FRC proposes changes to pensions technical standards for actuarial work
The next stage in the Financial Reporting Council’s reworking of its Technical Actuarial Standards has now been reached with the launch of a consultation on a replacement TAS 300: Pensions and a new TAS 310: Collective Money Purchase Pensions. Both follow the publication in February 2023 of the FRC’s position paper on sector-specific TASs (see Pensions Bulletin 2023/05) and they have both been laid out in a style that is consistent with the FRC’s finalised TAS 100: General Actuarial Standards (see Pensions Bulletin 2023/09).
TAS 300: Pensions
The proposed TAS 300 is very similar in layout to that currently in force, so it is relatively straightforward to see what is changing (unlike TAS 100 that was completely recast). As expected, with one exception, the FRC is not making any changes to the scheme funding aspects of TAS 300, preferring to wait until the much-delayed changes to the DB funding regime have been finalised by the DWP and the Pensions Regulator.
However, through a desire to simplify the current definition of scheme funding and financing work, the FRC seems to have massively increased its scope to include all technical actuarial work under this heading, rather than being limited to that required by legislation for trustees or, in relation to an employer, where there is a statutory or contractual requirement for an agreement to be made with the trustees. It is not clear if this scope extension is intentional.
Changes are proposed in the following areas:
- Actuarial factor advice – to ensure that reviews of factors are carried out with an appropriate frequency and that actuaries setting factors or providing advice on setting factors consider all relevant points, including those identified as a result of a thematic review carried out by the Institute and Faculty of Actuaries (see Pensions Bulletin 2020/51)
- Bulk transfers – in addition to existing requirements (which also apply to incentive exercises and scheme modifications – now set out separately), new requirements are added (just for bulk transfers). Some of these apply to all bulk transfers and others only where the transfer is to a superfund. The logic of this reworking is to reflect “increased buyout activity”, but the new definition of bulk transfer excludes buy-ins where much of the technical actuarial work is in fact focused and on which the recast provisions seem most relevant
- Superfunds – new requirements are set out in respect of work carried out for the purpose of assessing the capital adequacy of a superfund. These appear to add to the Pensions Regulator’s expectations as set out in its guidance
CDC work is also removed from scope given the new TAS 310.
TAS 310: Collective money purchase schemes
This new TAS follows the completion of the legislative framework for CDC schemes. Its separation from TAS 300 is due to there being significantly different considerations at play for CDC work than existing actuarial work relating to DB or DC schemes. In particular, CDC actuaries will need to provide a view on whether a scheme is “sound”, for initial authorisation and annual reapplication as part of the Regulator supervision, and carry out annual valuations and determine the resulting level of benefit adjustment required.
TAS 310 is quite extensive and will need to be read by CDC actuaries in conjunction with TAS 100. Whilst the CDC legislative framework provided some boundaries for the giving of actuarial advice, TAS 310 sets out important new expectations, as well as carrying over some expectations set out in the current TAS 300.
Consultation on both documents closes on 4 August 2023. The FRC intends to finalise TAS 310 before the end of 2023, with an effective date within one year of the first CDC scheme being in operation so the standards are in force at the time of the first annual valuation of a CDC scheme. The FRC is silent on when the new TAS 300 will be finalised and come into force.
Comment
Thankfully, with both documents the FRC has not seen the need to complicate what are intended to be principles-based standards by introducing application statements as they have with TAS 100. There are also no new accompanying guidance documents.
However, both TAS 300 and TAS 310 will need careful scrutiny by actuaries, and in the context of the now settled TAS 100, to ensure that this latest piece of housekeeping by the FRC does not have unintended consequences. From our first reading we have a number of concerns with the proposed TAS 300.
