UK - Pension fund trustees will be required to devise an extra set of actuarial assumptions under new regulations on transfer values, but actuaries Hamish Wilson & Co believe funds might get away with only one.
From April 2008 the task of choosing assumptions for the calculation of cash equivalent transfer values (CETV) will shift from the actuaries to the pension fund trustees.
The trustees will have to draw up a set of "best estimate" assumptions for the CETVs in addition to the "prudent" assumptions they already have to choose for the valuation of the pension fund's assets.
However, Greg Wilkinson, partner at Hamish Wilson, thinks trustees might only opt for one.
"Instead of having two sets of appropriate assumptions, one for the valuation based on prudence and one for the transfer based on best estimate, trustees might choose a set of assumptions based on best estimate and put a contingency margin on top of that to cover the prudence requirement for the valuation."
Wilkinson pointed out that the new regulations, which the Department for Work and Pensions (DWP) has just put up for consultation, will not bring about much change in the actual calculation of the CETVs as best estimate was used by many actuaries until now.
However, he said now that trustees are made responsible for these assumptions it will "focus their attention to where they put their prudent margins in the assumptions for the valuation".
"Now that they have to have a best estimate basis it will show the trustees more explicitly where they have their prudent margins in the funding basis because they can compare the two bases," Wilkinson explained. Trustees can then choose whether to put the prudent margin in on each assumption or choose an overall contingency margin.
Meanwhile the Board for Actuarial Standards (BAS) has launched a review of the assumptions about mortality made in actuarial calculations. It said that it will be working together closely with the Actuarial Profession, the Financial Services Authority (FSA) and The Pensions Regulator in its review.
The Actuarial Profession has today published today a 'library' of mortality projections. It said the initiative by its research body Continuous Mortality Investigation (CMI) was aimed at improving "access to information on mortality". Feedback on the 'library' is welcomed, the Actuarial Profession said.