ACTUARIAL VALUATIONS OF PENSION SCHEMES 

The Pension Scheme Regulation Act No.27 as amended 2005 provides for the appointment of an Actuary in section 19. The Actuary is appointed by the Board of Trustees of the Pension Scheme/Fund. The Act also sets the minimum qualification for one to act as an Actuary. One must have a qualification equivalent to that of an Associate or Fellow of the Institute of Actuaries of England. 

An Actuary so appointed shall prepare an actuarial valuation of a Pension Scheme at intervals as prescribed in the Act, which is in the case of a Defined Benefit Scheme, during the first four years after registration, carry out an actuarial valuation every two years, and thereafter at least every three years so as to review and determine the sound funding of the Pension Scheme. 

The Regulatory Authority and the Accounting Profession have indicated the need requiring greater disclosure in and discussion of Pension Scheme valuation. 

Pension Schemes are increasingly coming under pressure in three areas. Firstly, there is increasing and unwritten requirement for Pension Schemes to increase pensions in payment. The sources of such pressure include the Press, Pensioners, and active members of Pension Schemes, Trade Unions and the Government. Secondly, some industries have experienced greater changes in the number of members withdrawing than was previously the case and the benefits available on withdrawal are considerably greater than before. Thirdly, there is an increasing requirement for discussion of actuarial matters from bodies outside the profession, such as Accountants, Risk Consultants/Managers as well as the Trade Unions. 

Actuaries are requested to provide statements or certificates giving their opinion of the current and likely future financial position of the Pension Scheme/Fund. The purposes of an actuarial valuation of a pension scheme must be to provide the Actuary with all information he/she requires to give sound actuarial advice to their clients, normally the Trustees of the Scheme or the employing company, to enable them to satisfy any legal requirements in relation to that scheme, e.g. to provide any actuarial statements about the financial position of the scheme that may be required. 

The valuation may be regular as stated above, normally triennial valuations of the pension scheme or it may be a special valuation undertaken because of significant recent or prospective changes to the scheme necessitating a valuation. In either event, the first step is to decide on the uses to which the results are to be put. Once the purposes have been defined, the Actuary will be in a position to consider the approach he will adopt, the assumptions he will make, the approximations which can and cannot be justified and the methods that are used to place values on the assets and liabilities being taken into account 

One frequent requirement from a valuation is the provision of a statement for inclusion in the scheme accounts or a notice to members indicating either the level of benefits that would be available to members in the event of the scheme discontinuance or the relationship between the assets and accrued benefits. 

The funding rate that is adopted for a particular pension scheme is a function of both the chosen pace of funding and the strength of the actuarial assumptions made. The pace of funding and funding objectives can be discussed by the actuary with his client, usually the Trustees of the scheme. The Actuary should draw his client’s attention to any advantages and disadvantages that exist, and their consequent short or long term effect, in the various approaches available.  

Most Actuaries agree that there is no perfect set of financial and other assumptions to be made as to the future experience of a pension scheme. For a particular scheme, one set of assumptions will be stronger or weaker than another and the whole spectrum of assumptions made by Actuaries in the ongoing valuations of pension schemes forms a range from the strongest to the weakest with probably some general broad agreement as to the region in which the average assumption lie. 

In conclusion, actuarial valuations of schemes are very important. Members of pension schemes should take an interest in the various options that the Actuary has given for the scheme. It is incumbent upon the Trustees to make prudent decisions based on the advice of the Actuary. The implementation of an option adopted by the Trustees is closely monitored by the Pensions and Insurance Authority.
 

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