The Pensions Regulator

Key points

• This guidance is aimed at trustees and advisers involved in choosing mortality assumptions for an actuarial valuation. It is also relevant to employers considering agreeing to such assumptions.
• Good practice requires assumptions to be evidence based and to be clearly and transparently described.
• Trustees should adopt a terminology consistent with that put forward by the Continuous Mortality Investigation of the actuarial profession to aid transparency and understanding.
• Trustees should note that there have been significant recent developments in our knowledge of current trends in mortality, with some projections which have been in common use no longer likely to be considered reasonable assumptions.
• There are two separate decisions for trustees on mortality assumptions:
  • the baseline table for the current rates of mortality; and
  • the allowance for future improvements.
• Whilst the baseline assumption may be scheme specific, individual schemes will not normally have the evidence to make a scheme specific allowance for future improvements and will need to base their choice on broader data.
• We consider that an adjustment made to the discount rate as a proxy for future improvements in mortality does not meet the statutory requirement to adopt a prudent mortality assumption, or achieve good practice in clarity.
• We take the view that prudence:
  • with regard to the base mortality as at the valuation date, means taking a margin below best estimate rates where those best estimates are obtained from one or more of:
    • scheme experience (where statistically justifiable);
    • standard tables derived from aggregated relevant experience; and
    • adjustments derived from scheme characteristics known from aggregated analysis to be relevant to observed mortality;
  • with regard to future mortality improvement rates, means not assuming any rates lower than are reasonable based on the most up-to-date evidence and currently accepted projection methodologies.