Characters:

Flo - Scheme Actuary
Meg - GI Actuary
Chair

Synopsis:

Flo is the scheme actuary to a small defined benefit pension scheme.  She has just completed the triennial valuation process and her team has prepared updated factors to be used in administration calculations for the scheme such as cash commutation factors and early retirement reduction factors.  These have historically been updated following triennial valuations to reflect latest views on longevity and interest rates. 

At the recent meeting of the scheme’s trustee board, following a lengthy discussion about the valuation report and the options to bring the funding back up to a satisfactory level, the new funding plan is agreed.  The Chair then swiftly moves to agree the proposed administration factors after only brief discussion, eager to commence his retirement drinks party with the board.

Flo is surprised some time later to receive an irate call from the Chair, having received his early retirement benefits form stating pension amounts 5% less than he was expecting.  He blames this on the updated administration factors Flo had “tacked on” to the end of the recent trustee board meeting.   

He now insists that as these had not been properly discussed at the previous meeting, they should be deferred for agreement at the next meeting of the trustee board.

Flo is aware however that the Chair will have retired by then!

Discussion points

What does the Actuaries’ Code have to say in this situation?  For example:

Integrity – requires IFoA members to act honestly and with the highest standards of integrity
Competence and Care – requires that members will perform their professional duties competently and with care
Impartiality – requires members not to allow conflict of interest or the undue influence of others to override their professional judgement
Communication – requires that members will communicate effectively and meet all applicable reporting standards. 

• If you found yourself in this situation you would want to look at what the minutes of the meeting record happened.  Do the minutes confirm your recollection that the factors were agreed?
  

• If the minutes do not agree with your recollection then you might consider if perhaps there are some legitimate reasons why this is the case.  Perhaps you weren’t as clear in that part of the meeting as you thought you were being?
  

• It may be that the minutes are in a draft form and will be formally approved at the next trustee board meeting.  The trustee board is likely to have well established procedures for preparing and signing off minutes.  The minutes would need to be confirmed as a true record of proceedings before being formally relied upon.
  

• What did your board paper say about the effective start date for the new factors?  It may be that, with hindsight, this point was not as clear as you thought it was. Does your paper make the consequences of the change in factors on members’ benefits clear? Members carrying out work within the scope of Technical Actuarial Standards (TASs) issued by the Financial Reporting Council will need to comply with section C.5.5 of TAS R: Reporting Actuarial Information and sections D.4.4 and D.4.5 of the Pensions TAS and ensure they keep up to date with changes to the specific TASs as they are revised and implemented.
  

• You may wish to talk to other colleagues in your firm about what to do.  You may well be told that upsetting this client, or losing them altogether, might reflect badly on your performance.
  

• In the scheme rules who has the power to set the early retirement and cash commutation factors? Are they set by the trustees or by the employer or are they set by the Actuary? Does the answer to this influence what you would do?
  

• Should you seek the opinion of the other trustees at that meeting?
  

• Given the pending retirement is there a need for an extraordinary trustees meeting to consider this point only?
  

• Does the scheme have a conflict of interest policy, and should the Chair be required to excuse himself?
  

• Alternately can the Chair’s early retirement be delayed until after the next trustees meeting?
  

• What are the funding consequences of doing as the Chair wants? Are you required to discuss the situation with other parties?

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