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The Actuary The magazine of the Institute & Faculty of Actuaries

BAS issues Pensions and Insurance Standards

The Board for Actuarial Standards has now issued its first technical standards on pensions and insurance respectively. This follows the Reporting, Data and Modelling generic standards which came out in the last year or so.

The Pensions Standard, which emerged in October, comes into force on 1 April. A major part of the standard relates to explaining clearly what assumptions or bases are in use and why, so that lay readers can understand the actuary’s approach. It is an evolution of existing Guidance Note standards, although there are some new aspects of the standard, such as the proscription of adjustments in one parameter being proxies for another (for example, 0.25% off the discount rate to allow for improving mortality). Explaining to clients the reason for any changes between reports (whether formal valuations or not) is given emphasis in the standard.

The Insurance Standard has a longer lead-in time until 1 October 2011. It covers all types of insurance (though medical defence doesn’t quite make the bill as ‘insurance’). Its aim is also to ensure that information is comprehensible and that risks are properly addressed for the benefit of the users. So, clear actuarial information on the sufficiency of premiums to meet risks is required but it is then up to the users commercially to decide to what extent (if any) business is to be written at a profit.

Finally, BAS has decided not to tinker with TM1, the standard for money purchase pension illustrations. It will be updating the mortality bases therein, but the changes to be put forward will not come into effect until April 2012. Notably, BAS echoes what the FSA has been cautioning regarding over-optimistic projection bases. Whereas the FSA uses the three projection rates of 9%, 7% and 5% per annum (but warns that lower rates should be used if the investments cannot achieve those), now BAS is warning that the simple 7% per annum rate should also be lowered if the invested fund cannot match that.