Changes to longevity assessments

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23 July 2008

The Pensions Regulator (TPR) has delayed the introduction of changes to the way it assesses longevity assumptions under the statutory regime for funding defined benefit schemes.

Changes will now come into effect from the beginning of the next valuation cycle starting in September 2008.  They will affect valuations and recovery plans due from December 2009.  The original proposal was for a new approach to apply to valuations with effective dates from March 2007.

The substance of the proposal in TPR's February consultation paper is that schemes should reflect continuing improvements in longevity:

  •  by adopting the long cohort assumption, and
  •  if assuming that the rate of improvement tends towards zero, adopt a minimum underpin of 1%.

A recovery plan out of line with the proposal would be likely to attract extra scrutiny from TPR.

This 18 month delay in implementation is TPR's first reaction to the comments it received during the consultation that closed in May.  It plans to publish its full response to the consultation and its final approach to longevity assumptions later this summer.

Comment

Many employers and trustees will welcome this delay in what is a significant proposal.  At a practical level it means schemes will not need to revisit valuations already under way.

Many will also be pleased to see TPR responding helpfully, even if only on a timing issue.

But there is no news of any alteration to the substance of a proposal that some say is too prescriptive given the fundamental uncertainty about how prudent any longevity projection is.  We must wait to see how responsive TPR will be to the substantive points respondents have raised.

The recently closed consultation on ideas to widen TPR's moral hazard powers to issue contribution notices and financial support directions may be an even bigger test of its willingness to take account of genuine concerns.  There are worries that these proposals might be against interests of both employers and trustees.

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