Pensions World

The new NAPF chairman, Mark Hyde Harrison, looks ahead

Since I became chairman of the National Association of Pensions Funds (NAPF) in late October, pensions have never been out of the news: whether it be the proposed amendments to public sector pensions and the consequent industrial action, the impact of the continuing economic crisis on scheme funding or the discussions with the government on sourcing infrastructure for pension schemes.

However, the changes which have attracted less comment but which are just as significant are the start of auto-enrolment in 2012 and the recently announced delays in the timetable. The introduction of auto-enrolment is key to reversing the long decline in the number of people saving for a pension.

This matters because if individuals do not make provision for an income in later life, they will have to keep on working much longer or rely on the safety net of the state pension. Auto-enrolment is at the heart of a political consensus on how to balance the interests of individuals, business, the state and ultimately taxpayers.

While the delay to full implementation of auto-enrolment has not holed the consensus below the water line, it is vital that we stay committed to this major change. Further delays would be very damaging as they have the potential to appear as a tax on large employers.

Solvency II

Looming on the horizon and of great importance are possible European Union changes to the funding of occupational pension schemes, sometimes called Solvency II. It is vital that we speak with one voice in the UK and I have been encouraged by the consensus between the CBI, TUC, NAPF and government on this matter, but I would also urge individual companies to assess the impact of this regulation on them and speak up. This regulation has the ability to alter profoundly the financial arrangements of UK pension schemes and is being proposed with little or no thought about the impact it will have. I have been surprised to find out that for European regulation no impact assessment of any regulation is necessary to test the consequences and if it will achieve its objectives. On both counts, this regulation is likely to have damaging results and is unlikely to promote its stated objective of encouraging cross border pension provision. The NAPF is working hard in Europe with other pension trade bodies to respond to this consultation and is engaging with other countries that might be opposed and press the UK government to hold firm on this issue.

Global financial crisis

Finally, the crisis in global financial markets centred on the eurozone is new territory for many in the pension world. It is clear that this crisis will not be short-lived and will last for much of 2012. Markets are now being driven by political events rather than economic fundamentals and there is no easy solution.

Understandably, in times such as this, companies and trustee boards are considering what, if anything, they should do. One of the concerns I hear is that quantitative easing is distorting the gilt market so that we are no longer seeing a true market price on which to price pension scheme liabilities. Given this background, the NAPF will argue for pragmatism from the Pensions Regulator in the latest round of funding valuations. We also will continue to push for more index linked assets’ issuance. In this regard, the announcement by the government – in conjunction with a willingness on both sides – to see how UK infrastructure can be purchased by UK schemes is a very welcome development.

2012 will be a year of great change and I look forward to working with everybody in the pension industry to produce better outcomes.