Skip to main content
The Actuary: The magazine of the Institute and Faculty of Actuaries - return to the homepage Logo of The Actuary website
  • Search
  • Visit The Actuary Magazine on Facebook
  • Visit The Actuary Magazine on LinkedIn
  • Visit @TheActuaryMag on Twitter
Visit the website of the Institute and Faculty of Actuaries Logo of the Institute and Faculty of Actuaries

Main navigation

  • News
  • Features
    • General Features
    • Interviews
    • Students
    • Opinion
  • Topics
  • Knowledge
    • Business Skills
    • Careers
    • Events
    • Predictions by The Actuary
    • Whitepapers
    • Moody's - Climate Risk Insurers series
    • Webinars
    • Podcasts
  • Jobs
  • IFoA
    • CEO Comment
    • IFoA News
    • People & Social News
    • President Comment
  • Archive
Quick links:
  • Home
  • The Actuary Issues
  • February 2013
02

Pension scheme funding: implications of the chancellor's Autumn Statement

Open-access content Monday 11th February 2013 — updated 4.33pm, Monday 4th May 2020

Chancellor George Osborne's Autumn Statement mentioned that the Department for Work and Pensions will be consulting on a new statutory objective for the Pensions Regulator to consider the long-term affordability of deficit recovery plans, and whether to allow companies undergoing scheme valuations in 2013 or later to smooth asset and liability values.

On December 5 2012, Chancellor George Osborne made his Autumn Statement. This mentioned that the Department for Work and Pensions will be consulting on a new statutory objective for the Pensions Regulator to consider the long-term affordability of deficit recovery plans, and whether to allow companies undergoing scheme valuations in 2013 or later to smooth asset and liability values. 

The announcement demonstrated that the government is aware of the problems that the current low gilt yield world is causing for pension scheme funding in many defined benefit (DB) schemes. Increasing liability valuations have not been accompanied by increasing asset values. Deficits have risen and funding requirements have increased, with recovery plans pushed further into the future. As economic conditions remain challenging, many sponsors have struggled to grow their business while trustees ask them for increasing pension contributions.

In April 2012, the Pensions Regulator commented that the current funding regime offered the correct degree of flexibility. However, the autumn conference season offered other bodies opportunities to spell out how they would like to see easement of the current conditions. HM Treasury has heard the comments and the DWP will consult.

As a body, the Institute and Faculty of Actuaries supports the Pensions Regulator's view that the present regime is suitable, but if a consultation process is to commence (and we believe this will happen before the second quarter of 2013), it is important that the right questions are asked. No-one will benefit from a new regime that could lull trustees and scheme sponsors into viewing the world through a skewed looking glass.

In the Code of Practice on Scheme Funding, the word 'afford' appears once in paragraph 101: "Trustees should aim for any shortfall to be eliminated as quickly as the employer can reasonably afford. What is possible and reasonable, however, will depend on the trustees assessment of the employer's covenant." If a new sentence were added to paragraph 2, where the objectives are set, would there be any difference to the funding regime? Would trustees continue to have discretion on what is affordable, or would the Pensions Regulator assess that? Assuming trustees have taken affordability into account when setting recovery plans, will this addition to the objectives change anything? As most schemes are not sponsored by FTSE 350 companies, is there sufficient knowledge within the Pensions Regulator to allow informed decisions to be taken on affordability of schemes?

The law of unintended consequences could also result in the regulator intervening where affordability has not been an issue for trustees. Could the regulator ask for sponsors to pay more quickly because there is a stockpile of cash or other liquid assets on the balance sheet?

The consultation should also cover the relationship between objectives. If the inclusion of affordability within objectives were to lead to lower contributions, this would, at first glance, reduce security within schemes, which would increase potential claims on the Pension Protection Fund (PPF). Almost certainly there would be an offset to lower contributions from increased levies.

Changing an objective is straightforward, but it is the implication of that change that could be significant.

The Institute and Faculty of Actuaries is interested in hearing from members about the questions that should be asked within the upcoming consultation. These should address practical concerns and unintended consequences rather than the historical debate of the sustainability of valuation methods, although members understandably hold strong views on that subject. Please contact Philip Doggart, policy manager at the Institute and Faculty of Actuaries, with any comments.

Email [email protected]

This article appeared in our February 2013 issue of The Actuary.
Click here to view this issue
Filed in:
02
Topics:
Regulation Standards

You might also like...

Share
  • Twitter
  • Facebook
  • Linked in
  • Mail
  • Print

Latest Jobs

Senior Underwriting Risk Manager

London (Central)
£85K-£95K + Benefits
Reference
124386

Reserving Manager (Contract)

London (Central)
£1200 - £1400 per day
Reference
124385

Life Actuary - Contract - IFRS 17 Financial Impact

England, London / England, Bristol / North Yorkshire, England
£900 - £1150 per day
Reference
124384
See all jobs »
 
 

Today's top reads

 
 

Sign up to our newsletter

News, jobs and updates

Sign up

Subscribe to The Actuary

Receive the print edition straight to your door

Subscribe
Spread-iPad-slantB-june.png

Topics

  • Data Science
  • Investment
  • Risk & ERM
  • Pensions
  • Environment
  • Soft skills
  • General Insurance
  • Regulation Standards
  • Health care
  • Technology
  • Reinsurance
  • Global
  • Life insurance
​
FOLLOW US
The Actuary on LinkedIn
@TheActuaryMag on Twitter
Facebook: The Actuary Magazine
CONTACT US
The Actuary
Tel: (+44) 020 7880 6200
​

IFoA

About IFoA
Become an actuary
IFoA Events
About membership

Information

Privacy Policy
Terms & Conditions
Cookie Policy
Think Green

Get in touch

Contact us
Advertise with us
Subscribe to The Actuary Magazine
Contribute

The Actuary Jobs

Actuarial job search
Pensions jobs
General insurance jobs
Solvency II jobs

© 2022 The Actuary. The Actuary is published on behalf of the Institute and Faculty of Actuaries by Redactive Publishing Limited. All rights reserved. Reproduction of any part is not allowed without written permission.

Redactive Media Group Ltd, 71-75 Shelton Street, London WC2H 9JQ