UK - Liability caps could be the difference between actuarial firms retaining or losing pension scheme clients, a manager warns.
Most actuarial firms have either already brought in liability caps, or are in the process of introducing them, for new clients.
They are also introducing them to existing clients when contracts are renewed in a bid to protect themselves from a rising trend of litigation.
One notable exception is Mercer Human Resource Consulting which is still resisting contract caps although it concedes it will probably have to introduce them “sooner rather than later” .
But Rexam Pension Plan group pensions and benefits manager Terry Faulkner believes that if a scheme is already unhappy with its actuary, the introduction of a liability cap may be “the straw that breaks the camel’s back”.
Faulkner stressed that the £1bn Rexam scheme was happy with its actuary, Watson Wyatt, which has broached the subject of putting a liability cap in place.
Faulkner – who is reviewing Watson’s approach – added: “The majority of big consulting firms are looking to put liability caps in their contracts.
“If you want to use one of these firms you have to put up with it.”
The manager of the £216m Next Group Pension Plan, John Stevenson, also believes the move towards liability caps could lead to firms being dropped by pension funds.
And he added: “Unless the actuaries were to set a ridiculously low benchmark, any cap would have to be reviewed on an annual basis for it to remain valid.”
But there was some sympathy for actuaries in their battle to restrict their liabilities.
The £21bn Electricity Supply Pension Scheme secretary Tony Allen said: “We understand the increases in insurance cost that they are facing.
“There would be concern for a professional firms trying to keep its liabilities at a very low level, but if they are dealing with a large scheme there might be a sensible level to cap liabilities.”
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