Variable valuation periods: sensible or not?

Topic:

Funding & investment

Date published:

Thursday, 1 December 2016

Author:

James Double

At Punter Southall’s conference earlier this year, the Pensions Regulator (tPR) suggested the regularity of a pension scheme’s actuarial valuations should be based on the scheme’s financial health rather than using the current set three year timescale. I was asked recently whether I thought this was a good idea.

Here’s what I think…

Personally, I don’t have any concerns with the existing triennial actuarial valuation requirements for a pension scheme. If I were to be managing a ‘distressed’ scheme, the last thing I would want is additional regulatory requirements that meant we had to pay advisers extra fees for even more regular valuations.

If tPR wants information on a more regular basis for a pension scheme they have concerns with, they could request a copy of the existing annual report. I suspect this would provide most (if not all) of the details tPR needs - in particular the annual roll forward of liabilities that is shown in the actuarial report.

What’s a ‘well funded’ pension scheme anyway?

The suggestion is ‘well funded’ schemes could have less frequent valuations; but how is that assessed? tPR could end up wasting valuable resources working out which pension schemes pass the test and which don’t.

Then, of course, there’s the possibility that a ‘well funded’ defined benefit (DB) scheme could become not so ‘well funded’ in the three (or four or five or…) year period they are given between formal actuarial valuations. How will tPR monitor this?

As a trustee, I would want to understand the full valuation picture of a ‘well funded’ DB scheme every three years in any event. So, for me, there’s no attraction to a valuation period being extended. I don’t think I would feel I was carrying out my duties correctly without it.

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