The report takes an in-depth look at current practices adopted by actuaries in defined benefit (DB) pension scheme design advice. It also covers the treatment of potential conflicts of interest, and highlights areas where actuaries can further improve how advice is delivered to clients, showcasing good practices already being adopted by IFoA members in this field.
The report identifies that the overall standard of advice was judged as good but draws attention to some areas for improvement. Actuaries did not always adequately explain how pension scheme benefit changes may impact means-tested benefits such as pension credit or housing benefit. This contrasts with advice provided on pensions tax, where a step-change in pension income could trigger a tax charge for the individual. The advice reviewed invariably addressed this point.
The report recommends actuaries focus on clear communication using consistent and understandable language to scheme members who may not be knowledgeable about pensions.
Neil Buckley, Lay Chair of the IFoA Regulatory Board, said: “The Regulatory Board welcomes the overarching finding that actuarial work is of good quality with sound levels of standards compliance. I would encourage actuaries offering pension design advice to take note of the key theme running through the findings. Actuaries should ensure that they are fully explaining how potential DB design changes might affect members, whether it’s the benefit itself, the inflationary impact or the potential effect on means-tested state benefits.”
David Gordon, IFoA Senior Review Actuary, said: “There is a wide range of advice given in the area of pension scheme design for members, both in terms of subject matter and style. It was positive to find that actuaries followed the principles of the actuarial standards in their work without treating them as a compliance exercise. To further enhance the work they do, actuaries could explain how changes to pension scheme benefits may impact on a member’s means-tested benefits in the same level of detail that they provide advice on changes that may impact pensions tax.”
This report is part of the Actuarial Monitoring Scheme (AMS). It continues the regulatory work of the IFoA in independently reviewing areas of work in which actuaries have significant involvement and influence.
‘Pension scheme design: actuarial advice on changes to member benefits’.
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