GPPs unwilling to accept
Solution
Trust based solution works best for auto-enrolment, but stand-alone, sub-section of
existing DB scheme or master trust?
– In this case sub-section of existing scheme
– Because it allows transfer from that sub-section to the more generous main DC
section after two years’ service

103. Case study C
A pub/restaurant chain
Background
Characteristics of industry Challenge
Multiple sites and employers Multiple staging dates
Frequent buying and selling of premises TUPE requirements
High staff turnover – 30% Administration
High number of non-UK nationals GPPs unwilling to accept
Solution
Opted for one staging date to simplify communications
Still analysing the likely impact of a 2% potential increase in employer contributions on
sale (and purchase) prices
Trust based for short service refund makes sense while it lasts
NEST a likely provider for at least some staff
Keep GPP for managers and head office staff

104. Staging dates
Number of PAYE employees Staging date
120,000 or more 1 October 2012
50,000-119,999 1 November 2012
30,000-49,999 1 January 2013
20,000-29,999 1 February 2013
10,000-19,999 1 March 2013
6,000-9,999 1 April 2013
4,100-5,999 1 May 2013
4,000-4,099 1 June 2013
3,000-3,999 1 July 2013
2,000-2,999 1 August 2013
1,250-1,999 1 September 2013
800-1,249 1 October 2013
500-799 1 November 2013
350-499 1 January 2014
250-349 1 February 2014
240-249 1 March 2014
First tranche with fewer than 50 employees based on last two digits of PAYE reference 1 April 2014
150-239 1 May 2014
90-149 1 June 2014
50-89 1 July 2014
Remaining employers with fewer than 50 employees allocated by last two digits of PAYE reference 1 August 2014-1 February 2016
Different staging dates potentially apply for employers with fewer than 10 (full-time equivalent) employees

105. Regulator powers
Regulator will have the power to issue
– a compliance notice
– a third party compliance notice
– an unpaid contributions notice
– a fixed penalty notice (up to £50,000)
– an escalating penalty notice (up to £10,000 per day)
Criminal sanctions for failure to comply with specified duties (up to two years in
jail)
Legislation also includes safeguards, for example, prohibiting employers from
inducing employees to opt-out

106. Scope
This generic presentation should not be relied upon for detailed advice or taken as an
authoritative statement of the law.
If you would like any assistance or further information, please contact the partner who
normally advises you.
While this document does not represent our advice, nevertheless it should not be passed
to any third party without our formal written agreement.
LCP is part of the Alexander Forbes Group, a leading independent provider of financial and risk services. Lane Clark & Peacock LLP is a limited liability partnership registered in England
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107. Removal of the
Default Retirement Age (DRA)
Clare Walker
Blake Lapthorn
clare.walker@bllaw.co.uk

108. The end of the Default Retirement Age (65)
The DRA was abolished on 6 April 2011 so ‘Retirement’ is no
longer a ‘fair’ reason for dismissal.
Any dismissal because of age will now constitute direct age
discrimination (and an unfair dismissal) under the Equality Act
2010 – apart from in rare cases where it can be objectively
justified.
If it can be objectively justified, the dismissal will fall under
SOSR.
As most employers accept that they cannot objectively justify =
emphasis now on correctly and fairly managing
performance/capability issues, whatever the age of the
employee.

109. Choices for employers
Either…..
A - Abandon fixed retirement ages altogether – any dismissal
must therefore fall under one of the other five fair reasons for
dismissal (eg capability); or
B – Retain a fixed retirement age for all or part of the workforce
– but if you do – you must be able to objectively justify why you
still need one.

110. Dealing with an older workforce - Practical Steps
Need to eradicate any age discriminatory practices or if not, you
should be able to objectively justify different/unfavourable
treatment.
Consider the impact and adjust the following:
1) Performance management systems;
2) Future planning processes;
3) Various documentation;
4) Various benefit policies;

111. 1) Performance Management Systems
Tighten up your performance management, appraisals and
capability policies and procedures;
Train managers in effective and objective performance
management techniques;
Keep evidence of discussions and feedback on performance;
Provide training and time to improve where appropriate;
Beware of inconsistent treatment and managers reluctance to
manage older employees - young employees can claim age
discrimination too!

112. 2) Future Planning Processes
Pre-retirement courses/tax planning seminars – getting all staff
to think about their options and be realistic about how much
longer they will need to work;
Workplace discussions – review ACAS Guidance;

113. 2) Future planning processes – workplace
discussions
Do: Don’t:
– Hold regular – Ask discriminatory questions
appraisals/reviews for such as ‘why don’t you retire to
workforce planning – avoid an undignified sacking?’
at least annually or indicate that older workers
– Discuss employees’ are blocking younger workers
future plans – short, – Focus these discussions only
medium, long-term on certain age groups – ask the
– Provide training to same questions of all
management on age employees
discrimination

114. Case Study - Retirement
Sprightly Limited want to retire Wendy, aged 65. They are
concerned she is not up to the job as the markets have become
so competitive and she has not been meeting her targets. Plus,
they don't feel she now fits the ambitious team of managers they
have recruited over the years. However, they do not want to
upset her and because of this, they have turned 'a blind-eye' to
some of her failings and have also paid her a discretionary
bonus.
Sprightly have received an email from another employee John,
aged 34, which raises concerns over how the directors criticised
his performance in their last quarterly meeting. He states 'other
colleagues do not appear to be treated the same'. John was not
paid a bonus. Sprightly are not really concerned as it was clear
John had not met his targets, the bonus is discretionary and so,
they state, 'what is he complaining about?'

115. Case Study - Retirement
1. What should/could Sprightly have done better, if anything?
2. How should they deal with their concerns with Wendy?
3. How should they deal with John’s concerns?

116. 3) Documentation
Remove fixed retirement ages from contracts and other
documentation and notify staff of the change(s).
Revise retirement policy documentation. Positively stating you
will not retire at a fixed age will help to defend claims
Share scheme rules may require amendment – good leaver/bad
leaver

117. 4) Benefit policies
Typical employee benefits include:
– Pension scheme (DB or DC);
– Private medical insurance;
– Life assurance;
– Long-term disability insurance;
– Flexible benefits;
What are the options?

118. The Exemption
Employers can withdraw or not offer group risk insured
benefits for employees when they reach 65 years of age
without fear of age discrimination. The age at which these
benefits can be removed will rise in line with rises to State
Pension Age (“SPA”)
SPA rising to age 66 by 2020 (or perhaps earlier)
SPA rising to age 67 by 2036 (could be earlier)
SPA rising to age 68 by 2046 (could be earlier)
NB – could still be a breach of contract/give rise to
constructive dismissal claim

119. Risk benefits
Useful exemptions
• Life assurance
• Income protection and related financial
Risk schemes –
services
benefits can cease
at 65 • Private medical, dental and sickness
insurance
• Accident insurance
• Uninsured benefits/employers who
self-insure
• Cover in non-employment based
Not exempt relationships
• Arguably if the cut off age is higher
than 65 or SPA

120. In summary…..the six step process
1. Establish what the treatment is
2. Make sure that there is a relevant comparator
3. Decide if there is any discrimination
4. If there is, see if there is an exemption which covers it
5. If there is not, consider objective justification
6. If this is also not possible, remove discriminatory feature (or
risk claims!)

121. Summary - Objective justification
What is my legitimate aim?
Is there a less discriminatory way to achieve that aim?
Does the policy achieve that legitimate aim?
Is any discrimination outweighed by the benefit?
Do any features of the policy contradict the purported legitimate aim?

122. Southern Pensions conference 2011
Flexible Retirement and Pension
Provision
Adrian Lamb
Blake Lapthorn
adrian.lamb@bllaw.co.uk

123. What do we mean by flexible retirement?
Narrow sense
– Essentially, more flexibility over late retirement options
Drawing benefits at 65 whilst continuing to work
Drawing benefits at 65 whilst continuing to accrue
Not drawing benefits at 65 but continuing to accrue
Wide sense
– Drawing benefits in different stages at any permitted age
whilst continuing to accrue
Combination of age discrimination and scrapping DRA – but you
still have objective justification!

124. Objective justification
What is my legitimate aim?
Is there a less discriminatory way to achieve that aim?
Does the policy achieve that legitimate aim?
Is any discrimination outweighed by the benefit?
Do any features of the policy contradict the purported legitimate aim?

125. Legal structure – Employer provides a contract
based scheme
Insurance Company
PRIMARY
CONTRACT
(to provide a
pension)
Employer Employee
SECONDARY
CONTRACT
(to contribute)

126. Legal structure – Employer participates in an
occupational pension scheme
Trustees
TRUST
Employer sponsor (governed by
deed and rules)
Members

127. What are employers doing at the moment?
Money purchase schemes
– Continued employer contributions beyond age 65
Defined benefit schemes – choice at 65 of:
– Continued accrual
– Immediate pension
– Late retirement uplift
Can you offer a money purchase alternative at age 65?

128. Must you provide narrow flexible retirement?
Narrow flexible retirement
– Probably – no exemption in age discrimination legislation for
scheme provision that prevents accrual beyond 65
– Indirect age discrimination risk if rules impose a leaving
service requirement before pension can come into payment
– Objective justification likely to be difficult

129. Must you provide wide flexible retirement?
No requirement outside of age discrimination legislation. Could
age discrimination be an issue?
Original DTI Guidance suggested an indirect discrimination risk:
“A rule which stops members who are already drawing a
pension from continuing to accrue benefits may be indirectly
discriminatory. For instance, if proportionately more 55 year old
members than, say, 64 year old members would like to continue
to work, accrue benefits and draw a pension, rather than having
to make a choice between drawing a pension and accruing
benefits, then the rule disadvantages 55 year olds compared
with the 64 year olds and will be indirectly discriminatory, unless
it can be objectively justified.”

130. Age discrimination risks in not providing wide
flexible retirement?
The issue was not addressed in the Government’s final
guidance.
How could age discrimination arise in practice?
– Evidential difficulties
– Test should be based on actual circumstances rather than
potential interest
– There can be no comparator if part payment of benefits is
not allowed to any member at any age
– Objective justification?

131. What should you be doing? - Formulating a Flexible
Retirement Strategy
What is your HR strategy on flexible retirement – both wide and
narrow?
Does your strategy give rise to any age discrimination risks?
Do you need the buy-in from of any third party before it can be
implemented?
Do you understand the costs of implementing your strategy?
When and how do you communicate with employees?

132. What should you be checking? – Implementing your
strategy
What does the employment contract say?
If an occupational pension scheme – check your rules:
– Do they allow additional accrual beyond age 65?
– Have they retained a leaving service requirement?
– Do they allow for the possibility of wider flexible retirement?
– Permissive power or detailed rule amendments?
If a contract based scheme:
– Check scope with the provider

133. The future of retirement
Or ……
A future without retirement?
Is there a future for retirement?
Challenges for employers, trustees, and individuals

135. TOO BIG TO FAIL! TOO SMALL TO MATTER?

136. Life expectancy rises by 44 days in just one year

138. Most of Europe is worse than this!!!!

141. The future
– for individuals?
Live for longer = work for longer
Medical advances
More than one career/job + mid life gap years?
No cliff edge retirement
Integrated savings/debt repayments
NEST/auto enrolment
Auto escalation
compulsory retirement savings?
Tax incentives or just higher taxes?
Affordability
WE ARE LIVING LONGER, HEALTHIER LIVES

142. The future
– for employers (1)?
Ageing workforce for UK plc ….. but what is your position?
Skills v productivity
Flexible recruitment – target different age groups?
Different retention policies for different ages?
Fewer people able to afford outright retirement
Flexible retirement Flexible reward packages

143. The future
– for employers (2)?
Changing role of the state?
Segmented workforce – one size fits all consigned to history
Planning and action needed
Employer facilitates access (and pays/funds)?
More unfunded liabilities – explicit or implicit?
Review your pay and benefits package and your practices, procedures
and performance criteria
Effective HR becomes more important
More people working is actually better for the
economy

144. A =
Asteroids
Attrition
Auto enrolment
Accuracy
Assets
Ageing workforce
Affordability
Action (not activity)

145. To Do List
Liabilities and data
Assets – can you make them work better?
Know when auto enrolment applies to you and how it
will affect you
Review your policies for older workers!
Be active rather than reactive

146. Question time