The Pension Protection Fund (PPF) has 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.
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