The Pension Protection Fund (PPF) has published its consultation response, confirming it will go ahead with proposals to change the assumptions it uses for certain valuations which provide an estimated price for bulk annuity providers in the buyout market.
The changes to the assumptions will ensure that those schemes who may be able to secure benefits above PPF levels are given the opportunity to test the market. The new assumptions will take effect from 1 May 2023, and updated assumptions guidance documents are now available on the PPF’s website.
As part of the updated approach, the PPF will now adopt a yield curve approach when assessing schemes for entry to the PPF under section 143 of the Pensions Act 2004. This will place a more accurate value on liabilities. Valuations carried out for levy purposes under section 179 will not be moved onto this more complex approach.
Lisa McCrory, PPF’s Chief Finance Officer and Chief Actuary, said: “We are pleased to announce that we will be updating the valuation assumptions to ensure that those schemes that have sufficient assets to secure benefits above PPF levels when their employer becomes insolvent are given the opportunity to test the market.
“There was general agreement that bulk annuity prices had altered sufficiently enough to merit a change to the assumptions, and there was also strong support for the move to a yield curve approach for section 143 valuations.
“We are very grateful to all those who took the time to respond to our consultation and would like to thank those who helped shape the proposals.”
The six-week consultation earlier this year sought views from the industry 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 majority of stakeholders commented that introducing the updates from 1 April would mean valuations with an effective date of 31 March and 5 April would be carried out on the different sets of assumptions. As a result, the new assumptions will take effect from 1 May 2023.
Other changes include increasing discount rates for certain types of benefits, moving to the latest mortality projections model, and amending the calculation of expenses. The combined impact for almost all schemes will be a reduction in the assessed value of scheme liabilities.
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