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1 July 2011

In its recent response to the Department for Work and Pensions’ consultation, “ A state pension for the 21st century”, the Institute and Faculty of Actuaries has said that it believes that the public interest could be best served by the more radical reform to a single tier flat rate pension set out in option 2 of the DWP’s paper.  The professional body argues that in future the state pension age should be subject to regular multidisciplinary reviews rather than having automatic changes based on a single formula on life expectancy .

Commenting on the Institute and Faculty’s response, Ronnie Bowie, Immediate Past President, said:

“We have argued for some time that a state pension scheme that is fair, simple and transparent should make it easier for people to make informed decisions about their financial future.  We therefore support in principle the Government’s proposed option for more radical reform to a single-tier flat-rate state pension, although there are many points of detail on how the transition would be delivered that still need to be worked out.  

“The ending of contracting out is likely to speed up the reduction in schemes in the private sector offering future defined benefit accrual.   However, it can be argued that it is in the general public interest to have to find solutions to help manage the ending of contracting out for a minority rather than let this be a barrier to single tier reform that should benefit the majority

“There are significant problems with trying to adopt a single formula approach to deciding on future increases in state pension age.  Firstly, it will not be at all straightforward to decide on what it should be.  Secondly, no single formula is likely to be robust enough to give the required stability.  And thirdly, life expectancy should not be the only consideration in setting state pension age.  We suggest that the key criteria for establishing the best mechanism in this area should be whether it provides stability and sufficient  warning, is evidence-based  and ensures that ultimate accountability is with Ministers and Parliament. We outline how a statutory review process would be well placed to fit these requirements.”

ENDS

Enquiries: Tel. Michael Scanlan on 07798 804 871 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.

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