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UK roundup: Towers Watson on S2P, outsourced CIO, Mercer mandates

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  • UK roundup: Towers Watson on S2P, outsourced CIO, Mercer mandates

UK - The introduction of a flat-rate state pension by the UK government could trigger further closures amoung defined benefit schemes, Towers Watson has warned.

Additionally, the introduction of automatic enrolment is likely to result in new ways of delivering defined contribution pensions, the consultancy said.

John Ball, head of UK pensions, said that with the introduction of a flat-rate state pension, which would likely see current additional benefits abolished and merged to one lump sum payment, would mean the end of contracting out.

"If there is no State Second Pension (S2P), there will be nothing to contract out of. That would mean any employer who still has active members in contracted out DB schemes would have to close them or go through a forced benefit redesign to stop costs rising.

He added: "Coupled with the new flexible drawdown opportunities created by the 2011 Finance Bill, this could be the time to re-think the way these remaining DB accruals are managed."

Other predictions for 2011 included that scheme members interest in a higher pension now would lead to many sacrificing future pension increases, to the benefit of sponsoring employers.

Paul Macro, senior consultant said that with the introduction of auto-enrolment, many companies would begin to reassess their scheme designs, with commentators previously fearing a widespread levelling down of contributions.

Macro said: "Automatic enrolment is likely to have much more influence on private sector plan design than any post-Hutton move to risk-sharing models in the public sector.

"In fact, these changes could be a catalyst for the development of new ways of delivering DC pensions that give members appropriate choice and allow the employer to decide how much of the governance is outsourced and how much retained."

Meanwhile, Gatemore Capital Management has been appointed dedicated chief investment officer of the UK defined benefit scheme of management consultancy AT Kearney.

Jonathan Anscombe, chair of trustees said an "ambitious" target to achieve full funding had been set and therefore a proactive adviser was needed.

Mark Hodgson, managing director of Gatemore added: "The trustees want to be involved in the strategic decision making, and indeed should be. They want Gatemore to look outside the traditional approach, as well as to actively derisk the strategy over time."

Gatemore will oversee the implementation of the investment strategy and will handle all investment management appointments.

Mercer has been appointed to provide actuarial services to the University of Reading's pension scheme.
 
The contract, valued at £200,000 (€232,800), saw Mercer succeed ahead of 11 other applicants, with the University emphasising technical ability ahead of value for money in its decision.

The £140m UK pension scheme for Brunner Mond has also hired Mercer to provide provide dynamic de-risking services.

The defined benefit scheme is aiming to achieve full funding, assisted by a new governance framework to protect the fund against downside equity risk.

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