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PPF to change mortality assumptions

The Pension Protection Fund is considering changing its mortality assumptions and may also increase the discount rate.

The PPF is responsible for keeping the assumptions used for pension scheme valuations in line with pricing in the buyout market.

In the light of recent developments and the expansion of the buyout market, the PPF is considering making some changes to these assumptions to bring valuations into line with market prices.

The changes may resultin fewer schemes enteringthe PPF because valuations based on the proposed new assumptions may mean that they are able to pay benefits greater than PPF levels of compensation.

The PPF plans to introduce the new assumptions from March 31. Anyone who want to contribute to the consultation have until March 14 to make submissions.

The PPF is also proposing to increase existing discount rates by 0.3 per cent. This is at the high end of the spectrum of discount rate assumptions adopted by insurers.

There will be no effecton PPF levies for 2008-09 and the first year in which these new assumptions will have an impact will be 2009-10.

Barnett Waddingham pension consultant Graeme Muir says: “This is an obvious area where TPR should focus its attention. However, mortality does vary by geographic region, socio-economic status of the scheme membership and other factors and so we would hope that TPR would take these factors into account before pulling the trigger and possibly getting schemes into trouble for failing to follow the herd.”

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