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The Actuary The magazine of the Institute & Faculty of Actuaries

Pensions Act 1995 requirements on scheme actuaries

Opra representatives and the profession have met a number of times to discuss aspects of the operation of the Pensions Act 1995, as it affects both parties. As a result of these meetings, it was agreed that this note be written to let actuaries know what to look out for when acting as a scheme actuary, by knowing the areas Opra has already investigated and has taken up as professional issues with actuaries. The note also illustrates the extent of Opra’s caseload in respect of actuaries’ apparent breaches of the Act. This note has been written with the full co-operation of Opra.
When Opra first opened for business in 1997, awareness of the Pensions Act 1995 was limited. What’s more, compliance with the requirements of the Pensions Act was understandably patchy. This was particularly true among the huge number of small schemes and employers that have always accounted for the lion’s share of Opra’s work.
In those early days, Opra was working to make its own presence known within the pensions community at the same time as raising awareness of the Pensions Act. Strategically, Opra was loath to bear down too heavily on non-compliant schemes before they had come to terms with their new responsibilities.
The Pensions Act has now been in force for nearly five years. Opra’s experience shows that awareness and also acceptance of the Pensions Act has risen substantially during that time.
Both Opra and the profession consider it would be helpful, particularly for scheme actuaries, to draw attention to Opra’s expectations of the scheme actuary and the types of complaints that Opra may make to the profession in connection with reporting duties under the Pensions Act and other breaches in relation to matters covered by paragraph 2.9 of the Professional Conduct Standards (PCS) (Version 1). Undoubtedly Opra’s expectations have risen, and it is important for scheme actuaries to be fully aware of the circumstances which may lead to a complaint being referred to the profession.
Publicising names of employers and trustees
Opra’s approach in relation to professional advisers (eg auditors and actuaries) breaching the Pensions Act regulations or relevant professional standards, while acting in their capacity as a member of that profession (eg scheme auditor and scheme actuary), is to report them to the relevant professional body. This differs from the treatment of employers and trustees (who could include actuaries), upon whom Opra may directly impose penalties.
In April 2001 the Opra board decided to publicise the names of the employers and trustees it punishes for breaches of the Pensions Act. It will only publicise cases where the Opra board has imposed penalties, but not until after the time limit for requesting a review of the decision has passed, or where a review has been requested, once the decision of the review committee has been made. Opra will not publicise the vast majority of cases which, when compliance has been achieved, have been closed without being presented to the board.
Opra intends to use more than one route to publicise the cases:
– List all Opra determinations resulting in a penalty on its website.
– For other offences, determination committees of the Opra board may decide to issue a press release publicising a specific case. The determination committee will use its discretion in deciding to issue a press release. The committee will consider factors such as the severity of the offence, the number of breaches involved, and whether there is an educational benefit in publicising a particular case.
This means that Opra will send out a press release for certain cases, but will list all cases on the Opra website.
Opra hopes that this new approach will initiate a marked change in compliance levels while also spurring scheme members to take a greater interest in how well their occupational pension schemes are run.

Opra’s expectations of the scheme actuary
Breaches by scheme actuaries and auditors will normally be reported to their professional bodies, which follow their own disciplinary procedures. The Pensions Act has a mechanism (sections 48(8) to 48(13)) for Opra itself to impose penalties on scheme actuaries and auditors for failures to comply with the duty to report to Opra under section 48(1) of the Act. But the government has not felt it necessary to issue regulations to bring this mechanism into force, reliance being placed instead on the professions’ disciplinary machinery.
Opra’s guidance Opra Note 1: Section 48 reporting to Opra (ON1), prepared after full consultation with the actuarial profession, sets out in section 9 Opra’s expectations in the area of ‘information received in other capacities’. In particular, section 9.1 states:
Scheme actuaries and auditors may delegate work to staff or other partners of their firms. The scheme actuary and auditor should take steps to ensure that he or she is told about any possible breaches coming to the attention of their colleagues.
Opra advises that the onus falls fairly and squarely on the scheme actuary to ensure that at the very least he or she is aware of the timescales for the preparation of the key ‘actuarial’ elements of the Pensions Act 1995 framework: the production of the minimum funding requirement (MFR) valuation report and the certification, and where required re-certification, of the associated schedule of contributions.
These are matters that Opra considers the scheme actuary should be aware of in respect of all their trustee clients at any point in time. While the responsibility for obtaining an MFR valuation and putting in place a schedule of contributions falls to the trustees, the scheme actuary has a central role in these matters. Accordingly, in Opra’s view, it is not tenable except in particularly exceptional personal circumstances for a scheme actuary to argue that he or she was not aware of the key dates relating to MFR/schedule of contributions breaches and so could not come to a judgement as to whether to report to Opra.

Opra complaints to the Faculty or Institute
Actuarial advice is provided to Opra by three actuaries employed by the Government Actuary’s Department (GAD), two of whom are seconded full-time to Opra to assist Opra in its investigations. These are called ‘Opra actuaries’ in this note.
There are two main types of complaints that Opra may make to the Faculty or Institute:
a Alleged failures by scheme actuaries to comply with their reporting duty under section 48(1) of the Pensions Act. Such complaints are made by Opra to the Faculty or Institute in line with its commitment in section 2.6 of ON1 to make available to the relevant professional body all the information in its possession relating to such a case. Further information on the procedure used to determine when a complaint is called for is set out below.
b Other breaches by actuaries in relation to the matters covered by paragraph 2.9 of the Professional Conduct Standards (PCS), of which Opra actuaries become aware and which the Opra actuaries cannot resolve in accordance with that paragraph. The judgement as to whether such a breach merits a complaint falls to the Opra actuary (in exactly the same way as the provisions of paragraph 2.9 apply to all actuaries), but any such complaints have been and would be made with the full knowledge of Opra senior management; Opra’s current practice is that all complaints are made jointly by an Opra actuary and an Opra regulatory director.
Opra has confirmed that it would consider making a complaint in relation to section 48(1) failures where the failure to report in a timely fashion relates to:
i breaches suggesting dishonesty or the misuse of assets or contributions;
ii any breach of pensions legislation which carries a criminal sanction;
iii a failure by the trustees to obtain an MFR valuation in accordance with section 57 of the Pensions Act;
iv a failure by the trustees to obtain the scheme actuary’s certification of a schedule of contributions in accordance with section 58 of the Act;
v a failure by the trustees to obtain the scheme actuary’s opinion on the adequacy of the schedule of contributions in accordance with section 57 of the Act;
vi a failure by the trustees to prepare or maintain a statement of investment principles in accordance with section 35 of the Act; and
vii a failure by the trustees to appoint a scheme actuary within three months of the resignation or dismissal of the new scheme actuary’s predecessor.
Items (i) and (ii) are specified in ON1 as matters which Opra would generally expect to have reported to it (Opra Note 1 may be found on the Opra website at www.opra .gov.uk/publications/notes/on1-01.shtml). Items (iii), (iv), (v), and (vi) link to the ‘Significant Events’ detailed in section 7 of GN29 (version 4.0). Given the key role of the scheme actuary, failure to appoint a scheme actuary within the timescales required by the Act item (vii) would generally be a breach that the new scheme actuary would judge should be reported to Opra.
The procedure which Opra follows in considering whether the particular circumstances of a case merits a complaint (whether in relation to section 48(1) failures or other breaches) is as follows:
a Opra will write to the scheme actuary concerned requesting a full explanation.
b On receipt of a response from the scheme actuary Opra will consider whether the matter still appears to warrant a complaint being made.
c If it does not, then Opra will write to the scheme actuary, and possibly also his or her firm, explaining the decision not to take the matter further and the reasons for this decision. Opra may also alert the scheme actuary and his or her firm to actions which might be taken to avoid a repetition of the failure in question.
d If the matter does warrant making a complaint, Opra will seek comments from the senior actuary within the scheme actuary’s firm who has responsibility for monitoring compliance with professional guidance.
e After a response from this senior actuary has been received, a final decision will be made as to whether a complaint is called for. If the decision is to make a complaint, both the scheme actuary and the senior actuary of the firm will be notified.
The procedure above is always subject to any enquiries of the scheme actuary or his or her senior colleague not prejudicing Opra’s investigations into the scheme.
Opra does take into account the individual circumstances of each case in deciding whether to make a complaint. It is recognised that the decision about what to report rests with the scheme actuary and that the sound exercise of professional judgement by the scheme actuary may lead to a decision not to report. However, there are certain key requirements under the Act falling firmly in the domain of the scheme actuary that are fundamental to the Pensions Act framework where, should the scheme actuary not report in a timely way, Opra is entitled to seek an explanation for this decision.
Suppose, for example, that Opra is investigating the apparent failure by a scheme actuary to report a failure by the trustees to obtain an MFR valuation within the prescribed timescales. Opra will start from the position that the scheme actuary is aware of the relevant deadlines (see ‘Opra’s expectations of the scheme actuary’ above). There may be circumstances when Opra does not make a complaint in respect of this failure, for example:
– if the scheme actuary has exercised his or her professional judgement constructively and members’ benefits have not been put in jeopardy;
– if the scheme actuary has only recently been appointed and reported promptly following appointment; or
– in particular extenuating circumstances, for example the ill-health of the scheme actuary.
In summary, in around 120 cases over the past three years or so Opra has sought explanations from scheme actuaries about apparent failures to report, or other professional issues which, after further consideration by Opra, have not led to complaints. Around 45% of these cases relate to apparent failures to report relevant MFR/Schedule of Contribution breaches; a further 45% relate to the wording of Schedules of Contributions; the remaining 10% relate to apparent failures to report breaches not related to funding issues, generally in situations where there has been a change of scheme actuary. During the same period Opra has made 12 complaints to the profession, eight of which related to section 48(1) reporting failures under (iii), (iv), or (v) above (late reporting of MFR/Schedule of Contribution breaches). The remainder related to other professional issues; where applicable the outcome of any tribunal decisions will be reported in The Actuary.