GN11 Version 9.2 - Pension Transfer Values
You will remember that the new scheme funding standard that was meant to come into force on 22nd September 2005 was delayed a bit and was set to come in at the start of this year instead. In fact the new funding basis came into effect on 30 December 2005. In previous BeeLines I’ve pointed out that once the way scheme funding is changed from the old Minimum Funding Requirement (MFR) basis to the new Scheme-Specific Funding basis it was going to be necessary for actuaries to revise the way that individual pension transfer values are calculated to reflect not only the new method of scheme funding, but also to take account of the value of the new levels of protection afforded by the Pension Protection Fund (PPF).
The consultation that took place in the actuarial profession in 2005 was around changing the way defined benefit pension rights are discounted to get to a current value by actuaries. Under the old basis it has been possible to discount values using assumed rates of equity returns, but the new proposals were to harden that up and use bond yields in the discounting process instead. Once implemented that would result in increases in pension transfer values in many cases.
Well, a new Guidance Note (GN11 9.2) was published as the year drew to a close and also came into effect on 30th December 2005. But the changes actually made are not as radical as those that were first proposed. This is because this new version of GN11 is now only seen as an amendment to Version 9.1 and not a complete rewrite. The big changes proposed in last year’s consultation will be kept on hold for now. In a nutshell, the new GN11 requirements do not immediately alter the way transfer values will be calculated. Pension transfer values will still be able to be calculated on the old MFR basis until schemes have been through their regular valuations; in some cases that could postpone the new basis becoming operable for years.
I’m sure to come back to this again, but in the meantime you might want to re-read my history of GN11 from an old BeeLine here:
You may also want to re-read my ‘Chubby Cats’ BeeLine as well as it too covered this important change in practice:
10 January 2006
Source: Actuarial Profession, GN11: Retirement Benefit Schemes - Transfer Values - version 9.2, Pensions Board, 30 December 2005.
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