The Pensions Regulator

Code of practice 03
Funding defined benefits

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Between actuarial valuations

The actuarial report

127. If an actuarial valuation is not commissioned by the trustees with an effective date within one year of the effective date of the previous valuation, they must commission an actuarial report.⁹⁴

Effective dates of actuarial reports

128. The effective date of an actuarial report must be no later than one year from that of the previous actuarial valuation or report⁹⁵. Actuarial reports for the intervening years between full actuarial valuations must give an update of the funding position since the last valuation.⁹⁶ Trustees should, therefore, generally commission actuarial reports as at those anniversaries of the effective date of the last actuarial valuation for the years when they do not obtain an actuarial valuation.

Relevant factors

129. The purpose of the actuarial report is to provide an approximate update of the funding position of the scheme. The actuary can use information about the scheme that is readily available, together with relevant general economic and financial information, to update the calculation of the technical provisions and the market value of scheme assets. An actuarial report should reflect any significant changes to the scheme's liabilities including:
     • additional accrual of benefits by active members, including new joiners;
     • any material changes to benefits made by the exercise of discretions or by way of augmentations; and
     • any material changes brought about by transfers into or out of the scheme.

130. Actuarial reports prepared using a quantitative or a purely narrative approach may be appropriate; for example, where the funding position is not expected to have changed markedly since the previous valuation or report, a purely narrative approach may be acceptable to the trustees. In either case, trustees should question their actuary to understand the factors the actuary has taken into account in preparing the report.

Changes in circumstances

131. Trustees should be alert to the circumstances which may lead them to commission an early valuation or review and if necessary revise the funding documents.
132. In the light of this ongoing requirement trustees may wish to instruct their actuary and/or other advisers to alert them to situations which, in the relevant adviser's opinion, would lead them to review any of these scheme funding documents or consider commissioning an early valuation.

Trustees' undertaking to the actuary

133. As a condition of accepting an appointment the actuary is professionally required to ask the trustees to provide an undertaking to notify the actuary should certain events take place.⁹⁷ Trustees have an ongoing obligation under the undertaking to inform the actuary about those events specified in it. These matters will usually be dependent upon the precise benefit structure and size of the scheme. For example:
     • in a small scheme the events might relate to when just one highly paid member either joins or leaves. This is because this single member's benefits may represent a significant proportion of the scheme's liabilities; or
     • the undertaking might relate to larger-than-expected salary increases to older members. If those members were long-serving this can have a significant adverse impact on funding levels.

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