The Association of Consulting Actuaries says its members favour a scheme-specific method of calculating pension transfer values, ignoring the option developed by the Actuarial Profession.
In its response to the Department for Work and Pensions’ consultation on transfer values, the ACA also says it is pleased the government has recognised what transfer values are supposed to represent is a matter for public policy.
The consultation, which ended on 11 August, followed the failure of the Actuarial Profession to decide on the best way forward in calculating transfer values after the DWP's plan to replace Guidance Note 11 (GN11) with Exposure Draft 54 (EXD54) met with concern among the industry.
Its plans to use a discount value at the lower bond yield rate would mean transfer values would have to be higher to compensate and some believed this plan would have a detrimental effect on already vulnerable defined benefit (DB) schemes.
As a result, after the actuarial profession asked the government to step in, the DWP launched a consultation which outlined three possible methods of calculation:
- Prescribed assumptions
- Scheme-specific basis
ACA - the representative body for consulting actuaries as opposed to the professional bodies of the Institute and Faculty of Actuaries - says, in its response, a survey of members found 77% believe the policy should be based on the expected cost of benefits to the scheme.
And 70% of members favoured a scheme-specific approach, with 59% of these preferring best estimate assumptions over technical provisions, while just 7% supported the EXD54 approach.
In addition, the ACA says it does not believe there should be a statutory requirement for DB schemes to offer a transfer value, and believes reductions in transfer values to an underfunded scheme should be allowed no matter which method of calculation is chosen.
It also believes the information regime should be strengthened so the member understands both the benefits and the risks in transferring to a different scheme, including a leaflet setting out the issues members need to consider, which could be issued by the Pensions Regulator.
However, one point on which the ACA agrees with both the Association of British Insurers (ABI) and Standard Life, in their responses to the consultation, is transfer values should not be restricted to a three-year cycle.
The ACA says while it would welcome any changes to the legislation which would reduce the number of transfer value quotations produced by schemes unnecessarily, it does not agree with restricting the provision to every three years.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
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