The Society of Pension Professionals (SPP) has voiced its support for the Pension Protection Fund’s (PPF) proposed changes to s143 valuations for smaller schemes, but warned that care will be needed with their use.

Responding to the PPF’s consultation on plans to use a bespoke discount rate in s143 valuations for smaller schemes, the SPP broadly welcomed the changes due to the “increased flexibility they will provide”, and agreed that the PPF should introduce new s143 valuation guidance from 31 May.

However, it warned that there was a risk that the proposals could lead to circumstances where schemes enter the PPF when they could otherwise have secured a higher benefit in the insurance market.

The SPP noted that the range of pricing experienced in the market can be wide and much cheaper than expected, and argued that market capacity could be a more significant factor in determining price than scheme size.

Therefore, the choice of a discount rate was “a difficult judgment to make”, especially as the implications could be significant for members, the society cautioned.

It advised that the flexibilities should only used when there is clear evidence that PPF benefits were not affordable in the insurance market.

“Whilst the flexibility to adopt the discount rate assumptions to smaller schemes is welcome, in reality there are a number of other factors that would outweigh scheme size in determining whether or not PPF benefits could be affordable in the insurance market – most notably how market conditions and the scheme’s financial position have changed since the assessment date,” the SPP stated.

“It is also noted that the criteria, for which schemes this flexibility would apply to, is not explicitly stated in the guidance, but that this is due to sit elsewhere.”

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