TPR mortality delay "too late" for some funds
UK - The Pensions Regulator's (TPR) decision to delay the introduction of a mortality "trigger" until the end of 2009 has come "too late" for some schemes, Watson Wyatt has claimed.
Following responses to its consultation on changes to longevity assumptions, TPR has now confirmed the changes will not apply until the beginning of the next defined benefit (DB) valuation cycle, which starts in September 2008.
Delaying the implementation of the changes from valuations in March 2007 to September 2008 means the proposals will only impact valuations, and follow-up recovery plans from schemes in deficit, which must be submitted to TPR by December 2009.
David Norgrove, chairman of TPR, said: "In order to ensure that we have the time to fully consider all of the [consultation] responses, and to clarify that the original proposed date of introduction did not mean that schemes needed to restart valuation processes that had already begun, we have decided that any changes will be introduced from the start of the next valuation cycle.
"This will impact valuation dates from September 2008, with any necessary recovery plans due up to 15 months later in December 2009," he added.
However, Watson Wyatt claimed the delay would come at the "wrong time" for some schemes, particularly those that had March 2007 valuation dates.
Paul Kitson, a senior consultant at Watson Wyatt, admitted some trustees and employers at an "advanced stage of negotiations can breathe a sigh of relief now they won't have to tear up what they've agreed and start again".
However, he claimed: "This sensible change has come too late for some. Schemes with March 2007 valuation dates have already submitted their valuation documents. They were told late in the day that the proposed trigger would affect them and now learn that it would not have done after all."
In addition, Kitson pointed out some schemes which are due to submit valuations over the next few months "will have gone over the same ground twice because they did not have time to wait and see if the Regulator would have a change of heart".
"Whatever the final shape of the Regulator's proposals, there will be some valuations that bear the imprint of its consultation paper," he added.
Meanwhile, Deborah Cooper, principal at Mercer, expressed concerns about the TPR's reference to the mortality "trigger" as a change to the scheme funding regime.
She said: "The guidance, published for consultation and aimed at trustees, was just an indication of best practice not a change to the law or regulations. We understood that the proposed longevity trigger was a tool for TPR's internal use."
Cooper claimed TPR's announcement appears to "pre-empt new powers proposed for it in the Pensions Bill", but argued trustees who can demonstrate they have considered the available evidence and reached a reasonable conclusion "should not have to worry that TPR can overturn their decisions".
"TPR's role should not include imposing standards on trustees," said Cooper.
"It may have certain aspirations regarding trustee behaviour but trustees should be able to diverge from this where appropriate. Any changes made should be because trustees believe they are necessary," she added.
The consultation paper, published in February, proposed the introduction of a mortality "trigger" based on long-cohort mortality assumptions instead of the more commonly used medium-cohort assumptions, which would result in increased liabilities for pension schemes. (See earlier IPE.com article: TPR to introduce mortality funding 'trigger')
But while increases in longevity is recognised as a problem by the pensions industry, many criticised the proposals as "one step too far" and warned the plans could undermine the future of DB provision, particularly as TPR would have a legal power to impose the assumptions on "imprudent" schemes. (See earlier IPE.com article: Industry criticises TPR mortality trigger)
Kitson admitted "sooner or later, the Regulator's proposals will cover everyone", but claimed it was important that TPR had decided to "spend another few weeks fine-tuning its ideas".
"No one knows what will happen to life expectancy in future. If we end up with a better set of proposals because the Regulator thinks seriously about the points made in response to its consultation, it will be worth the wait," Kitson added.
TPR revealed it is "considering carefully" more than 80 responses to the consultation, but said it expects to publish a full response to the consultation and the final version of the new approach later this summer.
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