The Financial Reporting Council (FRC) is to work with actuarial bodies on technical guidance in relation to the government’s recent announcements on section 37 amendments.
The guidance will help actuaries who are asked to sign off on legacy pension scheme amendments retrospectively – an issue that has been plaguing certain private sector DB pension schemes since a 2023 court ruling.
The FRC – which is responsible for regulating the actuarial industry – said earlier this month that it planned to develop “technical guidance” for scheme actuaries in response to the government’s proposed amendments to the Pension Schemes Bill. These would allow actuaries to confirm that “historic benefit changes made by schemes met the necessary standards”.
The FRC said it would work with the Institute and Faculty of Actuaries and the Association of Consulting Actuaries (ACA) on the guidance to ensure it is available when the Pension Schemes Bill comes into force.
“We expect the guidance delivered will be very different to the technical guidance that the FRC usually produces.”
Shayala McRae and Tim Box, LCP
In a blog post, LCP’s Shayala McRae and Tim Box explained: “Actuaries are used to modelling the future and in recent years the FRC has sought to enhance the quality of such work through its technical actuarial standards.
“By contrast, the remediation opportunity that the government is legislating for requires the scheme actuary to look at the rule amendment in question and gather sufficient evidence from the past to enable them to reach the ‘reasonable to conclude’ opinion. We therefore expect that the guidance delivered will be very different to the technical guidance that the FRC usually produces.”
Solving the ‘Virgin Media’ issue
Last year’s Virgin Media vs NTL Pension Trustees case ruling on pension scheme rule amendments posed financial and reporting challenges for trustees, sponsors, and auditors.
The court’s ruling – which upheld an initial ruling from 2023 – meant that any amendments made to pension schemes that were contracted out of the state second pension could be rendered invalid if the trustees could not prove the changes had been approved by an actuary.
In an effort to mitigate these issues, last month the government tabled several amendments to the Pension Schemes Bill in relation to the interpretation of section 37 of the Pension Schemes Act 1993. This followed months of lobbying by the ACA and other trade associations.
Amendments to the Pension Schemes Bill include a rule allowing an affected rule change to be deemed valid “if the actuary confirms that it is reasonable to conclude that at that time the alteration would not have prevented the scheme from continuing to meet the statutory standard for contracted-out schemes”.
Pensions minister Torsten Bell told the committee: “The new clauses let schemes ask their actuary to confirm retrospectively that a past change to benefits would not have stopped the scheme from meeting these legal requirements at the time, rather than requiring the scheme to produce actuarial confirmation of the same facts at the time that the change was actually made.”
The FRC’s announcement follows warnings from lawyers that more guidance would be needed to ensure actuaries are supported in signing off on decisions made up to 30 years ago.
Jeremy Goodwin, head of pensions at Evershed Sutherland, said on a webinar last month that guidance needed to be “as broad, flexible and helpful as humanly possible”.
