Work carried out by actuaries on pension incentive exercises will have to meet the Financial Reporting Council's technical actuarial standards, it was announced today.
The independent regulator said extending the scope of the standards would address concerns that members of defined benefit pension schemes may be misled by the financial incentives they are offered in exchange for giving up valuable pension benefits.
Concerns over how incentives for transfers are offered has already led to a government-backed industry working group publishing a code of practice earlier this year aimed at improving standards and stamping out bad practice in incentive exercises.
Olivia Dickson, chair of the FRC's actuarial council, said today's decision reflected the fact that pension scheme members being offered incentives can face 'difficult and complex' choices.
'It is important that members are provided with clear, reliable and sufficient information so that they can take informed decisions. Actuarial work is carried out at various stages of these incentive exercises and can influence the terms of incentives offered and the communications to members.
'In order to provide greater assurance of the quality of actuarial information provided, the FRC has decided to bring incentive exercises into the scope of the pensions technical actuarial standards.'
The FRC launched a consultation on bringing pensions incentive exercises under the auspices of its technical actuarial standards in February.
Yesterday the FRC published a draft revision to AS TM1, the actuarial standard which sets out how pension providers should establish the assumptions about future investment returns they include in the illustrations of final pension payments given to savers.
The draft revision has been issued for consultation in the wake of a joint FRC-Financial Services Authority consultation issued in May considering various assumptions used in pension projections.
Under the plans issued today, the FRC will remove the current maximum 7% cap on assumed investment returns which, it said, had sometimes been used by providers as a default assumption. Providers should make justifiable assumptions that take account of the nature of their members' investments rather than using standard numbers.
Dickson added: 'Several million people receive Statutory Money Purchase Illustrations every year. Providers must think very carefully about the investment returns which they assume in these illustrations and take account of how much of each pension scheme member's fund is invested in cash, bonds, shares and so on. Providers should document and be able to justify the assumptions on which the projected investment return for each member's fund have been calculated.'
