GN11 changes Ė Take Two!
Iím pleased to be able to tell you that I was overly pessimistic regarding the changes made (or rather not made) by the revised guidance to actuaries on calculating pension transfers following the publication of Guidance Notes 11 (version 9.2) at the end of 2005.
(For those of you attracted to the BeeHive site because of its professed status as a jargon-free zone, I apologise for that opening sentence back there.† But Iíve had to†open up with it as itís always the first sentence of each BeeLine that gets picked up by the system as a kind of trailer for the whole thing and I wanted to kick off by saying this is revising the earlier BeeLine.)
Whatís happened is weíve been waiting for ages to find out just how the actuaries would be directed by their governing bodies to revise the way they calculate pension transfer values for individuals leaving final-salary pension schemes.† Things have to change to reflect the way such schemes are themselves funded on a revised basis following the 2004 Pensions Act.
We had all expected that the new guidance note (GN11 Version 9.2) would introduce a radical new way of calculating cash-equivalent transfer values.† (Thereís a history of all this in another earlier BeeLine if youíre taking an exam or something and want to read up on it all Ė the link here should do the trick:†Consultation on Revised GN11 Standard for Pension Transfers ).
The radical approach of using bond yields in the discounting process instead of assumed equity returns (which would have resulted in increased transfer values in many cases) didnít come about after all.† That was the main message of the previous BeeLine and Iím afraid I was right on that score.† Where I went wrong was to say that the Minimum Funding Requirement (MFR) had not been ditched completely by the new guidance.† In fact it has.
Now, that doesnít make a hell of a lot of difference either way, itís sticking with the old discounting method that will have the bigger effect (or non-effect).† Basically, if I hadnít put the last sentence on that BeeLine (or if Iíd checked it from more than one source Ė sloppy drafting!) it would have been spot-on.† Itís still not good news for transferees, but itís not quite as Iíd painted it.† Sorry about that.
While Iíve got the hair-shirt on Iíd may as well also apologise for not properly explaining why only some Self-Invested Personal Pensions (SIPPs) can be mixed and matched with rebates from the State Second Pension scheme (S2P).† (Sipps and Protected Rights)
To continue the lesson from that BeeLine, rebates from S2P can only be paid into a particular type of Personal Pension which is called an Appropriate Personal Pension (or APP).† The thing is an APP can have a SIPP attached to it, whereas a SIPP canít have an APP attached to it.† I donít think I made that very clear last time Ė I hope Iím not losing my touch.
Anyway, itís my birthday today and Iím pretty much in a reflective mood as a result.† I guess if we donít get any wiser as we get older weíre going nowhere, right?† Related to that, and if any of you are reading this, thanks again to the Cellar Club for an excellent evening last night in Birmingham.† I had to sing for my supper as usual, but it was a good way to tick off another calendar year and a great prelude to my birthday.† Thanks again.
Ciao for nowÖ
18 January 2006
Actuarial Profession, GN11: Retirement Benefit Schemes - Transfer Values -†version 9.2, Pensions Board, 30 December 2005.
DWP - Pensions: Contracted-out Benefits and Miscellaneous Amendments, Consultation on Draft Regulations, March 2005 and Government response to the consultation, December 2005.
HM Treasury - Proposed changes to the eligibility rules for establishing a pension scheme, A consultation document, September 2005†and Consultation Update, 5 December 2005.
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