The minimum transfer value of a defined benefit scheme will increase by 6.5% under the Institute of ...
The minimum transfer value of a defined benefit scheme will increase by 6.5% under the Institute of Actuaries' proposed changes to the MFR.
This is due to the change in assumptions based on people living longer. As a result, the cost of providing each pension will go up and MFR liability will increase. Minimum transfer values are determined by the MFR basis.
Equally, pension schemes that are currently 100% funded using today's MFR calculation, would fall to 95% if the Treasury's calculations are adopted.
Stewart Ritchie, pensions director at Scottish Equitable, said the proposed calculation would be stronger and the pension would therefore become more valuable.
He said: "A 5% hole appears in order to keep the MFR test at the strength for which is was originally designed." Ritchie was supportive of the document released last week, especially the emphasis it places on discrepancies and misapprehension of pension scheme members.
For example, he said, sometimes members are told by their trustees that the pension fund is 100% funded. However, if it were to wind up tomorrow then it is likely to be only 80% funded as the original figure is often based on forward projections.
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