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‘Cohort projections put pressure on pensions’

The Pension Regulator’s proposed approach to mortality assumptions will place unnecessary pressure on pension schemes, warns the National Association of Pension Funds.

The NAPF argues that while TPR guidance to trustees is welcome, long cohort mortality projections will place unnecessary pressure on defined-benefit pension schemes.

Cohort projections measure longevity statistics for people born in a particular year. If outstanding longevity is enjoyed by a group, they are described as “long cohort”.

The pensions body says this method will increase the estimate of liabilities, require early additional funding from employers and place pressure on the sustainability of good DB pension schemes.

It adds that by setting a trigger, likely to be interpreted by trustees as a new minimum requirement, TPR could undermine the Pensions Act 2004.

The act states that decisions regarding actuarial and funding assumptions should be taken by trustees in light of the specific circumstances of their scheme and not be set centrally by a Government agency.

The NAPF also says evidence supporting the use of the long cohort assumption for the mortality trend segment of the calculation is open to debate.

The recent Board of Actuarial Standards discussion paper on this topic described the uncertainties involved in modelling future changes in mortality as “immense”.

NAPF director of policy Nigel Peaple says: “Using the long cohort mortality assumption as a ‘trigger’ for further regulatory scrutiny will push trustees into using it, regardless of their scheme’s specifics.

“The regulator would do better to focus on education and guidance rather than implicit, although unintended, prescription. Good practice guidance on choosing assumptions would be welcome.”

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