Pensions Bulletin 2025/08
Pensions & benefits Mortality, longevity and demographic modelling DB pensions DC pensions Policy & regulationThis edition: Actuaries propose new mortality projection model, Pensions Regulator to supervise DC schemes ‘differently’ and Pensions Regulator silently adjusts its pension scams leaflet again!
Actuaries propose new mortality projection model
On 25 February 2025, as part of the most in-depth review for several years, the Continuous Mortality Investigation (CMI) of the Institute and Faculty of Actuaries published proposed changes to its mortality projection model that will find expression in a new CMI_2024. This development was signalled by the CMI when they released CMI_2023 in April 2024 (see Pensions Bulletin 2024/16).
The CMI’s proposals are significant as the model is used by almost all trustees of defined benefit pension schemes for assessing the funding position of their schemes, and for sponsors to report their schemes’ financial position on their balance sheets.
The new model requires the trustees to form a view, with actuarial support, on how quickly mortality rates reach a ‘new normal’, following the excess deaths seen since the onset of the Covid-19 pandemic. This is achieved by specifying a new parameter, H, which governs how quickly excess deaths run off from the high point in 2020. The weight parameters that were used to cope with exceptional mortality rates since the onset of the pandemic no longer feature. These had been criticised as being unintuitive and lacking a real-world meaning.
The model also now allows for different mortality trends for different age groups. This better reflects recent trends where mortality has improved more rapidly for pensioners than for people of working age.
Consultation closes on 25 March 2025, with the model expected to be finalised and released a couple of months after this.
Comment
LCP colleagues have been closely involved in the development of these proposals and so are well placed to share their thoughts on how they may impact individual schemes. We welcome the proposed changes – in our view, they are a positive step forward to both incorporate an explicit and transparent allowance for the impact of the pandemic and its aftermath and to reflect the contrasting trends in mortality we have seen between younger and older generations.
Pensions Regulator to supervise DC schemes ‘differently’
The Pensions Regulator has announced an evolved supervisory approach for the UK's largest defined contribution (DC) occupational pension schemes, particularly master trusts, to increase focus on member outcomes. Following a 12-month review, it will segment DC schemes into four categories:
- monoline master trusts (larger schemes that carry a higher risk to the market)
- commercial master trusts, including those that form part of an insurance offering
- non-commercial (or industry-wide) master trusts and collective defined contribution schemes
- single and connected employer DC schemes.
Each segment will have tiers of engagement based on specific risks to market and saver outcomes. Notably, schemes in the monoline and commercial segments will be assigned dedicated multi-disciplinary teams with expertise in financial analysis, business strategy, investment, and governance. This strategic shift aims to ensure all savers receive value for money, with a focus on investments, data quality, and innovation at retirement.
The Regulator said it had carried out a 14-week pilot which worked with three large master trusts to test the findings of its review and concluded that:
- targeted, expert-to-expert meetings led to better regulatory outcomes, facilitated more open and constructive conversations and saw problems solved sooner
- the new approach meant the Regulator could be clearer with schemes about its expectations, leading to more robust strategic decision-making, and its interactions gave better insights into scheme-specific and sector-wide risks and challenges
- the more strategic approach could see fewer and less frequent, but more targeted data requests to schemes cutting regulatory burden
This new approach is cited as an example of the Regulator shifting to a more prudential style of regulation – as was heralded earlier in February (see Pensions Bulletin 2025/07).
Comment
As master trusts head into the realm of ‘too big to fail’ financial institutions, it makes sense for the Pensions Regulator to review how they are regulated. We expect that having dedicated supervisory teams will be more productive and help the Regulator stay informed about market developments. However, we also hope that they will continue to have sufficient resources to protect saver outcomes in single employer DC schemes.
Pensions Regulator silently adjusts its pension scams leaflet again!
The Pensions Regulator updated its pension scams leaflet in January and as in December (see Pensions Bulletin 2025/02) has done so with no publicity. As a result, this latest adjustment has only now come to light. Available via its “Warn members about pension scams” webpage, this two-page leaflet now no longer contains a reference to Pension Wise (presumably because the primary focus of that service is on providing guidance for the over 50s about their DC pension options, as opposed to guarding against scams).
Comment
It is very frustrating when the Regulator adjusts its material with no announcement, particularly so in this case as administrators often send out hard copies of the leaflet when dealing with transfer requests. Although the Regulator says that providing a weblink will suffice there is a clear risk that if this is done the leaflet will not be read and important messages about pension scams not taken on board.
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