07.11.2024
- PPF publishes full response following s143 valuation assumptions consultation in March
- Marginally overfunded schemes with less than £50m in s143 liabilities now have option to use bespoke discount rate for s143 valuations
- Majority of respondents supported introducing proposals to reduce additional burden and costs on smaller schemes that enter the PPF assessment period
- Publication of the consultation response was delayed due to pre-election period this summer
- Changes outlined in consultation were introduced from 31 May 2024
The Pension Protection Fund has today published its full response to its latest section 143 (s143) valuation assumptions consultation, which outlined proposals to allow marginally overfunded smaller schemes to use a bespoke discount rate for certain valuations during the assessment period.
The s143 valuation is used by schemes to provide an estimated price for securing PPF benefits with bulk annuity providers in the buyout market. For smaller schemes – currently considered to be those with less than £50m in s143 liabilities – using a standard discount rate is underestimating the buy-out price for these schemes.
This leads to marginally overfunded smaller schemes entering the buy-out market, often struggling to receive affordable buy-out quotes, and usually running on as closed schemes before re-entering the PPF. Respondents to the consultation were in general agreement about the proposals but stated that care would be needed to avoid the risk of a scheme transferring to the PPF when it could have secured benefits better than PPF compensation in the insurance or consolidator market.
The changes do not impact s179 valuations.
Shalin Bhagwan, Chief Actuary, said: “We would like to thank all those who took the time to respond, as well as the insurance companies and PPF panel firms who helped us shape the proposals. By introducing this bespoke discount rate for smaller marginally overfunded schemes, we’ll be able to reduce unnecessary costs and shorten the time it takes for these schemes to transfer into the PPF and find a secure home for members.”
Due to restrictions placed on public bodies during the pre-election period, the publication of the full consultation response was delayed, however, the new assumptions guidance took effect from 31 May 2024.
Previously, the PPF only permitted actuaries to use bespoke s143 assumptions for mortality, some other demographic assumptions, and expenses, where there is sufficient evidence to justify them.
Following discussions with six bulk annuity providers and eight PPF-panel trustee and advisory firms, the PPF concluded that otherwise the current standard assumptions generally remain appropriate.
The updated valuation and assumptions guidance documents have been published on the PPF website, along with a full summary of the responses that were given to the consultation.
End
Notes to Editors
In March we published a consultation on changes to the actuarial assumptions required for valuations carried out under sections 143, 152, 156, 158 and 179 of the Pensions Act 2004.
The consultation lasted six weeks and there were nine responses, from eight companies/organisations and one individual respondent.
The Pensions Act 2004 requires the PPF to keep the assumptions used for valuations under sections 143, 152, 156, 158, and 179 of the Act in line with the estimated price of securing PPF levels of compensation with a bulk annuity provider.
A section 143 valuation is carried out during a PPF assessment period. The assets and liabilities for the section 143 valuation are established in accordance with section 143, the Pension Protection Fund (Valuation) Regulations 2005 (SI 2005 / 672), as amended, and guidance issued by the Board of the PPF. The valuation is carried out by an actuary appointed by the Board and the valuation is approved by the Board.
A section 152 valuation is carried out following an application for reconsideration under section 151 of the Pensions Act 2004.
Section 156 valuations must be carried out on a regular basis by a scheme that has been granted authorisation by the Board to run as a closed scheme having demonstrated that it was over 100 per cent funded under a section 143 valuation.
A section 158 valuation is carried out by a scheme that has been running as a closed scheme, following an application to commence a further assessment period under section 157.
A section 179 valuation estimates a scheme's funding if the employer were to enter insolvency. The section 179 valuations are used to apportion the PPF levy.
About the PPF
The Pension Protection Fund (PPF) is a public corporation, set up by the Pensions Act 2004, and has been protecting members of eligible defined benefit (DB) pension schemes across the UK since 2005. The PPF is run by an independent Board and accountable to Parliament through the Secretary of State for the Department for Work and Pensions. It protects close to 9 million members belonging to more than 5,000 pension schemes. If an employer collapses and its DB pension scheme cannot pay members what they were promised, the PPF pays compensation for their lost pensions. The PPF is funded by a levy charged to eligible schemes, the return on its investments, assets from pension schemes transferred into the PPF and recoveries from insolvent employers.
The PPF is one of the UK’s largest asset owners with £32.1 billion of assets under management. It also administers the Fraud Compensation Fund (FCF) and the Government’s Financial Assistance Scheme (FAS), and across both the PPF and FAS looks after nearly 430,000 members.
For further press information contact:
PPF Press Office
020 8406 2107
[email protected]
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