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The Actuary The magazine of the Institute & Faculty of Actuaries
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Industry news

Companies blind to pension risks
ICAS research reveals a lack of awareness of pension liabilities
The Institute of Chartered Accountants of Scotland (ICAS) has published research conducted with Aston and Nottingham Universities, which suggests that few top companies realise the sensitivities of their remaining final salary pension liabilities to further financial or longevity risk.

According to the report, companies should be following International Accounting Standards Board (IASB) guidelines in providing better disclosure of the sensitivities of their liabilities. David Wood at ICAS said that “by failing to disclose risks associated with pension schemes in their annual reports, FTSE 100 companies are not alerting users to the potential future changes in surpluses or deficits” and suggested that a “shroud of secrecy around pension risks needs to be lifted in order to improve the quality of information to investors”.

ICAS urged the IASB to require mandatory risk disclosures in annual reports along the lines of those recommended in the ICAS report, which also recommends further disclosure of the level of risk exposure from different investment strategies.

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Jewellery value set to sparkle
NFU Mutual has issued a warning to those who have their valuables insured to check up on their current value. Always an issue for insured customers to update the contents insured, the rising price of gold and other precious metals means that the contents of the safe might be worth rather more than people thought.

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ACA seeks simpler tax rules
The Association of Consulting Actuaries (ACA) has called for simplicity in the implementation of a revised regime for restricting tax relief on pension contributions, although it has asked for measures to make it easier for groups of affected pension scheme members.

Responding to the suggestion of a reduced Annual Allowance, the ACA calls for rules to protect members from being taxed on merely the inflationary increase to their accrued pension; a simple approach to the calculation which applies on early retirement with an ill-health pension; a degree of ‘carry forward’ being reintroduced for pension planning; and anti-avoidance measures that are tightly focussed.

No doubt an army of tax inspectors will be ready to provide a slew of new pages for the registered pension schemes manual.

Ambulance-chasers are on the run
The UK government is intending to clamp down on some of the more questionable practices of firms involved with personal injury claims or other compensation — so-called ‘ambulance chasers’. The latest ploy is for firms to send unsolicited text prompts to people encouraging claims. The trend for firms to try to negotiate compensation for injury or offer to sort out debt has given rise to unscrupulous firms, many of which are closed down by the Ministry of Justice for breaching coldcalling rules or for unfair upfront fees, let alone fraudulent activity.

Whether or not we have a real growing compensation culture continues to be the subject of much debate — and concern for the insurers who end up picking up much of the tab.

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Audit trail leads too close to home
The Financial Reporting Council has drawn attention to the ethical risks which arise when an audit firm is auditing pension cost numbers which depend in part on the work done by that firm’s own actuarial practice.

In the case of PwC, considered by the Professional Oversight Board (POB), one of its audits was found to have been too reliant on its own staff’s actuarial valuation, notwithstanding that the valuation numbers were updated by an independent firm to produce the pension cost figures for the report and accounts.

The POB believed that the independent actuary’s reliance on PwC’s actuarial valuation created too much of a self-review threat for the auditor. The problem is unlikely to arise at PwC in future as the firm has sold its pension trustee business to Xafinity, in order to concentrate on delivering pensions advice to corporate clients.

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Infrastructure fund compensation call
A group of 30 pension funds which had invested significantly in an infrastructure fund run by Henderson is demanding compensation.

Infrastructure investment has had a patchy history, being a mix of holdings of income-producing roads, schools and hospitals and development activity more akin to normal private equity investment. In particular, the Henderson fund invested in the John Laing business which itself found it had a pension deficit hole, resulting in significant falls in the value of the fund.

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EMI’s pension discord
The ongoing saga of EMI and its pension deficit continues to plague the company and The Pensions Regulator. The regulator has referred to a determinations panel the issue of how much cash the company should pay into its heavily underfunded scheme.

At the same time, Terra Firma, the private equity firm that bought EMI, is going to arbitration with Citigroup over the claim it overpaid for the business. The company’s report and accounts suggest the pension fund could need an injection of more than £200m.