Out-Law News | 07 Mar 2014 | 2:36 pm | 1 min. read
Raj Mody, head of PwC's pensions practice, said that it was "bizarre" that actuarial valuations took so long to complete when company directors were able to sign off audited accounts within a few months of year end. Long valuation periods cost schemes too much to complete and distracted trustees and sponsoring employers from "real strategic issues", he said.
"Of course, the negotiation between parties does require some time, but the process could easily be condensed to a third of the time it currently takes even allowing for this," he said. "The pensions industry should be striving for efficiency where possible as this will benefit trustees, sponsoring companies and their scheme members."
Scheme trustees are required by law to ensure that a pension scheme has "sufficient and appropriate assets to cover its technical provisions". They must obtain a written valuation of assets and technical provisions each year, although full valuations need only be done once every three years if actuarial reports are obtained for the intervening years.
The Pensions Regulator is currently analysing responses to its recently-concluded consultation on changes to its regulatory strategy for defined benefit (DB) pension schemes, which take into account the regulator's new statutory objective to minimise the impact of DB scheme funding on employers' sustainable growth. It also recently published a new funding policy and code of practice for consultation. Its new policy sets out a "more integrated" approach to managing funding risks by trustees involving funding, investment and the employer covenant.
"The regulator's focus on integrated risk management plans is absolutely a move in the right direction," said Mody. "Many schemes are currently approaching valuations the wrong way round by considering how much needs to be paid into the pension scheme and when, trying to use a budgeting process to formulate your whole pension scheme strategy. Instead, the strategy should come first, and then you can manage all the consequences, including the funding approach, in a way which is consistent with the strategy."
The firm set out a 'five-point plan' which it said would make the valuation process quicker and more efficient, based on recognising the fact that actuarial valuation is "fundamentally just a budgeting process". Its recommendations include preparing the data needed as part of the valuation process in advance, and using common calculation platforms accessible to all advisers and through which variations to results can be explored in real time.
Actuaries themselves should make their initial analysis of the scheme's assets and liabilities available to trustees and sponsors within a week of the valuation date, rather than months down the line, it said.