Pension - Your Income in Retirement
Protecting your future income
Pensions are the second most important benefit of employment, after salary, and FSU, along with pension fund trustees, continues to work to ensure fair outcomes for our members.
The pension schemes that will provide retirement income for thousands of our members and their families have been under unprecedented pressure in recent years. Even before the recent financial crisis played havoc with the value of pension schemes worldwide, the general trend towards increasing life expectancy was already leading to demands for reviews to ensure that the schemes had sufficient funds to provide for the extended years enjoyed by pensioners. The crisis has added a new urgency to these reviews - which have already revealed substantial funding deficits which have generally been addressed by one or more of the following:
- increasing contributions from the employer;
- increasing contributions from the employee;
- reducing the scheme's liabilities by restructuring the benefits available for future and/or existing pensioners.
With many Defined Benefit pension schemes in both the Republic of Ireland and the UK experiencing significant difficulties in recent years, Trustees have a very challenging task to address these problems while at the same time protecting the members' interests. In Defined Contribution schemes the challenges are very different as the scheme members bear all the risk that their pensions contributions may not provide an adequate retirement income. As the recognised trade union in the financial services sector, FSU takes a very responsible approach to the challenges faced by the pension schemes and, through the member nominated trustees (MNTs), plays a significant part in addressing the problems. The complexity and governance associated with the running of an occupational pension scheme has continued to increase and MNTs find themselves under increasing pressure in terms of both time and knowledge.
Pension Fund Trustees
Pension schemes established under trust are legally required to provide for at least one-third of Trustees to be member-nominated. While the process is different between the two jurisdictions and among different banks, the requirement is absolute. Accordingly members can take comfort that in all Defined Benefit schemes there are fellow FSU members working in your interests as a scheme member. Member-nominated Trustees often provide a more trusted channel of communications for members and are more in tune with the mood of the scheme membership.
What does a Trustee do?
Clearly a Trustee must have an interest in the running of the employer’s scheme and a desire to serve the interests of fellow members. The issues facing schemes in the financial sector include funding, governance and operational challenges in the current regulatory climate.
As these are significant issues to address, Trustees need to have:
- An ability to challenge advice from professional advisors Integrity and a capability to use judgement and discretion based on common sense and experience
- Attention to detail
- An appreciation of the strategic issues and an ability to interact at all management level.
Ideally a reasonable level of knowledge and understanding should be evident and a clear commitment to enhance those levels over time. It is only through ongoing training that Trustees can develop the key competencies of the role.
Why are there employer-nominated and member-nominated Trustees?
While all trustees have a legal duty to fulfil and to ensure that schemes are run in accordance with the scheme rules, MNTs can offer a different perspective and point of view as well as greater freedom to challenge the employer . MNTs are a valuable conduit for members to raise concerns and questions with those responsible for running their pension scheme. MNTs are often seen as a more approachable and readily accessible source of information and advice. In the current climate of uncertainty and of benefit changes it is vital that scheme members get an understanding of future implications.
Defined Contribution schemes
In the expanding world of Defined Contribution (DC) schemes, the ultimate goal is that each member's investment account is sufficient to purchase an annuity that provides a reasonable level of pension income during retirement. In DC terms this means that the investment performance has delivered the growth required over the investment period to build on the employer/employee level of contributions. The real world challenges for MNTs in DC schemes are that often the member/employer does not contribute sufficiently, the annuity rates are expensive and/or the investment returns are disappointing. Any combination of these factors can have a devastating impact on the member’s pension.
Defined Benefit schemes
Defined Benefit (DB) Trustees have the responsibility of delivering the pensions promise to retiring DB members and accordingly their focus is often on funding/recovery plans. The scheme and the Trustees must also be concerned with longevity risk, interest and inflation risks alongside investment returns. With DB schemes the Trustees have to be concerned about the continued support of the sponsoring employer and the corrective levels of contribution. It can be challenging to balance the contributions into the scheme with the employers capability and willingness to contribute.