I'm struggling with all the different bases on which valuations can be done. SFO should be be based on prudent assumptions agreed between the trustees and scheme actuary. Is a SFO valaution additional to an ongoing and solvency formal tri-annual valuation under GN9? How often should a GN11 valuation be done? According to GN11 the liabilities should represent the expected benefit cost using a discount rate that may reflect an equity risk premium. GN11 also states that one must value the accrued benefits! Hence, my question: must I use earnings inflation or revaluation rate for deferred pensions to value the liabilities? Then the PPF valuations: S146 and S179. How often must these valuations be done? Only on wind up? A S179 valuation is based on the approximated buy out costs. Does one follow the principles underlying the solvency valuation descriped in GN9 then?
The valuation using the assumptions to meet the Technical Provisions under the SFO is the ongoing valuation. This will determine contributions to be made under the Schedule of Contributions and the Recovery Plan. These calculations are required (at least) every 3 years and are set out, with the solvency position, in a GN9 report. There may be funding objectives other than the statutory one, in which case there may be more than one set of 'ongoing' calculations. A GN11 report is required if trustees wish to pay reduced cash equivalents, due to underfunding in the scheme. If cash equivalents are not to be reduced then there is no need for a GN11 report or valuation. A GN11 report can be commissioned by the trustees at any time but, if cash equivalents are reduced under the terms of this report, then a new GN11 valuation will be required at the same time as the next SFO valuation. The valuation is based on the valuation of all cash equivalents under the scheme and is performed on a discontinuance basis, using assumptions consistent with the scheme's CETV basis. You use leaver revaluation not earnings growth for active members. The s143 (not 146) is the PPF entry valuation, and will only be required if the scheme is going through the assessment period for entry into the PPF. The board of the PPF will instruct the actuary when to perform the valuation. This should be a one-off valuation. The s179 is the PPF Levy valuation. The first such valuation must be submitted to the board by 31 March 2008, or within 15 months of the date of the first SFO valuation, whichever is earlier. Further valuations must be submitted in line with the tri-annual cycle, so these calculations can be done at the same time. The valuations can be submitted to the board more frequently if desired (i.e. annually). For both s179 and s143 the basis is prescribed. There is guidance on both the assumptions and the valuation for both s143 and s179 on the PPF website.
Thanks. So cash equivalents are calculated "subjectively" by the scheme actuary i.e. GN11 only gives guidelines for calculation of CE e.g. best estimate basis allowing for outperformance from equities. Is a member always allowed to take a CE transfer even in the event of a bulk transfer without consent? For technical provisions, the requirement is to use an accrued method. Does the same apply for the calculation of the schedule of contributions? Should one use a control period until the next valuation?
Yes, there is a fair amount of judgement in the basis for CETVs, though the actuary is required to certify. I'm not sure if the circumstances of a bulk transfer, even if without consent, should prevent CETVs. I am not aware of any regulation to this effect (someone let me know if there is!) For the contribution rate, the requirement is that the rate determined to meet future accrual should be consistent with that used to calculate the technical provisions. A control period if perfectly acceptable, though it is not necessary to fix this as being over 3 years. A one year control period might be appropriate depending on the stability of the scheme's membership profile.
Just want to confirm: the accrued benefits in the S179 valuation for non pensioners are valued using the statutory revaluation rate ie no allowance for future salary increases. GOOD LUCK WITH THE LAST WEEK'S PREPARATION.
The S179 valuation is used to determine the value of the PPF accrued benefits. It's purpose is to determine the PPF levy but it is also an indicator of the level of benefits that would need to be secured within the PPF in the event of the scheme winding up with an insolvent sponsor. Therefore active members are assumed to leave at the valuation date and are valued as deferreds with statutory revaluation in deferment. The revaluation assumption isn't published, rather an index linked yield is used pre-retirement.
