UK - The Pension Regulator's (TPR) proposals to introduce a funding trigger based on long-cohort mortality assumptions have been criticised by the industry for going "one step too far".

The National Association of Pensions Funds (NAPF) has raised a number of concerns in its response to TPR's consultation on mortality assumptions for defined benefit (DB) schemes - which closed on May 12 2008 -  arguing the new trigger would place "unnecessary pressure" on DB schemes.

The organisation claimed the decision to use a long cohort projection for the trigger, rather than the medium cohort currently used by many schemes, will have "unintended consequences". (See earlier IPE article: TPR to introduce mortality funding 'trigger')

It warned the proposals would "push trustees to adopt this assumption in all circumstances - even when it is not justified by their scheme-specific circumstances or when sufficient prudence has been exercised in the selection of other valuation assumptions".
As a result, the NAPF said it had three specific concerns prompted by TPR's proposals:

The use of long cohort mortality assumptions will increase the estimate of liabilities and require early additional funding from employers, which places pressure on the sustainability of good DB schemes; The ‘trigger' is likely to be interpreted by trustees as a new minimum requirement, which is contrary to the principle in the Pensions Act 2004 stating decisions regarding actuarial and funding assumptions should be scheme-specific and not set by a government agency, and
The evidence supporting long cohort mortality assumptions is "still open to debate", as a recent Board of Actuarial Standards (BAS) discussion paper described the uncertainties involved in future changes as "immense". Nigel Peaple, director of policy at the NAPF, said: "This latest proposal goes one step too far in trying to ensure trustees adopt prudent assumptions. What is intended as guidance will end up being treated as a new minimum requirement."

He warned the "wide-scale adoption of this assumption", even where it is not appropriate, would increase liabilities and scheme costs and "undermine the future of high-value DB pension provision".

The NAPF's concerns were also echoed by the Confederation of British Industry (CBI), which claimed employers are already taking action to "ensure employees' pensions are protected as life-spans improve".

Richard Lambert, director-general of the CBI, said: "Imposing an overly prescriptive regime would undermine the Regulator's scheme-specific approach and needlessly raise costs for companies, weakening their ability to keep pension schemes open for future saving."

As a result, the NAPF claimed TPR "would do better" to focus on education and guidance rather than "implicit, though unintended, prescription", as trustees would welcome good practice guidance on choosing assumptions.

The proposed changes have already raised concerns among consultants who claimed that the move to a long-cohort projection for mortality assumptions could increase overall UK pension liabilities by around £75bn (€94bn), particularly as TPR would have a legal power to impose the assumptions on "imprudent" schemes. (See earlier IPE articles: Mortality 'trigger' could increase liabilities by £75bn and TPR given power to impose mortality changes on 'imprudent' schemes)

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