A look back at 2019 in the world of pensions…

2019 was definitely a year to remember – though perhaps for change which didn’t materialise, rather than for that which did. All in all, these are the issues that mattered most to our pensions experts.

We expected dramatic transformation in the regulatory landscape in 2019, however the dangling carrot was rarely caught – instead being whipped away as a result of political movements in other arenas.

Meanwhile, our in-house specialists kept their finger firmly on the pulse, considering how potential changes might affect the industry and our clients in the near future. 

However, before we reveal what 2020 is likely to bring, we are looking back on some of the significant developments of this past year, from the evolving powers of TPR to the latest GMP guidance. So whether your interests lie in securitised credit, pensions taxation or the bulk annuity market, I invite you to take a seat by the fire, put your feet up, and reflect on where we’ve been…

Early 2019

2018 ended with the publication of the Competition and Markets Authority’s review of the market for investment consulting and fiduciary management services.

As the New Year began, we considered what actions should be taken by schemes with fiduciary managers in place or those that are about to appoint a fiduciary manager. In particular, many schemes will have to revisit their approach to tendering for services.

Chris Binns, Principal and Senior Investment Consultant

2019 also started with reflection on the Lloyds judgement setting the tone – and establishing a recurring theme (see below) – for much of the rest of the year.

A key stage in preparing for equalising Guaranteed Minimum Pensions (GMPs) is completion of reconciliation and rectification. As HMRC continues to clear up schemes’ GMP data discrepancies, we have been encouraging trustees to closely monitor their agreed timescales for rectification projects.

Paula Hendry, Principal and Pension Administration Manager

The European Pensions Directive IORP II came into effect at the start of the year. It imposed stricter requirements on the way schemes are run, affecting matters such as governance, risk management and member communications. However UK pension schemes will only have to comply with the Directive once the UK Government sets out how they should do so in regulation and code of practice. That’s still to come. With it will be the need for more trustee time and resources (equalling cost) to meet these new requirements. This will be layered on top of other codes of practice related to funding and trusteeship which are also anticipated in 2020. We commented on some of the aspects of IORP II. 

For many schemes, some of the additional work will fall to their scheme secretaries. It’s important that trustees understand the skills, delegated powers and capacity their support team have and also know how to assess its effectiveness. We therefore outlined the importance of this role.

Christine Kerr, Associate and Senior Pension Management Consultant

In the March 2019 edition of its annual funding statement, The Pensions Regulator (TPR) showed signs of the ‘clearer, quicker, tougher’ regulator promised in the Government’s 2018 Green Paper. While we await TPR’s new powers to be formalised in a Pension Schemes Bill – and a new Scheme Funding Code of Practice – the regulator is steering defined benefit (DB) scheme trustees to focus their funding approach on long-term journey planning.  

We are now awaiting the outcome of a General Election that will influence whether, and in what form, the Pension Schemes Bill is resurrected in a new parliament. In the meantime, schemes should ensure they have established a journey plan towards their long-term funding target, even before it becomes a statutory requirement to do so.

Tyron Potts, Associate and Head of Pensions Research

Spring into summer

In May this year, TPR put additional pressure on sponsors to focus on their DB pension Endgame – and reported that their tougher approach had “resulted in fairer treatment of members of a DB scheme”. 

Dividends are but one example of the types of “covenant leakage” TPR wants to manage, but are by far the easiest to measure so are likely to remain the Regulator’s key focus. It is vital that scheme sponsors work with DB scheme trustees to set a robust and achievable endgame strategy that appropriately balances security of members’ benefits with corporate interests.

Jane Ralph, Principal and Senior Corporate Actuary

The GMP Equalisation Industry Working Group published good practice guidance as the year unfurled – giving a clear steer for schemes to go about GMP equalisation following the Lloyds High Court ruling in late 2018. Our research, published shortly after, showed that many schemes’ preparations were well underway by autumn, with around half of schemes having taken steps to adjust benefits or put a formal plan in place. For others, it was a useful reminder to heed the working group’s ‘call to action’ published in July.

Whilst there may be some areas still waiting legal clarification, such as the tax implications of applying uplifts, or how to approach previous transfers-out, trustees of affected formerly contracted-out schemes should be engaging with their advisors now.

Tyron Potts, Associate and Head of Pensions Research

On the back of a strong and generally persistent equity bull market over recent years, some trustees have started to question whether their Diversified Growth Funds (DGFs) are fit for purpose and whether they have actually disappointed. We argued that DGFs have generally not disappointed against their stated objectives, with many having delivered what they said they would i.e. growth returns with less volatility than equities. However, some DGF mandates may not be what trustees were expecting them to be. 

Trustees should consider the sources of return they are exposing their assets to, and try to gain a balance.  One area often overlooked by DGFs is exposure to less liquid markets and we advocate building up exposure to illiquid assets where appropriate which can improve the overall spread of investment returns.  

Chris Binns, Principal and Senior Investment Consultant

In July, PASA’s DB Transfers Working Group issued guidance aiming to enhance DB scheme members’ transfer experience – focusing on improving efficiency for administrators, and communication and transparency throughout. This followed TPR’s review, which found that large numbers of members continued to receive advice to transfer out of their DB schemes.

This was surprising given the Financial Conduct Authority’s stance that transfers from DB schemes are unlikely to be suitable in the majority of circumstances. Trustees should consider their processes and engage with their administrators in light of PASA’s guidance.

Paula Hendry, Principal and Pension Administration Manager

Summer into autumn

With increased gilt market volatility and an uncertain political outlook, we urged trustees to put in place a plan for meeting potential margin calls on their LDI portfolios if gilt yields rise. Just as trustees have taken steps to diversify their growth assets, they should also look to diversify the sources of liquidity that could be used to meet margin calls.

Potential solutions to the LDI collateral pool conundrum are securitised credit and asset backed securities which we took a detailed look at in September. With the latter receiving some bad press and being linked to the 2008 financial crisis, this has led to much tighter regulation of the asset class. Whilst there is still somewhat of a stigma attached to securitised credit, we believe this can actually prove to be an opportunity for trustees looking to generate a higher return than can be obtained from cash or money market funds.

Chris Binns, Principal and Senior Investment Consultant


From 2019, the contributions that schools are required to make for their staff in the Teachers' Pension Scheme increased dramatically. This has prompted many independent schools to take a fresh look at the way they provide pension benefits to teaching staff, whilst considering the best interests of the school, pupils, parents and teachers. 

We therefore helped many school bursars and governors manage pension and benefits for teaching staff during the year, and outlined the steps that a school might take after considering the options available.

Andy Parker, Partner and Senior Client Relationship Manager

Following increased demand for member engagement, combined with a need to ensure correspondence is issued securely, we outlined our expectations that trustees to soon place significant focus on implementing a paperless strategy.

Not only is going paperless better for the environment, it encourages pension scheme members to use online systems and allows trustees to monitor those communications which are generating most interest. 

Paula Hendry, Principal and Pension Administration Manager

TPR’s consultation on the Future of Trusteeship and Governance closed on 24 September. Among other things, this looked at how to ensure trustees have the required knowledge and understanding to carry out their roles and diversity. There appears to be broad support for improving standards. However, making requirements too onerous, in particular for member nominated trustees, might stop people stepping up to the role. Perversely, this might actually reduce board diversity. 

The consultation addressed whether all trustee boards should have an accredited professional trustee. This is seen by many as a step too far and in any event there are not currently enough professional trustees to deliver such a service. Some industry voices argue that professional trustees should only be appointed where value for money can be demonstrated and measured. However, if you do have a professional trustee then we argue – and have – that they should have a formal accreditation. Whatever the final outcome from the Regulator it is likely to mean increased governance requirements for trustees.

Christine Kerr, Associate and Senior Pension Management Consultant

In the autumn, the Government issued a high-profile consultation on changes to the NHS pension scheme – the result of headaches caused by a complicated pensions taxation system. Taxation complexity however, is much more wide-ranging in impact than NHS consultants’ benefits. Maintaining a protected pensions allowance is no easy task, and there have been many pitfalls in 2019.

With another tax-return deadline approaching, the New Year would be a good time to consider whether action is needed to reduce your tax bill. There are five ways you could lose a protected pension allowance, however, there are also a number of key actions to avoid this. It is important not to leave thinking about pensions taxation until it’s time to submit your annual tax return. By then, it may be too late.

Tyron Potts, Associate and Head of Pensions Research

The latter part of the year

There has been a steadily increasing focus on transfers from DB schemes to defined contribution (DC) arrangements, which has led to around 10% of FTSE 350 schemes undertaking transfer exercises. This has reduced the FTSE 350 pension buyout deficit by roughly £2.5bn. 

While transfer exercises can be reasonably cash intensive, they can bring forward buyout dates and settle liabilities in a cost-effective way. For sponsors and members to benefit from the opportunities available, timing is crucial.

Jane Ralph, Principal and Senior Corporate Actuary

Applications for existing master trust authorisation closed at the end of March 2019, with the six trusts authorised by the summer rising to 37 open for business by the end of October 2019. Due diligence and ongoing governance should be seen as vital for any organisation looking to use a Master Trust arrangement in the future. They can certainly provide an excellent solution in the current pensions market, but it’s vital the right one is chosen. Once this decision is made, it's important that the arrangement is monitored on an ongoing basis to ensure it continues to remain fit for purpose.

Demand for master trust services has been significant, with some employers looking for a wholesale move to this form of future DC delivery, while others want to use it as a ’bolt on‘ to an existing arrangement to cater for deferred members and/or for “in retirement” benefits. It is important to remember that biggest is not necessarily best. Member outcomes can be improved through scheme re-designs, wind ups and transitions to Master Trusts.

Andy Parker, Partner and Senior Client Relationship Manager

The bulk annuity market looks to have had another record-breaking twelve months in 2019. Around £40bn of DB pension scheme liabilities will have been insured compared with £24bn in 2018 and £14bn in 2017. This demand allows insurers to be selective and choose which transactions to pursue. With evidence of segmentation in the market, insurers are focusing on those cases where they have the best chance for successful completion. 

Despite the high demand, insurers’ pricing has continued to be attractive and competitive. While this will drive many schemes to explore a transaction now, trustees and sponsors should carefully plan their route to transaction in order to achieve insurers’ most compelling pricing and overall offering.   

Jane Ralph, Principal and Senior Corporate Actuary

Much has been made of Environmental, Social, and Governance (ESG) investing during 2019, with trustees required to develop policies for factoring ESG matters into their investment decision-making. Barnett Waddingham has been at the forefront of thinking on this topic and helped a wide range of clients consider, implement and monitor ESG-friendly investment strategies. As the first consultancy to sign up to the Pensions for Purpose initiative, you can expect us to continue the momentum around ESG and look forward to other great initiatives in 2020 and beyond. 

Although many consider ESG-friendly investment to be an exclusionary approach, it’s actually becoming a core part of investment management and one on which individual members are likely to have a strong view. We believe DC scheme trustees in particular are likely to disengage their membership if ESG factors are not taken into account.  

Chris Binns, Principal and Senior Investment Consultant

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