Lowtax Network

Back To Top

Unisex GAD rates and a new service for defined benefit schemes

Contributed by MW Pensions
12 October, 2012

Unisex GAD rates from 21.12.12

The draft Statutory Instrument that will be laid before Parliament to require that, with effect from 21st December 2012, unisex GAD rates will apply has now been issued. The 2011 male tables will apply for all pensions reviews effective from on or after that date, irrespective of whether the member is male or female.

This will of course mean that the 100% GAD rate for females will be higher than previously.

A new service for IFAs who have clients with corporate defined benefit schemes

Many IFAs have clients who have defined benefit corporate schemes. Whilst these will almost inevitably now be closed to new entrants and to future accrual, they will also almost certainly not be fully funded.

Trustees of course are (quite rightly) required by law to act in the best interests of the members. A consequence of this is that by definition the trustees’ advisors similarly are acting in the best interests of the members. But it is the employer (who normally has the power to appoint or remove trustees) who foots the bill – and often the costs can be out of control.

We have recently come across a not untypical case. It is a final salary scheme and has less than 40 deferred members and 5 pensioners, assets of about £2M, an “actuarial” ongoing deficit of c£400k and an estimated winding up deficiency of close to £2M

The most recent actuarial valuation recommended annual contributions of £72,000 for 15 years to meet the ongoing deficit of £400k. In other words, contributions in excess of £1M are required to meet a liability of £400k. How can this be? The answer is – administrative and other costs. Yes the costs are roughly 60% of the required contributions. Put another way – the annual administration costs are 150% of the actual liability!!!

What can be done? We offer a service for a fixed fee whereby we work with the employer to review the provision of all the services being provided to see if they can be done more cheaply and more efficiently but still within acceptable professional standards. In many cases, similar to the one above, the present situation may well be that the client is receiving a “Rolls Royce” service when a standard “Ford Fiesta” would be perfectly adequate for the scheme’s circumstances.

What is involved?

Trustee services

The present trustee may be inappropriate in terms of size and location for the current scheme. We will help the employer review the way in which the current trustee provides services as well as look at alternative providers, perhaps more local to the client.

Administration services

As with the trustee we will review the existing provider and look at alternatives. Very often the current administrator will be an historical appointment, dating back to when the scheme was much larger and open to new members. Indeed the IFA may have the capability themselves of fulfilling that role going forward.

Investment manager

Whilst the law requires that the Statement of Investment Principles is agreed between the trustee and the employer, this can increasingly be a sensitive topic for discussion. The trustee will inherently look for a safe conservative investment policy whilst the employer will be concerned that such a policy my result in unacceptably high contributions. We can assist the employer in their discussions with the trustees on this important matter. Additionally the employer should be actively involved with the trustees in ensuring that the investment manager is appropriate to the scheme and acceptable to both parties. The higher the investment return (within acceptable risk), the lower the ongoing contributions. Increasingly cash flow is an issue – as a scheme matures the number of pensioners increases and more and more cash is needed from contributions and investment income to meet the monthly pension outgo. The investment management fees must be negotiated to as low a level as possible. A review of the investment manager by the trustees, with input from the employer (assisted by us) may well be appropriate.

Actuarial services

A review is likely to be needed. It is not untypical that (again for historical reasons) a large firm is being used for the provision of actuarial advice, whereas a smaller, more local firm, may now be more suitable.

Legal advisors

The same logic will apply to the lawyers – not all the pensions lawyer are based in London!


Maybe the employer’s own auditors would be able to do the pension scheme audit for a more competitive fee than the present scheme auditor.

Selective annuity purchase?

We all know how poor annuity rates are. But maybe it would be worth looking at annuity purchases for single lives or for impaired lives.

A business plan

A final part of the jigsaw is for us to assist the employer in putting together a Business Plan for the scheme, to get it “under control”. In the example above, a task might be to reduce the administration cost by at least say a third and hopefully a half (which would save £14,000 to £20,000 a year) and to put together a way whereby in 5 years’ time, the deficit was reduced to say £150k or £200k

Please contact us if you would like to know more about this service.

Gilt Yield for Drawdown

The gilt yields to be used for drawdown calculations are:

August 2012


September 2012




We do not give financial advice and no comments here are intended as such. The above information is based on our understanding of the legislation governing pensions at the time of writing.  Before taking any action you should consult a qualified financial and/or tax adviser. Levels, bases of and reliefs from taxation may be subject to change.

This information is intended for professional advisors only, not members of the general public   

October 2012


« Go Back to Articles

Articles Archive

Event Listings

Listings for the leading worldwide conferences and events in accounting, investment, banking and finance, transfer pricing, corporate taxation and more...
See Event Listings »