Pension scheme trustees could face an “actuarial headache” as a result of new Statutory Money Purchase Illustration (SMPI) regulations, which are expected create “significant” extra actuarial calculations, CTC Pensions Technology has said.

Currently, accumulation rate assumptions for SMPI calculations are based on expectations of future fund performance.

However, the Financial Reporting Council (FRC) recently confirmed changes to the Actuarial Standard Technical Memorandum 1 (AS TM1), with plans to base accumulation rate assumptions on investment, volatility, from 1 October 2023.

Under the new rates, volatility group one has a 1 per cent; group two is 3 per cent; group three is 5 per cent; and group four is 7 per cent. Calculations will be based on monthly fund returns over a 5-year period.

However, CTC Pensions Technology noted that, "critically", the calculations do not form part of the schemes’ dashboard calculations, with schemes likely to need support to make the necessary calculations.

The firm argued that the changes could also result in an increase in member enquiries as schemes must use a standard annuity projection and not the current system that allows them the choice to quote increasing/non-increasing annuities with/without reversionary pension.

It noted that the new projections also require a non-increasing annuity payable monthly in advance with 0 per cent reversionary pension, while the option of using the calculated rate for inflation indexed annuities with a 3.5 per cent adjustment has been removed.

Instead, all annuities must now use the FTSE Actuaries’ Government 15-year Fixed Interest Yield Index.

CTC Pensions Technology actuary and chairman, Nigel Chambers, emphasised that the new rules will require "significant changes for many schemes", urging trustees to brace themselves for an increase in member enquiries when their scheme is available on the dashboard.

“The introduction of volatility groups, standardising annuity calculations, and additional changes to mortality tables are ultimately a good thing but will necessitate many schemes developing fairly rapid solutions to accommodate the changes," he stated.

The FRC previously acknowledged concerns around the volatility approach in its response to the industry consultation, confirming that it has taken a number of actions to amend the proposed method to address implementation challenges.

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