UK - A new clause in the UK's Pensions Bill will allow The Pensions Regulator (TPR) to impose its preferred, stronger mortality assumptions onto schemes and potentially increase liabilities by 9%, Punter Southall has revealed.

The actuarial consultancy said TPR's 'proposal' to introduce a mortality funding trigger, based on long cohort mortality assumptions, has already raised concerns as the stronger assumptions could add 9% to the liabilities of an average scheme, and £75bn (€98bn) to the liabilities of UK pensions overall. (See earlier IPE story: Mortality 'trigger' could increase liabilities by £75bn)

Jane Beverley, head of research at Punter Southall, said it was initially thought TPR would only have the power to investigate schemes which activated the mortality 'trigger', and would not be able to impose the preferred long cohort assumptions onto a pension fund.

However, Beverley revealed clause 109 of the current Pensions Bill will allow TPR to use its full funding powers - including the power to set assumptions - in cases where a scheme's technical provisions do not comply with the 'prudent' requirement.

The explanatory notes attached to the Bill state the purpose of the clause is to provide "clarification" regarding doubts about the use and limit of TPR's powers on assumptions used in the calculations of a scheme's technical provisions. 

These notes confirm the regulator can use its powers "where the sole ground of concern is that the actuarial methods or assumptions do not appear to be prudent".

Beverley has therefore warned if trustees use mortality assumptions which tail off to zero - such as a medium cohort projection with no underpin - these are not considered by TPR to be 'prudent', so if this activates the mortality 'trigger' TPR will not only have the power to scrutinise the trustees' decision, but also to impose its own mortality assumptions.
"This clause gives TPR sweeping powers to impose its own views of prudence on pension schemes," she warned.

"TPR has always said that its funding statements are concerned with ‘triggers not targets', but it now needs to clarify whether it intends to use this new power to turn its new mortality trigger into a £75bn bullet for pension schemes."

TPR is currently consulting the UK pensions industry over its proposals to introduce adjustments to the requirements on pension funds regarding the calculation of mortality assumptions.

A spokeswoman for TPR agreed the regulator would be allowed to impose mortality assumptions on schemes where necessary, although she stressed this option would be the "last resort" as it would first engage in discussions with the scheme to try and solve the problem.

This new clause is the latest addition to a Pensions Bill that has already extended the powers of TPR, as it already includes an amendment to give TPR more flexibility over the appointment of professional trustees, particularly in relation to a buyout situation. (See earlier story: Gov't to increase TPR powers over buyout fears)

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