The Financial Reporting Council (FRC) has revised its guidance on actuarial technical standards, particularly in relation to bulk annuity deals and potential superfund mergers.

In version 2.0 of Technical Actuarial Standard 300: Pensions (TAS 300), the FRC detailed requirements for the provision of advice on setting actuarial factors and on bulk transfer exercises, including buyout transactions with insurers and transfers to pension superfunds.

The FRC explained that practitioners providing advice to a governing body or an employer that is considering a bulk transfer, must consider alternatives to the potential transaction for the long-term provision of members’ benefits.

These include retaining liabilities within the existing pension scheme with additional funding or security.

They must also examine any material impact on the protection provided for members’ benefits in the event that the benefits are unable to be paid as intended; any changes in the material risks to the benefits of the different classes of members; and any changes to the governing body’s ability to make decisions which affect the level of members’ benefits.

The new document also said that practitioners who have relied on input from a third party should understand how the input affects the output of their technical actuarial work.

In addition, practitioners providing advice to a governing body or an employer which is considering a bulk transfer to a superfund must use assumptions in relation to buyout pricing that reflect current and anticipated future market conditions and insurers’ practice.

They must also ensure that the models used are calibrated appropriately to reflect the time horizon of projections.

The FRC said it is also considering feedback received in relation to TAS 310, which sets out the requirements to collective money purchase pension schemes and will issue a separate feedback statement and impact assessment in due course.

FRC executive director of regulatory standards, Mark Babington, said defined benefit pension schemes have a significant potential to support economic growth through greater investment in the productive economy.

"High quality actuarial work will support a well-functioning marketplace for ‘endgame solutions’ such as insured buyouts and transfers to superfunds," he explained.

"The revisions to TAS 300 reflect the FRC’s commitment to promoting high-quality actuarial work in this sector and increase public confidence in this market as it develops.”

---