On the go: The Pension Protection Fund has proposed to update the assumptions used in assessment period valuations, which determine if a scheme could secure benefits with an insurer above the levels provided by the lifeboat.
In a consultation published on January 9, the PPF explained that after recent discussions held with insurers, it concluded that differences between its current assumptions and insurers’ buyout bases were significant enough that it should consider amending them.
The current assumptions, introduced in May 2021, are used in several instances including in a section 143 valuation, which is carried out during a PPF assessment period, and in a section 179 valuation, which estimates a scheme’s funding if the employer was to enter insolvency. The latter is used for the PPF 7800 index and for levy calculations.
Although the impact of the new assumptions for each individual scheme will depend on its size and composition, in general insurers’ pricing is more competitive than PPF bases, resulting in lower liabilities, it said.
“This means that if we do not update our bases, then we could in theory take into the PPF schemes that could otherwise secure slightly higher benefits for their members outside the PPF,” it added.
The lifeboat fund is also making changes to the single discount rate approach used in 143 valuations, moving to a yield curve basis, which will place a more accurate value on liabilities.
Other proposed changes include increasing discount rates for certain types of benefits, moving to the latest mortality projections model and amending the calculation of expenses.
The combined impact for almost all schemes will be a reduction in the assessed value of scheme liabilities, the PPF added.
PPF chief finance officer and chief actuary Lisa McCrory said: “It is important that those schemes that have sufficient assets to secure benefits above PPF levels when their employer becomes insolvent are given the opportunity to test the market.
“Our proposed changes will ensure that our valuations are in line with the current market pricing and result in the best outcome for members.”
The consultation closes on February 20 and the changes will be introduced for valuations with an effective date on or after April 1 2023.
