22 January 2007
The Minister for Pensions Reform, James Purnell has announced
the Government's decisions on the way that pensions transfer values
are to be calculated.
Under current arrangements, responsibility for the calculation
of pensions transfer values is delegated to actuaries and to their
professional body, the Actuarial Profession. Guidance for actuaries
on the calculation of individual transfer values is contained in
the guidance note GN11.
On 21 March 2006 the Government announced that it intended to
legislate, to put the principles underpinning the calculation of
individual transfer values into regulations. In June 2006 the
Department consulted on approaches to the calculation of pensions
transfer values.
In a written statement, Mr Purnell announced that pensions
transfer values will be calculated based on the expected cost to
the scheme of providing the pension.
Mr Purnell said: "After an extensive consultation it has become
clear that the great majority favour this way of calculating
pensions transfer values.
"This approach will mean that the success or sustainability of
the pension scheme is not put in jeopardy by any transfers that do
take place."
The regulations will also provide that:
- The trustees of the pension scheme will be responsible for the
determination of the actuarial assumptions used to calculate
transfer values.
- The trustees will be required to determine the assumptions in
the calculation of transfer values on a "best estimate" basis.
- The trustees will be required to use a discount rate in the
calculation of transfer values which reflects a "best estimate" of
future returns, having regard to the existing asset mix of their
scheme.
- The trustees will continue to be able to reduce transfer values
where the scheme is underfunded.
- The trustees will be allowed to deduct any reasonable
administrative costs incurred from the transfer value.
- The trustees will have to provide members considering whether
to transfer with more information.
The Government will publish draft regulations for consultation
in the first part of 2007.
GN11 is to be adopted by the Board for Actuarial Standards in
April 2007, but it will continue to apply until the new regulations
come into effect in April 2008.
