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2013 Pension predictions from Towers Watson

This year will be another challenging one for UK pensions professionals and their clients, according to HR consultants Towers Watson.

The firm believes there will be several key trends during 2013:

Challenging funding negotiations

Everyone thought 2012 was a difficult year to negotiate defined benefit (DB) funding agreements, but this year will be worse. John Ball, head of UK pensions at Towers Watson, said: "It will be hard for the regulator to repeat its argument that most deficits can be accommodated by making modest tweaks to existing recovery plans. What the numbers will look like precisely and how they are dealt with may depend on whether the Government changes the rules before negotiations kick off."

End of contracting out signalled

The Government is expected to publish a White Paper on State Pension reform that will propose ending the option for DB schemes to contract out of the State Pension, forcing employers to review the pensions they offer. John Ball said: "The change should be signalled this year but is unlikely to come in until 2016 or thereabouts. When it does, employers who still have staff in their DB schemes will have to choose between cutting back benefits and swallowing more of the cost themselves - something to which most have not yet given much thought. Offsetting the lost National Insurance rebates with higher employee contributions could be tricky because members will have to pay more National Insurance too."

Bulk buy-ins at highest level for five years

This year will see the bulk buy-in market exceeding £5bn and be at its highest level since 2008. Ben Stone, buy-in specialist at Towers Watson, said: "Last year was a year where pricing opportunities have been available to schemes that were data-ready and asset-ready for transaction. Not all schemes crossed the line before the year-end and we expect to see a number of completed deals in the first quarter of 2013. More generally, pension schemes that have tested the market in the last year are now much better placed to enter into transactions when the time arises and many schemes have good monitoring tools in place to quickly highlight market opportunities relative to their own assets. Once again there is likely to be a number of completed deals in the last few weeks of the year but, as opposed to 2012, we should see a steadier stream of completed deals throughout the year now that schemes are more comfortable in setting objectives and making key decisions in a low interest-rate environment."

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