Actuaries do not always adequately explain benefit changes to members, research from the Institute and Faculty of Actuaries (IFoA) has suggested, prompting calls for an increased focus on ‘clear communication'.

The report examined current practices adopted by actuaries in providing defined benefit (DB) pension scheme design advice.

Although it found that the overall standard of advice was good, with “consistently sound” levels of compliance, it also identified some areas of concern.

Numerous examples were provided where advice could be improved to enhance the deliverable to the client, demonstrate that existing actuarial standards and guidance were being met more clearly, and ensure the appropriate outcomes for pension scheme members.

In particular, actuaries did not always adequately explain how pension scheme benefit changes may impact means-tested benefits such as pension credit or housing benefits.

This contrasted with advice on pensions tax, where a step-change in pension income could trigger a tax charge for the individual.

The advice reviewed invariably addressed this point, the review noted.

IFoA also found that actuaries were inconsistent in the actuarial standards they stated they were following.

TAS 300 covers some pension scheme design advice, although not all actuaries confirmed they were applying that standard.

Meanwhile, other types of pension scheme design advice are not covered by TAS 300, although some actuaries confirmed they were applying it.

The report urged actuaries to focus on clear communication, using consistent and understandable language to communicate with scheme members who may not be knowledgeable about pensions.

IFoA regulatory board lay chair, Neil Buckley, said the regulatory board “welcomed” the overarching finding that actuarial work is of good quality with sound levels of standards compliance.

“I would encourage actuaries offering pension design advice to take note of the key theme running through the findings,” he continued.

“Actuaries should ensure that they are fully explaining how potential DB design changes might affect members, whether it’s the benefit itself, the inflationary impact or the potential
effect on means-tested state benefits.”

IFoA senior review actuary, David Gordon, added that it was “positive” to find that actuaries followed the principles of the actuarial standards in their work without treating them as a compliance exercise.

“To further enhance their work, actuaries could explain how changes to pension scheme benefits may impact a member’s means-tested benefits in the same level of detail that they provide advice on changes that may impact pensions tax,” he concluded.

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