Mercer HR: UK Plan Actuary Study too Costly

September 12, 2005 ( - UK employers will have to have an actuarial study done of their retirement plans to verify any extra contributions made since the plan's previous valuation, according to current government proposals.

A news release from Mercer Human Resource Consulting said such studies are likely to be costly but are necessary to achieve a fair Pension Protection Fund (PPF) levy next year. If they don’t, according to Mercer, they will be considered more at risk of submitting claims to the PPF, so they will be charged higher levies.

Given the current level of extra contributions being paid into pensions – around £8 billion a year – many pension plans would be at a financial disadvantage if they did not carry out a valuation before the end of the year, according to the Mercer analysis.

If a quarter of plans opt for a new valuation – which might typically cost around £10,000 – the total cost to the industry would be around £20 million.   But if these valuations were not carried out, the total cost as a result of higher PPF risk-based levies could be as high as £40 million.

“If these proposals are not changed quickly, employers will be forced to pay for an expensive valuation just to be charged the correct levy,” commented Tim Keogh, Partner at Mercer, in the news release. “The burden will fall particularly on those employers that have paid substantial lump sums into their schemes.”

According to the announcement, Mercer suggested that plan assets should be increased to take account of any special contributions paid between the last valuation date and March 31 before the start of the year in which the PPF levy is imposed.   This simple adjustment, to be confirmed by an auditor, would be sufficient to remove the need for special valuations.   “Auditing contributions would be much simpler than re-valuing the pensions of every scheme member,” Keogh said.

He added: “It is important that the PPF and Pensions Regulator are seen to reward ‘good’ funding behavior and do not discourage employers from making extra contributions.”