Actuaries 'ideally placed' to plot DB schemes' way forward - IFoA

Actuaries are “ideally placed” to advise defined benefit (DB) schemes on how to reach a desirable endgame, according to a report from the Institute and Faculty of Actuaries (IFoA).

The report, entitled Report of the target end states for defined benefit pension schemes working party, listed a series of recommendations for actuaries, including pressing trustee boards to take appropriate legal advice on their powers under their scheme rules and on the detailed benefit entitlements of members.

Additionally, the report emphasised the importance of schemes having a plan B in case of employer distress or insolvency, and called for schemes to go “beyond the bare minimum” when adhering to upcoming legislation which will require them to outline a “statement of strategy” regarding their investment and funding strategies.

A number of key areas of research were also identified, with IFoA noting that the actuarial profession would be well-suited to conduct or sponsor research into member outcome analysis assumptions and modelling, the use of dynamic discount rates for the technical provisions of schemes, and trustee boards’ mismanagement of scheme liabilities.

The profession was additionally encouraged to promote the need for “clear and consistent legislation” or guidance for schemes that were in a comfortable enough position to operate as a scheme without a substantive sponsor (SWOSS) in the event of employer failure.

It argued that these schemes were not offered enough avenues to promote good member outcomes, stating that the regulations for such schemes had been drawn up when more schemes were heavily in deficit and the occurrence of a SWOSS was rarer.

The report stated: “Running off the £2trn of UK corporate sector DB liabilities in an efficient and effective fashion is the biggest challenge facing the UK pensions industry.

"As more and more defined benefit pension schemes start maturing the trustees running those schemes need to consider what their target end-state will be and the associated journey plan. Yet too few trustee boards have well-articulated and robust plans.”

The report concluded that the UK’s DB scheme market had “come through a long and sometimes painful journey over the years”, adding that the uptake of some of its recommendations “would lead to significantly improved outcomes for members of such schemes which can only be good for retirement security, the economy and the profession”.

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