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The Actuary The magazine of the Institute & Faculty of Actuaries
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Pensions Board news

Moving on...

This month’s column is my last as chairman of the Pensions Board. It comes at the end of an interesting and busy two years for the board which occurred against a backdrop of change, both within the profession and in the broader pensions industry. Our work has been dominated by guidance and driven largely by external developments, in particular the revamping of UK pensions legislation and the outcome of the Morris review.

Inevitably such pressures on the board’s time meant that we couldn’t consider some wider issues as fully as I would have liked. However, I am extremely pleased that we have now substantially resolved at least two notoriously difficult areas which had eluded the previous five boards – namely GN16 (Retirement benefit schemes – transfers without consent) and GN11 (Retirement benefit schemes – transfer values).

  • GN16, version 3.0 was a fundamental revision and restructuring of this guidance note. This had become necessary because of ambiguous legislation that was not in the board’s gift to change. It came into effect on 5 April 2005 and was its first update in almost a decade. The changes followed extensive legal advice on the interpretation of the enabling regulations and, to further assist members, counsel’s opinion was published alongside the revised GN16.
  • The longstanding issues around transfer values culminated in an unprecedented number of responses to EXD54 in mid-2005 which yielded no clear consensus on an appropriate way forward. Following discussions with the Department for Work and Pensions (DWP) and a meeting with the minister for pensions reform, we were pleased to reach agreement that transfer values are a matter of social policy and, therefore, for government not actuaries to decide the fundamental principles of their calculation. We look forward to the forthcoming DWP consultation and introduction of a statutory framework for the principles underlying the calculation of transfer values.

In addition, we issued several new guidance notes: GN48 (Compliance review: pensions), the first of the profession’s peer review initiatives to be implemented; GN49 (Scheme-funding matters on which advice of actuary must be obtained); and GN51 (Modification of subsisting rights without consent), both of the latter introduced as a result of the Pensions Act 2004. We also revised versions of numerous others, often to take account of legislative developments.

Along with our Guidance Committee, we have worked hard to ensure a smooth handover of existing pensions standards and its work in progress to the newly established Board for Actuarial Standards (BAS).

Influence

Influencing the DWP, the Pensions Regulator, and others, so that legislation not only achieves their policy intentions but also is workable in practice, has long remained one of the board’s key objectives. Over the past two years, the board – mainly through its Legislation Committee – has considered almost 100 formal consultations and prepared responses on behalf of the profession to all those which raised issues of actuarial importance. Responses to informal and pre-consultations were also sent where appropriate. In addition, numerous meetings have been held with DWP, Opra/ the Pensions Regulator, Pension Protection Fund (PPF) and others to discuss a wide range of legislative and policy issues including specific meetings on section 67, scheme (-specific) funding, the financial assistance scheme, European pensions directive, and the development of the Pensions Regulator’s codes of practice and the Pension Protection Fund.

While we have often found the most effective means of achieving our objectives is through private discussions with officials, sometimes more public measures have proved to be necessary. During the passage of the then Pensions Bill through Parliament in September 2004, the board issued an open letter to the DWP and a briefing paper detailing its concerns about the communication of member-protection issues under the proposed new section 67 provisions. We achieved our desired outcome when our concerns were addressed (and the record corrected) by the government spokesman during the subsequent debate in the House of Lords.

In addition, the board continues to regard disclosure to members as sacrosanct and we have consistently pressed government for its inclusion in legislative measures wherever practicable. While again most of this has been behind closed doors, we have become more willing to state our concerns publicly. Last June I aired the issue of member disclosure in the context of the new scheme funding requirements at the profession’s pensions convention. The board was rightly concerned that saying something was ‘prudent’ might not be easily understood by members of pension schemes and so might lead to a false sense of security. I am grateful for the feedback I have received from many of the convention participants about the line we have been taking, which also received helpful external coverage in the Financial Times.

Board initiatives

This past year also saw several board-driven initiatives come to fruition and others commence work.

  • In early 2005, we established the Sponsor Covenant Working Party in response to the issue’s increased importance under the new funding regime. The working party’s report was well received and launched in November 2005 at a series of board-sponsored events around the country which attracted over 300 people, including actuaries, accountants, corporate recovery specialists, and trustees.
  • The Cass International Study of Mortality Tables, commissioned by the board via its International Committee, examined current practice by comparing mortality assumptions used in corporate pension liability calculations across various EU countries and with the population mortality tables within each country. In contrast to previous studies, the emphasis here was placed on the practical application of mortality assumptions in relation to occupational pension schemes.
  • The board established its Solvency Working Party to consider whether the use of a consistent definition of solvency in all legislative references would be desirable and, if so, to advise on an appropriate way forward to try to achieve this. The working party also led (and is still leading) the profession’s discussions with DWP on the consideration of possible alteration to or clarification of the debt regulations.
  • The Member Options Working Party’s remit is to consider issues arising from the member options commonly found in UK occupational pension schemes and make recommendations to the board. Its final report is expected to be submitted shortly for the board’s consideration.

Although much can be accomplished during a two-year term, it would be unrealistic to expect to achieve all of any board’s objectives in such a short time. We have continued, and built upon, the work of previous boards in encouraging accessibility to members via presentations to regional societies, the ACA,and NAPF, in furthering ongoing relationships with DWP, the Pensions Regulator, ICAEW, and others and in working to improve standards. We were also pleased to see the positive mentions in the parliamentary ombudsman report of our predecessors’ warnings about the widely held misunderstandings of the MFR. The board is anxious to avoid history repeating itself through continued misunderstanding of funding issues. Therefore, and as noted above, we have continued the approach of calling for satisfactory member disclosures to avoid the potential for misunderstanding of the replacement scheme specific framework.

Given the changing operating environment both within and outside the profession, the new board can expect to face different challenges and priorities in the forthcoming session. Much of the work completed during my two-year term as chairman has been in anticipation of these new challenges. However, I hope the new board will continue to develop our existing work influencing government and regulators while strengthening its focus on education, CPD and research matters. And who knows – they may even have the time to consider some of the broader issues we couldn’t!

I wish my successor and the board well as they continue to build upon the board’s existing achievements and develop and define their roles in the new post-BAS world. As his well-deserved retirement beckons, I would also like to take this opportunity to thank Mervyn Bryn-Jones, our board secretary, for his steadfast support and good humour during these busy two years, all too often having gone way beyond the strict call of duty.