General background

On 18 February 2008 the Pensions Regulator published a consultation document focussing on Trustee "good practice" when choosing the life expectancy* assumptions for funding purposes. The document effectively proposes a trigger for the minimum allowance trustees should make for future increases in pensioner life expectancy. This trigger will apply to all funding valuations with effective dates from March 2007.

For many schemes the trigger will require a greater allowance for improvements in life expectancy than currently allowed for in funding. Our ready-reckoner enables trustees and sponsors to understand the likely impact of the proposals on the value placed on scheme liabilities (Technical Provisions) if the proposals are finalised in their current form. However, this should not be taken as an indication that we endorse the Pensions Regulator's proposals as an appropriate allowance for future increases in life expectancy. More >

What is the proposed trigger? The Pensions Regulator is proposing a trigger which constitutes two parts. The first part is an allowance for a generation of current pensioners who are experiencing fast improvements in live expectancy - the "golden cohort" effect - where "assumptions that appear to be weaker than the long cohort assumption will attract further scrutiny…". Secondly the Regulator wishes trustees to avoid assumptions which "assume that the rate of improvement [in life expectancy] tends towards zero" requiring, in effect, a level of year-on-year  improvement.

* Also referred to as the longevity or mortality assumption

More information:

For further information on the Pensions Regulator’s recent announcement please see:

• Pensions Regulator’s press release
• Hymans Robertson's press release
• Hymans Robertson's consultation response

More information on longevity trends can be found in the following Hymans Robertson publications:

• Why is mortality such a hot topic?
• Are we going to live forever?

Hymans Robertson offers trustees and corporates market-leading advice on longevity risk management. Please contact Steven Baxter of Hymans Robertson LLP on 020 7082 6299 or email steven.baxter@hymans.co.uk if you require further information.

Notes:

The above chart provides an approximate indication of the impact on the liabilities in respect of pensioner and non-pensioner members at different ages. In producing this chart a number of assumptions have been made, and the key assumptions are listed below. The precise impact on the funding liabilities for your scheme will depend on a number of factors including, but not limited to, the increases awarded on pensions in payment, the anticipated rate at return on scheme assets (often referred to as the discount rate) and the age and gender profile of your membership. Consequently the above chart does not replace (nor should be treated as replacing)  the need for formal actuarial funding advice. For the avoidance of doubt, this chart does not constitute:

• Any form of formal funding advice under Part 3 of the Pensions Act 2004
• Advice as to the appropriateness of any particular assumption for future increases in life expectancy

Further, this ready-reckoner contains a limited range of options for possible longevity improvement assumptions and is designed to reflect those assumptions we believe are most widely used. The range does not constitute any form of recommendation, nor does it reflect the view of Hymans Robertson LLP as to what assumptions might be considered reasonable.

Key assumptions underlying assessment of impact on liabilities: 2% p.a. discount rate net of pension increases; baseline mortality assumption of "00" series of tables rolled forward to 2007 in line with medium cohort improvements; widow(er)s 3 years younger(older) than deceased partner; 90% of pensioners married at date of valuation (or at retirement for non-pensioners); members assumed to have an attaching widow(er)s pension of 50% (40%) of their pension; scheme profile 50% male, 50% female by pension amount; impact of any guarantee period applying upon retirement ignored; no allowance made for seperate lump sum at retirement rights (which would dampen the charge in value shown above); any commutation of pension to lump sum at retirement assumed to have a neutral effect; retirement age of 65 assumed for non-pensioners; under the average calendar year approach the year 2017 is used for pensioners  and 2027 for non-pensioners.