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Last Updated: Monday, 18 October, 2004, 11:16 GMT 12:16 UK
Actuaries 'failing' work pensions
A calculator
Strong investment growth is being factored into pension calculations
Actuaries have been accused by leading members of their own profession of failing workplace pension savers, the Financial Times has reported.

Commonly actuaries factor in strong future investment growth when calculating whether a pension scheme can afford to pay its members.

This leads to "misleading" valuations of a scheme's solvency, actuaries from two major firms are reported as saying.

Up to 65,000 UK workers have lost their pensions following scheme wind-ups.

Public interest

The Financial Times cites a paper that is due to be presented to the Faculty and Institute of Actuaries next week.

The authors claim that the practice of allowing actuaries to factor strong growth into their calculations may give savers a false sense of security.

"We believe that these practices have the potential to mislead and are not in the public interest," the paper to be submitted states.

The report goes on to recommend that actuaries change the way they calculate whether a scheme is fully funded or not.

Schemes should be declared 100% fully funded only if there is enough money and investments for all members to receive their full pension entitlements, the report concludes.

Lost pensions

An estimated 65,000 UK workers have lost out following pension scheme wind-ups.

In some cases, prior to the schemes being wound-up, actuaries had said that there was enough money to pay all members' pensions.

These assertions were partly based on projections of strong future investment growth.

However, when it came to winding-up the schemes it was discovered that some were under funded to such an extent that members lost a large part of their pension.

Under wind-up rules the assets of the pension scheme have to be used to guarantee the pensions of retired members.

Members of working age have to make do with whatever is left and as a result many have lost all or part of their pension.

In short, previous actuarial statements that schemes were sufficiently funded had proved wrong once put to the test by wind-up.

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