Survey of actuarial assumptions

The PricewaterhouseCoopers annual survey of Actuarial Assumptions has found there remains enormous unexplained variation in the results of actuarial valuations to determine pension scheme liabilities.

Based on a recent survey of 90 UK pension schemes with almost £200bn of assets, there is still too much unexplained variability in the assumptions being used. This can mean a swing of as much as an extra 25% either way in the calculated liabilities without apparent justification. Assumptions used to calculate liabilities should be based on the particular circumstances of the scheme and its sponsoring employer, but in reality they appear to be chosen more randomly.

Many pension schemes have not factored increased life expectancy into the calculations of their liabilities, and thus the size of deficits is probably being understated. Together with the increased regulatory pressure on trustees to be more prudent in their calculation of scheme liabilities, this means some companies will be in for an unwelcome surprise as the results of scheme valuations emerge over the next couple of years.

The report also looks at the level of independence of trustee boards and pension advisers, the different levels of tax-free cash pension members can receive as a lump sum and the impact of new funding requirements.

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