Wednesday, August 25, 2010


Quiet summer, with the Coalition bedding in nicely, and having the good sense to ignore calls to abuse lower bond yields to pay for more government spending. They've also dropped a few pensions bombshells; the first was the suggestion that DC pensions should be linked to the cost of living inflation index (CPI) rather than the retail price index (RPI). Since CPI runs on average about 1% less per year than CPI, this has quite an impact over the timescale of a pensioner's life.

The other less reported move - but in its way just as interesting - was the effective abolition of transfers from defined benefit (ie final salary) scemes to defined contribution. This is quite important as many DB schemes have looked to reduce their long term liabilities by offering their members a transfer, often with a bonus of some kind, to a DC scheme. The selling of these transfers has been of variable quality, with some rather dodgy remuneration structures at times. For example, IFAs have been paid based on the number of members who chose to transfer. Not much incentive for mis-selling there, then. DB scheme promises are usually very valuable, since they are typically inflation protected, may have built-in increases, and their future value is quite easy to calculate.

In other news, the Faculty and Institute have now merged, and have gone down the pragmatic road of becoming the Institute and Faculty of Actuaries.

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