UK - Watson Wyatt has attacked proposals from the actuarial profession that schemes should only use bond values to measure fund liabilities.
It claims that the move would put further pressure on sponsors and could effectively “kill off” DB schemes.
The outburst came during a meeting of the Staple Inn Actuarial Society, where the group unveiled plans for the creation of a “minimum risk portfolio” made up entirely of bonds – called the Liability Benchmark Portfolio.
The SIAS believes the portfolio would help trustees comply with the Myners’ recommendation to set investment strategies to match scheme liabilities.
But Watson Wyatt partner John Hill disagreed with SIAS’s view. He attacked the paper’s authors for measuring liabilities against bonds, and stressed that sponsors would simply see the LBP as a “guide to securing the accrued scale benefits on winding up”.
Hill added: “The report is too prescriptive, it fails to fulfil the working party’s brief and, if adopted by the profession, would be contrary to the best interests of pension sponsors, trustees and members.
Trustees’ objectives in relation to the investment of a DB scheme will usually be complex. They will have regard to the sponsor’s wishes – and the report fails to address investment issues from the sponsor’s perspective – because if the trustees ignore their sponsor’s wishes, the sponsor may well cease to support the scheme.”
Independent consultant John Ralfe – who also attended the meeting – dismissed Hill’s opinion.
He said: “This was about defending the status quo and the continuation of DB schemes. Why? Because it’s in the interests of actuaries, both in terms of employment for them and not being sued.”
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