Actuarial Profession publishes new framework for use of discount rates in actuarial work

In particular they are central to the calculation of some of the key numbers in pensions and insurance today, affecting millions of people, including the calculation of

• Reserves in company accounts for pensions and insurance liabilities
• Pension scheme deficits and contributions to be paid in to pension schemes
• Solvency reserves for insurance companies
• Pension scheme transfer values and insurance policy surrender values

The Actuarial Profession has conducted a two year research and consultation project into the use, construction and communication of discount rates in order to develop a new framework that will help actuaries, their clients and all those affected by actuarial calculations. As well as seeking the views of actuaries themselves, the Profession also sought the views of external stakeholders so as to develop a framework that is fit for purpose.

This project has resulted in the publication of two key reports and now a number of recommendations on the proposed framework covering the use and communication of discount rates in all areas of actuarial work.

Charles Cowling, Chairman of the Discount Rate Steering Group, which led the project, said:

“As a chartered professional body, our members are bound by a strong ethical code and professional standards. A crucial part of these requirements is that we must communicate clearly to clients about the work we carry out on their behalf. Actuarial work is very technical and discount rates, while crucial to much of the work actuaries carry out, can seem confusing to clients. It was important, therefore, to develop a framework where this information can be communicated clearly while still remaining accurate and informative.

“We hope that, through a process of education on the framework and how it fits within our professional standards, and the introduction of a common language on discount rates, we will be able to equip actuaries to give even more useful advice to clients. This will help our members maintain the highest standards at all times. At the same time, it will help users of actuarial advice (and all those affected by actuarial calculations) understand better the implications of that advice.”

Full details of the new framework can be found here.

ENDS

Enquiries: Tel. Michael Scanlan on 020 7632 1453 or email michael.scanlan@actuaries.org.uk

Notes for editors

1. Actuaries provide commercial, financial and prudential advice on the management of a business’s 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 Lloyd’s.
3. The Profession is governed by the Institute and Faculty of Actuaries. 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.