Trustee Guidance: Actuarial Valuation
Introduction
The valuation under section 143 compares the pension schemes assets with its protected liabilities as at the assessment date. Protected liabilities are the cost of securing pension scheme member’s benefits at Pension Protection Fund compensation levels , other liabilities not relating to scheme members and the estimated expense of winding up the scheme. The actuarial valuation should be the final stage of the assessment period and take place after the data audit and other stages of the assessment period have been completed and signed off.
The valuation will show that either:
- The pension scheme can meet the protected liabilities and;
- assuming there is no application for reconsideration and the notification requirements are met, the Pension Protection Fund ceases to be involved with the pension scheme and the assessment period ends
- trustees are required to wind-up the pension scheme outside of the Pension Protection Fund.
- The pension scheme cannot meet the protected liabilities and
Objectives
To determine whether the pension scheme has insufficient assets to pay scheme members the Pension Protection Fund compensation levels , and therefore whether the Board of the Pension Protection Fund should assume responsibility for a scheme
Key Activities for the Scheme Actuary
Provide a valuation which complies with the Guidance for undertaking the entry valuation in accordance with section 143 of the Pensions Act 2004.
Key Activities for Trustees
Agree with the caseworker the timing of the valuation.
Once the valuation is approved, trustees should notify pension scheme members of their final entitlements under the approved valuation. This notification is referred to in the Pension Protection Fund (Provision of Information) Regulations as a valuation summary. In addition to looking at these regulations your caseworker will be able to provide guidance in drafting a valuation summary. A template valuation summary transfer letter and valuation summary withdrawal letter together with statement of entitlement (transfer) and statement of entitlement (withdrawal) form are annexed for your use. You may also view the paragraphs for insertion into the statement of entitlement .
If the valuation shows the scheme can support the protected liabilities the trustees are required to wind-up the scheme outside the Pension Protection Fund. There may be circumstances where the trustees are unable to buy-out the benefits at the level suggested by the valuation within 6 months of the valuation becoming binding, for example, because financial position of the scheme has deteriorated since the valuation. In such circumstances the trustees can apply for reconsideration by the Pension Protection Fund which could mean that the Pension Protection Fund subsequently assumes responsibility for the scheme.
Key Activities for the Pension Protection Fund
Request the valuation.
Determine whether to approve the valuation.
If the valuation shows the scheme can support the protected liabilities the Pension Protection Fund should cease to be involved with the scheme once the notification requirements are met.
Created May 2006
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