In its submission to the consultation around the proposed mortality trigger, the NAPF points to several key flaws in the proposal.
It points out that a trigger is likely to be interpreted by trustees as a new minimum requirement. This, it said, runs the risk of undermining the principle of the Pensions Act 2004, in which decisions regarding actuarial and funding assumptions should be taken by scheme trustees in light of the specific circumstances of their scheme, and not be set centrally by a government agency.
It adds that evidence supporting the use of the long cohort assumption for the mortality trend segment of the calculation is still open to debate.
It also states that the recent Board of Actuarial Standards’ discussion paper on this topic described the uncertainties involved in modelling future changes in mortality as “immense”.
Nigel Peaple, director of policy at the NAPF, said: “While guidance from the regulator is very welcome, using the long cohort mortality assumption as a trigger for further regulatory scrutiny will push trustees into using it regardless of the specific circumstances of their scheme.
“The NAPF believes the regulator would do better to focus on education and guidance rather than implicit, though unintended, prescription. Trustees will welcome good practice guidance on choosing assumptions.”
A leading actuary also questioned the regulator’s calculations.
Alan Smith, director at First Actuarial, said that more focus needed to be placed on the overall level of prudence, rather than singling out one aspect of the mortality assumption.
“As proposed, the trigger would set alarm bells ringing when a scheme used medium cohort projections with a suitable underpin, even though this may be more prudent than using long cohort projections with a lower underpin,” he said.
David Rowley
