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£8.2M Pension deficit


#1

From the just delivered Annual Review 2017/18.
Discuss?


#2

I imagine whoever will be the new Chief Exec will work to reduce this. Hopefully pricing won’t be hiked!


#3

Maybe that is why we need a new Chief Exec? No explanation in the report


#4

The explanation would be helpful but I would be surprised if the CEO of the last 5 - 6 years caused this. It’s a defined benefit scheme and many such schemes in the private sector have got into trouble because of a combination of underperformance of the underlying investments and scheme members drawing pensions for longer than expected when the benefit obligations and corresponding contribution levels were established. Hence new actuarial calculations will show a shortfall which needs to be accounted for as a scheme deficit/balance sheet liability.

In the public sector DB schemes are ‘unfunded’ i.e. Pensions are paid from current years’ revenue, not investments made with money paid in by scheme members at the time. And contributions are generally up 30 - 120% on a decade ago to cover the unforeseen costs of current retirees. You can’t do that with investment backed private pension schemes - it would be a Ponzi scheme by definition - so the employer carries the risk.


#5

Here is some relevant material from last year’s AGM.

Some interesting things in there. The things I find strange is that the scheme has only been closed for future accruals (if it has been) in 2017 and that in 2010 legal advice sought was incorrect. I guess the good thing is that in 2007 the scheme was closed to new members.

Looking at last year’s Annual review it is clear that it was then as a consequence of the above when the significant increase in the liabilities (£6.4 million) and thisvyear’s further deterioration is a result of market factors.

As @Jcbl noted it is hardly the Chairman’s fault, if anything their actions to further limit the damage the scheme causes highlighted the true size of the gap.

There is some clarification in the AGM minutes (3 questions at bottom of page 3) linked here.


#6

I was intrigued by this (in the 2017 speech):

‘Of course we are examining our options in relation to the wrong advice received in 2010, but I am unable to share any details with you now: to do so could prejudice our position. As soon as we are able, we will provide an update to members.’

One year on, has there been an update? I can’t see anything in the 2017/18 Review.


#7

I guess the Chairman’s statement and the AGM Q&A might be interesting reading once it is published in the summer.


#8

In my opinion. the issue with this massive debt that now having to be repaid by the entire membership is that bad advice was acted upon by the Society management.
We do not know from whom this incredibly important advice was sought from, but they caused this debt to occur and should bear the responsibility. Professional advisers do have insurance, It would be incredulous if this hugely important decision was taken in-house without consulting a higher authority.
I think, seeing as the Society has started repaying this huge debt that a full explanation should be given to all the membership in advance of the AGM, so that a full and frank discussion might take place with the attending members in possession of all of the facts.
In my opinion, nothing less would be acceptable.


#9

Wow what a liability which will be hard to reduce unless markets and timing are right.
Defined benefit schemes are a thing of the past - they have been shut by virtually every business as they can’t cover the unknown liability for pensions going forward. It’s a luxury businesses can’r afford as its an open ended commitment - i doubt if many members benefit from such extravagant schemes today. I wish I had one!


#10

At the risk of thread drift @Treeebs virtually every “private” business. Public ones such as MPs and the NHS are still defined benefit I believe? You may have views on which employee is more deserving! :slight_smile:
I am lucky enough to two modest (although of course never enough!) periods with defined benefit employment in my career. One of those is about even, one has an excess. Luck and a benefit of multiple baskets for your eggs.
@Taffy-on-Tour would such advice have the FA’s regular (always?) caveat “investments can go down as well as up”?
And would such advice be regulated differently being to business to business rather than to private individuals?

I suspect it’ll be a case of regroup and move on. Unless any recompense is through obuds-type-people the thought of legal action is likely to be eye-wateringly expensive.


#11

In my opinion, a mistake was made due to incorrect advice.
Losses due to market conditions are always a risk,
I have absolutely no issue with the vagaries of the market.
I do question how the Management got the Society into this position, and as members we must pick up the not inconsiderable bill.
Surely there must be questions.
And if you weren’t looking for it, you might have missed it in the Annual Report.
I would wager that the vast majority of members would miss the scant references within the report. Heck, who really reads it all??
I’m not an accountant, so in the numbers may well go sailing over my head.
I my experience, in most organisations, for an error on this scale, heads would roll!
I’m not advocating that, but a detailed explanation at the very least should be made to members as after all, its our money that has been lost.


#12

Clearly we need a follow up explanation at this year’s AGM. Are all of us who are participating in this thread going to it?


#13

I suspect most of the ‘electorate’ would say MP’s and other Government employees being funded an open ended commitment final salary pension scheme is extravagant or extortionate. No one outside ‘government’ has such a luxury today.

Yes investments can go down - but why should the electorate or TWS members fund it?


#14

Let’s say (incoming speculation alert) that TWS employed a firm of reputable accountants/actuaries/advisors/appropriate person or body.
The advice was acted upon.
It was not in hindsight (the only 20-20 kind!) the right advice, although may have appeared so at the time.
If this was the case then TWS acted with reasonable diligence IMHO.

By all means ask questions. Especially as to how any deficit is to be remedied.
One of which means may be to obtain recompense from the poor advisers.
Be aware, however, that in fact no-one may have been “to blame” and it was just bad luck.


#15

You shouldn’t have to attend a meeting in London to get answers to reasonable questions. This is a mutual after all, something I think TWS often forgets.


#16

If you email them to ask, please let us know the answer.


#17

Most schemes (such as mine) are now career average and contributions have gone up significantly to cover current costs and recalculated future obligations. I contribute 14.5% of salary in return for an IOU from the government that it may choose not to honour. I would happily take a fully funded DC scheme instead, given the option.


#18

I think, only from what I have read and shared, that it was legal advice that was wrong.


#19

I can’t add much as an answer to the question at this stage, but I will pass this on.

For everyone’s information, The Society will hopefully be using this community to gather questions from members to put to the committee, so even if you can’t make it to the AGM, your questions can be addressed.

We will make an announcement about this shortly

:slight_smile:


#20

This seems to have sparked quite a debate.

My day job until 2 years ago was heading a team which managed a very large UK DB pension fund. I still do work for them and others on a consultancy basis.

I think that the WS has faced very similar challenges to other UK DB schemes, and difficult decisions are made about this. They have taken similar steps to other schemes.

The current deficit according to the accounts to end Jan 18 is £2.6m. The deficit will be volatile if the liabilities are not hedged, and there are good reasons for hedging and not hedging. There has actually been a considerable improvement in the funding level over the last year, in common with many schemes.

The legal ‘error’ and I use the word advisedly, appears to relate to advice given on ways of mitigating future pension accrual 8 years ago. For what it’s worth, I agree with the QC opinion that the WS got that this was only able to be partially implemented. This led to an increase in the deficit as liabilities were restated upwards by. a couple of million. Not a cash entry. All it did was reverse some of the changes made earlier. I can’t comment on whether that error was a negligent one, but presumably WS senior management would have taken it further had there been a realistic case.

The investment management strategy looks reasonable on the basis of the information in the accounts. The deficit issue is largely down to the volatility of liability valuations. Pension fund accounting is pretty dysfunctional in my view, and a couple of what might appear to be small changes in assumptions can have big implications for stated accounts.

Finally, I think that linking the pension fund issue to the departure of the CEO is speculation and not very helpful at that. The scheme is the responsibility of the Trustees ultimately, usually in close co-operation with the sponsor.

If anyone has any more detailed questions, message me and I’ll try to answer them.