A year ago the Actuarial Profession found no consensus among actuaries on a draft revised version of GN11 (transfer values), known as Exposure Draft 54 [PDF]. The general principle proposed in EXD54 was that cash equivalents must be no less than the value of the relevant benefits calculated on a marked-to-market basis (meaning discounting using appropriately derived bond discount rates (real rates and/or fixed rates as appropriate) which reflect the default risk of the relevant benefits). This involved a fairly radical change from the existing less prescriptive approach, which requires a cash equivalent to represent the expected cost within the scheme of providing the deferred benefit entitlement, "having regard to market rates of return on equities, gilts or other assets as appropriate". The main concern was that on the EXD54 basis transfer values would be significantly higher, increasing the funding burden on defined benefit schemes. Consequently, as this raised issues of social policy the problem of defining the basis for calculation of transfer values was handed over to the Government.

The consultation document [PDF] which has emerged from the DWP shows that the Government itself has no firm views about this, however. The main issue concerns transfers from DB to DC schemes. Fair value for the deferred member considering transferring out must neither jeopardise the position of the members remaining in the scheme nor lead to the sponsoring employer having to make extra contributions purely as a consequence of having paid a transfer, the DWP says. Whether underfunded schemes should still be allowed to reduce transfer values in proportion is one key question. Another is whether the existence of PPF compensation should be taken into account.

Three approaches are set out in the condoc - though the DWP is anxious that these should not be seen as necessarily the limit of the possibilities. The first option would be to prescribe assumptions in detail, via regulations. The second is to adopt a scheme-specific basis; this is probably the least controversial. The third alternative is the EXD54 basis.

The consultation closes on Friday 11 August; the Government’s intention is to have regulations in place in time to come into force in April 2007. Meanwhile, the existing DWP regs remain in force as does v9.2 of GN11, issued on 30 December 2005.

One of the issues which must be taken into account in this consultation is the impact of the EU Portability Directive [PDF], which has rung alarm bells in the industry with its implication that UK schemes might be required to accept transfer values (at the moment, only stakeholder pension schemes are in this position). The Government's response [PDF] to the consultation, published earlier this month, indicates a firm intention to ensure no such requirement appears in the final Directive. This reflects a generally robust approach which the Government will take; some might say not before time, in view of the difficulties the IORP Directive has brought. This week the European Commission put out a statement that it is taking the UK (and Slovenia) to the ECJ for failing to implement the IORP Directive properly.

The DWP is also currently conducting a restricted non-public consultation on the use of electronic communications to provide information to members and others, contained in regulation 27 of the draft new Disclosure Regs, now due to come into force in October. (This particular document is not on the website, but copies are available from Aries.) Concerns have been expressed in response to earlier drafts about the reliability of this mechanism. The Government does not consider that simply placing information on an intranet would suffice.

We noted earlier that the DWP had published its response to the consultation on the Occupational Pension Schemes (Winding up Procedure Requirement) Regulations 2006: these regs have now been laid (SI 2006/1733) and come into force on 24 July 2006. They apply to schemes winding-up while a recovery plan is in place (ie most schemes which go into wind-up, at the moment).