Pensions Arena

April 2020

Dashboard

Investment returns by asset class

Investment yields

Annual rate of inflation (%)

31/03/2019 30/06/2019 30/09/2019 31/12/2019 31/03/2020
Expected RPI inflation over 20 years
3.59%
3.55%
3.46%
3.36%
3.00%
Index-linked gilts
-1.86%
-1.90%
-2.21%
-1.85%
-1.93%
Fixed interest gilts
1.54%
1.44%
0.95%
1.30%
0.83%
Corporate bonds
2.36%
2.25%
1.81%
2.00%
2.31%

Investment yields

31/03/2019 30/06/2019 30/09/2019 31/12/2019 31/03/2020
Expected RPI inflation over 20 years
3.59%
3.55%
3.46%
3.36%
3.00%
Index-linked gilts
-1.86%
-1.90%
-2.21%
-1.85%
-1.93%
Fixed interest gilts
1.54%
1.44%
0.95%
1.30%
0.83%
Corporate bonds
2.36%
2.25%
1.81%
2.00%
2.31%
  • 31/03/2019    ~    3.59%
  • 30/06/2019    ~    3.55%
  • 30/09/2019    ~    3.46%
  • 31/12/2019    ~    3.36%
  • 31/03/2020    ~    3.00%
  • 31/03/2019    ~    -1.86%
  • 30/06/2019    ~    -1.90%
  • 30/09/2019    ~    -2.21%
  • 31/12/2019    ~    -1.85%
  • 31/03/2020    ~    -1.93%
  • 31/03/2019    ~    1.54%
  • 30/06/2019    ~    1.44%
  • 30/09/2019    ~    0.95%
  • 31/12/2019    ~    1.30%
  • 31/03/2020    ~    0.83%
  • 31/03/2019    ~    2.36%
  • 30/06/2019    ~    2.25%
  • 30/09/2019    ~    1.81%
  • 31/12/2019    ~    2.00%
  • 31/03/2020    ~    2.31%

Annual rate of inflation (%)

Sources for market indices​

  • UK equities: FTSE Actuaries All-Share Index
  • Global equities: FTSE All-World Index (Large/Mid Cap) – in sterling
  • Index-linked gilts: FTSE Actuaries Index-linked Index over 5 years, assuming 5% inflation
  • Fixed interest gilts: FTSE Actuaries Fixed Coupon Index over 15 years (yield is 20 years)
  • Corporate bonds: iBoxx over 15 years AA corporate bond index
  • Expected RPI inflation over 20 years: Bank of England RPI implied inflation spot curve at 20 years (force of interest)
UK equities
FTSE Actuaries All-Share Index
Global equities
FTSE All-World Index (Large/Mid Cap) - in sterling
Index-linked gilts
FTSE Actuaries Index-linked Index over 5 years, assuming 5% inflation
Fixed interest gilts
FTSE Actuaries Fixed Coupon Index over 15 years (yield is 20 years)
Corporate bonds
iBoxx over 15 year AA corporate bond index
Expected RPI inflation over 20 years
Bank of England RPI implied inflation spot curve at 20 years (force of interest)

Pension developments / Company news

Pension developments

January

Pension Schemes Bill

  • the Bill had its second reading in the House of Lords, with issues raised about wide-ranging powers being granted to the Regulator and concern that new criminal sanctions might capture normal business activity.

New WPC Chair

  • Labour MP Stephen Timms, was announced as the new chair of the Work and Pensions Select Committee, stepping into Frank Field’s shoes.

February

FCA follows DWP lead

  • the FCA published final rules requiring contract-based pension arrangements to disclose costs and charges on their default funds for calendar year 2020 by 31 July 2021. The following year, costs and charges must be disclosed for all fund options.

Future of trusteeship

  • the Regulator published its response to the consultation on the future of trusteeship and governance. A review and updating of the content of the Trustee Knowledge and Understanding (TKU) code is expected for consultation in the early part of 2021.

New Chancellor

  • Sajid Javid resigned and was replaced by Rishi Sunak.

GMP equalisation tax guidance

  • HMRC published guidance on tax issues arising when schemes equalise benefits in line with the Lloyds Banking Group judgement. The guidance covered the annual and lifetime allowance issues but not any adjustments to benefits if the conversion method is used to equalise benefits.

March

New funding code

  • the Pensions Regulator published the first consultation on its new funding code. Schemes will need to have a long term objective, which is to be fully funded on a low risk funding basis within 15 to 20 years. There will be two routes that a scheme can choose in order to satisfy TPR at a funding valuation – fast track (a standardised approach) or bespoke, which will require a lot more information/justification.

Budget 2020

  • new higher limits were announced for the tapered annual allowance. In the 2020/21 tax year, threshold income is raised to £200,000 and adjusted income to £240,000. The minimum annual allowance is reduced from £10,000 to £4,000, which will apply to those whose adjusted income is £312,000 or more.

Covid-19

  • the Pensions Regulator published a range of guidance for trustees, employers and administrators. This included information for DB scheme trustees whose sponsoring employers are in corporate distress. Trustees were told to be open to employer requests to suspend deficit contributions and to consider suspending cash equivalent transfer values. HMRC published some temporary changes to processes for scheme administrators. The 10% increase to the general schemes levy, due to take place on 1 April 2020, was cancelled. Publishing the revised timeline for issuing final GMP data cuts was delayed to the end of April 2020.

Company news

De-risking

  • Three Lloyds Banking Group pension schemes reinsured £10 billion of their longevity risk with Pacific Life Re.
  • The Co-operative Pension Scheme (known as PACE) completed a £1 billion bulk annuity deal with Aviva covering the liabilities of around 7,000 members and 12% of the scheme’s assets. PACE then secured a further £1 billion buy-in with Pension Insurance Corporation.
  • The Merchant Navy Officers Pension Fund agreed a £1.6 billion buy-in with Pension Insurance Corporation. The deal covered 14,000 members and included those who were previously part of a 2014 longevity swap.
  • Allied Irish Bank’s UK scheme secured an £850 million buy-in with Legal & General. The scheme also agreed a further £250 million de-risking deal with L&G against specific investment-related risks.

Funding

  • The valuation of the BAE Systems section of the main BAE DB scheme at 31 October 2019 produced a £1.9 billion deficit. In response, the Company agreed to pay contributions of £1.24 billion over the coming months and around a further £250 million by 31 March 2021.
  • ITV lost its eight year legal battle against the Pensions Regulator and was given six months to put financial support in place for the Box Clever pension scheme. The scheme has around 2,800 members and a £115 million deficit.
  • Due to Covid-19’s impact on investment markets, the Universities Superannuation Scheme exceeded the threshold of its key self-sufficiency funding measure for five consecutive days and accordingly reported this to the Regulator. The trustees are said to be considering what action to take, in the context of the funding valuation due at 31 March 2020.

Plan design

  • The AA was reported to be consulting on stopping DB accrual for the 2,800 active members of its career average revalued earnings scheme. The scheme had a £342 million deficit at its March 2018 annual funding update.
  • Britvic was told its scheme cannot change from RPI to CPI linked pension increases. The judge ruled that the scheme could only use a higher rate than that specified in its rules (rather than a lower one).