The Government Actuary's Department (GAD) has revised the actuarial assumptions to be used for broad comparability testing when public service staff transfers covered by the Government's "Fair Deal" policy.
The principles on which broad comparability is assessed include tests of both financial and qualitative value. As far as financial value is concerned, GAD assesses the value of a set of pensions benefits by calculating the underlying 'employer cost' (in excess of the contributions paid by employees) of providing scheme benefits which will accrue over the employees' expected remaining working lifetimes.
In relation to financial assumptions, long-term assumptions common to all assessments are made (and are assumed to remain unchanged from the date of assessment until benefit payments end). GAD acknowledges that although the public service pensions schemes currently provide pension increases which follow directly changes in consumer prices, historically this has not been the case for most scheme designs being considered for broad comparability. As a result, GAD considers it necessary to have assumptions which cover alternative forms of pension increases.
In addition to changes as a consequence of the change to the consumer prices index (CPI), GAD has also introduced updated demographic assumptions for the assessment of broad comparability.
So, what does this mean for certificates and passports?
It's back to business and GAD is now able to issue new certificates of broad comparability once more. However, timing may remain an issue for certain contractors as any backlog is cleared and revised prices are factored into the business deal.
GAD has confirmed that any certificates currently in force issued on a retail prices index (RPI) basis remain valid and are not being withdrawn, but contractors are therefore, of course, required to provide RPI benefits in relation to those schemes. Any contractor wishing to provide CPI benefits would have to submit its new proposed arrangements for testing against CPI in the relevant public service scheme. But, this would entail testing against all GAD's new updated assumptions (i.e. including the new updated demographic ones in addition to the new financial assumptions). There could be cost savings for some schemes in adopting CPI rather than RPI, but this would need to be considered on a case-by-case basis, particularly having regard to the fact that demographic changes would also need to be factored into any change. The same would apply to passports.
And what about bulk transfers?
The issues have unfortunately not yet been resolved. So, while certainly helpful in relation to certificates of broad comparability, the latest GAD announcement does not provide any certainty or direction for the transfer of past service benefits. Parties may still therefore need to consider postponing transfers as it will not be possible to accurately quantify pension costs associated with a bid and the need for open and constructive dialogue remains crucial.