Characters:

Amit – very experienced actuary and scheme actuary to the Rummidge Auto Parts pension scheme

Rowan – a confident junior actuary

Synopsis:

Rowan is a junior actuary working for an actuarial firm which provides both pensions administration services and actuarial advice to companies. Their clients include Rummidge Auto Parts which has a fairly small defined benefit pension scheme with about a hundred members and is now closed to new entrants. Rummidge Auto Parts has a management board although, in practice, the Chief Executive Officer (CEO) and the Finance Director (FD) make the important decisions. The defined benefit pension scheme also has a trustee board of which the CEO and FD are both members. Rowan is approached by the administrator for the Rummidge Auto Parts pension scheme, who is surprised to have received two large transfer value requests from both the CEO and the FD. Rowan raises his concerns about the transfer requests with Amit, the (very experienced) pension scheme actuary.

• What are the requirements on the administrator to do the calculations and process the transfer value requests? For example, how quickly, and are there any grounds to refer to the scheme actuary or trustee board?

• Is there any requirement for the trustee board to consider the transfer value requests and potential reductions before the individuals are provided with the information?

• Are there any investment effects of actually paying such large transfer values?

• If the two individual large transfer values are paid out, how might this affect the position of other members of the scheme?  Is there a difference between a) if the scheme continues for many years, and b) if the firm is heading for bankruptcy in the next six months?

• Is there a level at which a Transfer Value is fair and the other members are not interested? And if so, does this vary from a cultural and legislative perspective in different geographical locations?

• What is the threshold for notifying the local pensions regulator about large transfers? [5% of the fund or £1.5m – but only if conditions are not met on the Pension Protection Fund funding basis at the last valuation and contributions]

• If the transfer values were subject to reduction, would this alter your views?

• Consider what would be expected of Amit and Rowan if they were in separate firms (so that there was no issue of seniority).

• Amit, the pension scheme actuary, has a pensions practising certificate.  Does this bring any constraints to his actions?

• Is it enough for the scheme actuary to notify the local pensions regulator, or should we expect more action here?