The Association of Consulting Actuaries (ACA) is concerned about the Financial Reporting Council’s(FRC) ‘radical’ suggestions on accumulation rates and dashboard guidelines.
ACA expressed reservations in its response to the FRC’s consultation on the proposed change to AS TM1: Statutory Money Purchase Illustrations (SMPIs), which includes proposals on accumulation rates, the form of benefits at retirement, and annuity rates at retirement.
ACA Pension Schemes Committee chair Peter Williams says: “We support the general principle of amending AS TM1 to provide greater consistency for recipients of SMPIs where individuals have several different pension policies, particularly in the context of information to be provided on pension dashboards.
“However, the proposals on accumulation rates are radical, and we think that they can create problems of understanding for individuals and significant additional work for fund managers in many cases. The proposals can also create anomalies when, for example, bond funds prices are volatile. On balance, recognising that the SMPI will be indicative only, we would prefer an asset-class based approach, which is the approach most schemes adopt currently.
“We note that most individuals do not take annuities at retirement, and further thought should therefore be given to the form of benefits to illustrate to better match what individuals would typically do when they take benefits. We appreciate that this would take some time, and that the annuity approach may need to be maintained for a period.
“Given the Government’s proposal that all DC projections for the Dashboard are covered by AS TM1, we believe AS TM1 should refer to and give guidance on any additional projections for the Dashboard not currently referred to in AS TM1, such as projections based on the accrued fund referred to in the draft Dashboard Regulations. However, AS TM1 should reflect the final Dashboard Regulations.”
Hymans Robertson head of DC investment Callum Stewart says: “We welcome the FRC’s consultation on proposed changes to the Actuarial Standard Technical Memorandum 1 (AS TM1) which takes on an additional layer of significance given the statutory illustrations of money purchase arrangements which will feed into the pensions dashboard.
“Whilst we agree with the headline objectives supporting the proposed changes, we have significant concerns with some of the proposed methods for achieving them. In particular, we believe the proposed accumulation rate methodology will not enable fair comparisons across different providers and would in fact disadvantage more sophisticated investment approaches that, for instance, invest in illiquid assets and could provide better value.
“We also believe that now is the time to move away from the historic annuity focus and introduce an approach reflecting the flexibility DC savers have. We hope the FRC will address our concerns and consider the alternative solutions we have outlined.”
