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The Pensions Regulator said this week that it intends to consult on the introduction of a new trigger for pension scheme valuations based on mortality assumptions.

“While we support the Regulator's aims to improve the quality of the debate over the complex area of future improvements in mortality rates, we believe that nobody, the Regulator included, has perfect foreknowledge of how the future will turn out,” says James Wintle, a senior consultant at Watson Wyatt.

The firm points to a wide range of opinions that exist among the medical profession, demographers and other mortality specialists about the outlook for future mortality rates.

Wintle adds that the important point for trustees and sponsors of pension schemes alike is to understand the uncertainty that exists around future levels of mortality and to review sensitivity calculations that illustrate the scenarios considered most plausible by the experts.

He believes that the danger in blindly following the Regulator's trigger points is that trustees and sponsors could be misled into believing that by funding at this level all mortality risks are covered.

“In reality it is still quite possible that either significant surpluses will emerge or that further strengthening of the assumption will turn out to be necessary at future valuations,” Wintle concludes.

The Regulator already uses various triggers in the new scheme specific funding regime, relating to the technical provisions and the recovery plan, to help it focus its attention on schemes most likely to require further attention.

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Related links

• Watson Wyatt
• Pensions Regulator