FRC updates Standard on Assumptions for Pension Scheme Projections
News types: Codes and Standards Announcements
Published: 19 December 2012
PN 029
Following consultation, the FRC has published a revised version of actuarial standard TM1 (AS TM1) which sets out the assumptions to be used in annual statutory money purchase pension illustrations (SMPIs).
AS TM1- Statutory Money Purchase Illustrations - Analysis of Responses to the Nov 2012 ED Dec 2012 (PDF)
AS TM1- Statutory Money Purchase Illustrations v3.0 Dec 2012 (PDF)
AS TM1- Statutory Money Purchase Illustrations Track Changes from v2.0 to v3.0 Dec 2012 (PDF)
The most significant change to AS TM1 is the removal of the cap of 7% pa on the rate at which pension scheme investments are assumed to build up. Insurance companies and other providers will have to make justifiable assumptions about the investment returns that can be achieved taking account of the nature of members’ investments. The FRC will monitor the assumptions used in SMPIs to assess the impact of the removal of the cap.
Commenting on the revision, Olivia Dickson, Chairman of the FRC’s Actuarial Council, said:
AS TM1- Statutory Money Purchase Illustrations - Analysis of Responses to the Nov 2012 ED Dec 2012 (PDF)
AS TM1- Statutory Money Purchase Illustrations v3.0 Dec 2012 (PDF)
AS TM1- Statutory Money Purchase Illustrations Track Changes from v2.0 to v3.0 Dec 2012 (PDF)
The most significant change to AS TM1 is the removal of the cap of 7% pa on the rate at which pension scheme investments are assumed to build up. Insurance companies and other providers will have to make justifiable assumptions about the investment returns that can be achieved taking account of the nature of members’ investments. The FRC will monitor the assumptions used in SMPIs to assess the impact of the removal of the cap.
Commenting on the revision, Olivia Dickson, Chairman of the FRC’s Actuarial Council, said:
“Statutory Money Purchase Illustrations provide millions of people with important information about how their pension schemes are progressing. Providers must think very carefully about the assumptions they use in producing these illustrations. The assumptions on future investment returns need to be justifiable and providers should be ready to explain to members how they chose these assumptions.”
Notes to editors:
- The FRC is responsible for promoting high quality corporate governance and reporting to foster investment. We set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work. We represent UK interests in international standard-setting. We also monitor and take action to promote the quality of corporate reporting and auditing. We operate independent disciplinary arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.
- Since 6 April 2003, members of certain money purchase pension arrangements must be provided with Statutory Money Purchase Illustrations (SMPIs). SMPIs are produced in accordance with the Disclosure Regulations. Actuarial Standard Technical Memorandum 1: Statutory Money Purchase Illustrations (AS TM1), which is issued by the FRC, sets out the methods and assumptions to be used in producing SMPIs. The FRC reviews AS TM1 regularly.
- On 31 May 2012, the Financial Services Authority and the FRC published a joint consultation paper which considered various aspects concerning assumptions which are used in projections of money purchase pensions. The joint consultation can be found at: http://www.fsa.gov.uk/library/policy/cp/2012/12-10.shtml
- On 13 November 2012 the FRC published an exposure draft of a revised version of AS TM1. The exposure draft, the responses to it and analysis of the feedback can be found at www.frc.org.uk. The new version of AS TM1 applies from 6 April 2013 with a transitional arrangement to allow compliance with the earlier version for illustrations with effective dates before 6 April 2014.
- The FSA’s feedback on the responses to the joint consultation, and the changes it has made to its rules, can be found at http://www.fsa.gov.uk/library/policy/policy/2012/12-17.shtml