Pensions: the hot topics

Hot topic: Funding in an LDI world

Pension schemes are increasingly using liability driven investment (LDI) strategies. These typically include substantial portfolios of derivatives such as interest rate swaps and inflation swaps. Many schemes whose triennial actuarial valuations fell in 2009 found that their derivatives holdings made up a substantial part of their total assets. Traditional methods for setting discount rates may not be appropriate in such situations. Huw Evans, senior consultant at Towers Watson, will discuss why not and suggest possible solutions to some of the issues that may arise.

The Actuarial Profession is running a webinar on the related topic ‘Using term-dependent assumptions for pension scheme valuations’ on 30 June, 12.00 to 14.00.

Hot topic: Solvency II

Paul Sharma, director of prudential policy for the Financial Services Authority, and Honorary Fellow of the Faculty of Actuaries, will introduce Solvency II for pensions actuaries. Solvency II is a fundamental review of the capital adequacy regime for the European insurance industry. It aims to establish a revised set of EU-wide capital requirements and risk management standards that will replace the current Solvency requirements. Mr Sharma will discuss issues arising in insurance companies that are analogous to pensions; and the amount of financial resource which may be needed in order to back pension promises by insurance companies.

Hot topic: Legal and regulatory update

Robin Ellison, head of strategic development for pensions, Pinsent Masons, introduces recent court challenges regarding pensions, and regulatory changes coming down the track. Topics he’ll provide insights on include the European Commission’s challenge to UK authorities’ attempts to prevent pension funds relocating overseas; recent legal cases relating to ‘third way pensions’; the future of the National Employment Savings Trust under the coalition government; plans to scrap the compulsory purchase of annuities at age 75; the role of pension scheme trustees; and the dilemma of equal treatment for men and women at the point where employment law ends and social security rules begin.

Hot topic: IASB exposure draft on defined benefit pensions

The International Accounting Standards Board (IASB) published an exposure draft containing proposals on recognition, presentation and disclosure of defined benefit plans in April. If confirmed, the proposals will make amounts in financial statements relating to defined benefit plans easier to understand by eliminating the corridor method that permits companies to delay recognition of gains and losses relating to defined benefit plans; improve comparability by eliminating some of the different options for presenting gains and losses in IAS 19; reduce diverse practices in some areas by providing more explicit guidance; and improve disclosure so that it highlights the risks arising from involvement in defined benefit plans.

Stephen Cooper, IASB board member, will introduce the proposals and explain why the IASB has adopted an approach that will reduce the profit that companies report from their investments in equity plan assets.

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Enquiries: Tel. Liz Bury on 020 7632 2181 or email elizabeth.bury@actuaries.org.uk

Notes to Editors

1. Actuaries provide commercial, financial and prudential advice on the management of a businesss assets and liabilities, especially where long term management and planning are critical to the success of any business venture. They also advise individuals, and advise on social and public interest issues.
2. Members of the Profession have a statutory role in the supervision of pension funds and life insurance companies. They also have a statutory role to provide actuarial opinions for managing agents at Lloyds.
3. The Profession is governed jointly by the Faculty of Actuaries in Edinburgh and the Institute of Actuaries in London. A rigorous examination system is supported by a programme of continuing professional development and a professional code of conduct supports high standards reflecting the significant role of the Profession in society.
4. The Profession is available to provide expert comment to the media on a range of actuarial- related issues, including enterprise risk management, finance and investment, general insurance, health and care, life assurance, mortality, and pensions.