UK - Consultants have warned the introduction of standards around mortality assumptions could become a "worthless compliance exercise" as trustees and employers require "targeted advice".

Such comments follow the publication of a discussion paper by the Board of Actuarial Standards (BAS) on actuarial mortality assumptions, which outlines its plans to issue mandatory and principles-based standards.

In addition, the discussion paper also suggested separating out the assumptions for current base mortality rates and future changes, rather than using margins in other assumptions - for example when pension schemes use interest rates or discount rates to calculate liabilities.

BAS also noted because, in many cases, the assumptions used in actuarial calculations are determined by pension trustees and not by actuaries, it is concerned about the level of information trustees are given before they take their decisions.

As a result, the paper revealed the standards will be  "coherent, consistent and comprehensive", but admitted they would also be primarily "of a technical nature", as the law requires some assumptions to be "prudent", while others are required to be best-estimates or market consistent.

However, Watson Wyatt has claimed while the BAS discussion paper "gives due recognition" to the difficulties in predicting the future course of mortality and the need for trustees and employers to understand the implications of this uncertainty, it believes they should not be "bombarded" with too much information.

James Wintle, senior consultant at Watson Wyatt, said: "What trustees and employers need is targeted advice, clearly presented in a form that is engaging and meaningful to them. I believe it would be unhelpful for pension trustees and employers to be bombarded with reams of standardised information purely to satisfy any future standards.

"A danger of a tightly prescribed set of information is that it may quickly become viewed as a worthless compliance exercise, which would not help raise levels of understanding," he added.

However, Paul Seymour, chairman of the BAS, pointed out one of the organisation's goals is to ensure decisions are based on "sound and defensible assumptions" so the aim of the paper is to "discuss the part that technical actuarial standards might play in achieving this goal".

He said: "We need to hear from the pension scheme trustees and insurance company directors who necessarily make decisions based on assumptions about mortality. They need information that can assist them to understand risks.

"Actuaries providing advice must focus on how best to communicate the choices to be made, the uncertainty surrounding them and their implications," added Seymour.

That said, Joanne Livingstone, principal at Punter Southall, claimed while it "seems likely" that some standards will be introduced, there is debate as to whether the standards should just relate to the reporting and disclosure of mortality assumptions or go further, perhaps setting criteria by which assumptions must be set or even having limits on the assumptions.

She added: "In the main the paper argues that the latter would not be practical and I would agree with this view. There is a risk that any attempt to prescribe a prudent assumption might lead to a herd instinct being followed by actuaries and trustees alike."

The discussion paper follows a recent consultation paper by The Pensions Regulator (TPR) in which it outlined plans to introduce a mortality funding trigger, based on long cohort mortality projections.

At the same time, the Pension Protection Fund (PPF) also announced its decision to change the mortality assumptions used in section 179 calculations to the medium cohort projections. (See earlier IPE stories: Mortality 'trigger' could increase liabilities by £75bn; PPF changes could reduce number of eligible schemes)

In addition, BAS confirmed it intends to publish further work on this area over the next couple of months, including a consultation on the content and structure of the book of actuarial standards and the exposure draft of a reporting standard.

The discussion paper can be downloaded from the BAS website, and will close to consultation responses on June 20 2008.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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