The Association of Consulting Actuaries is urging the Government to make provision in the forthcoming Pensions Bill for a new type of risk-sharing scheme known as a “conditionally-indexed scheme”.

The proposed “conditionally-indexed scheme” would include the following features:

  • the scheme would be a defined benefit scheme but resemble an “average earnings” scheme as the pension earned for each year of
  • service would be related to the employee’s earnings for that year; deferred pensions and pensions in payment would be indexed. Any revaluation or annual increase would typically reflect price inflation, subject to the statutory cap, and would be conditional on the scheme having sufficient finances, meaning the targeted annual indexation can be deferred during difficult financial conditions. However, once granted, the revaluation or increase would become part of the defined benefit pension that has been accrued;
  • the scheme would be regulated by the Pension Regulator and be subject to the new prudent scheme-specific funding regime e.g. targeted future revaluations and pension increases must be determined using similar prudent assumptions as for the defined benefits that have already accrued;
  • the scheme would permit employers to raise the scheme’s normal pension age for certain members but subject to an actuarial report showing that the adjustment is justified and providing evidence of increased longevity consistent with such a change, which is copied to TPR;
  • on winding-up, employer debt would only be based on the accrued defined benefit pension and not future revaluation and pension increases; and
  • if the sponsoring employer fails, compensation available to the members from the PPF would be 100% of the accrued defined benefit pension. The scheme would be subject to lower levies to reflect the lower risk it poses to the PPF.

View the proposal