The Pension Protection Fund (PPF) has launched a consultation on its proposed changes to the assumptions it uses for certain valuations that provide an estimated price for bulk annuity providers in the buyout market.

These proposals, if enacted, will update the valuation assumptions to reflect lower pricing in the bulk annuity market.

A valuation is needed when a scheme’s employer becomes insolvent to assess whether the scheme could secure benefits with an insurer above the levels provided by the PFF.

The PPF stated that its proposed changes were designed to ensure that schemes that may be able to secure benefits above PPF levels were given the opportunity to test the market.

The pension lifeboat has proposed the introduction of a yield curve approach when assessing schemes for entry to the PPF.

It stated that this approach would place a more accurate value on liabilities and had been proposed following feedback from a previous consultation, in which stakeholders suggested a switch to this approach.

Valuations carried out for levy purposes would not be moved onto this more complex approach under the proposals.

The consultation is also seeking views on increasing discount rates for certain types of benefits, moving to the latest mortality projections model and amending the calculation of expenses.

The PPF stated that the combined impact for “almost all schemes” would be a reduction in the assessed value of liabilities.

If approved, the changes outlined in the consultation will be introduced for valuations with an effective date on or after 1 April 2023.

“It is important that those schemes that have sufficient assets to secure benefits above PPF levels when their employer becomes insolvent are given the opportunity to test the market,” commented PPF chief finance officer and chief actuary, Lisa McCrory.

“Our proposed changes will ensure that our valuations are in line with the current market pricing and result in the best outcome for members.”

The PPF has adopted 10 principles for setting the new assumptions, including ensuring the assumptions deliberately focus on understating the liabilities, and ensuring they are informed by regular meetings with industry stakeholders.

It stated that focusing on understating liabilities would mean that for certain valuations it reduces the risk of taking schemes into the PPF that, as at the date of the employer’s insolvency, could have bought out better benefits in the market.

The consultation will close on 20 February 2023.

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