2 February 2004 - DWP and Actuarial Profession announce revisions to technical memorandum 1 (statutory money purchase illustrations from pension schemes)
The Department for Work and Pensions and the Actuarial Profession today announced revisions to Technical Memorandum 1 (TM1), Statutory Money Purchase Illustrations, following consultation across the pensions, insurance and actuarial sectors.
The Revised TM1 has been approved by the Secretary of State for Work and Pensions, and by the Department for Social Development in Northern Ireland.
TM1 sets out a single set of assumptions that are used to illustrate the amount of pension that might be payable when a member retires, in terms of today’s prices.
These illustrations, which apply to a wide range of individual and occupational pension arrangements (including personal pensions, money purchase occupational pension schemes and stakeholder pensions), were introduced in April 2003.
The Actuarial Profession keeps TM1 under review; the Profession’s latest research indicates that the annuity basis of TM1 now needs to change to reflect the increases in cost of securing a pension with an insurance company. The increase in cost is about 15% for male annuitants, and about 10% for females at age 65.
Secretary of State for Work and Pensions Alan Johnson said: “Illustrations of money purchase benefits are an important tool for effective retirement planning, and it is important that we keep the calculation method as realistic and up to date as possible. We are grateful for the help and support of the Actuarial profession in achieving this.”
Wendy Beaver, Chairman of the Profession’s Pensions Board, commented: “The revision to TM1 will come as no surprise in the light of annuity prices having increased. This technical amendment brings statutory illustrations into line.
“What is important, however, is that the public is still not saving enough for their retirement – a point we made when TM1 was first brought in. It is important that government, regulators, actuaries and everybody involved in the UK savings industry reinforce this key message as often as possible.
“Also, the public need to be reminded that SMPI illustrations are only a guide. They represent just one possible outcome; the actual result will ultimately be affected by a wide range of factors.”
Notes for editors
- TM1 was issued by the Actuarial Profession on 17 May 2002. The Profession keeps TM1 under review; it is also subject to approval by the Secretary of State for Work and Pensions.
- The FSA has recently issued its own consultation which proposes to enable providers to apply the TM1 and FSA bases consistently from 6 April 2005.
- Actuaries make financial sense of the future. They provide commercial, financial and prudential advice on the management of a business’s assets and liabilities, especially where long term management and planning are critical to the success of any business venture. They also provide advice on social and public interest issues.
- Members of the Profession have a statutory role in the supervision of pension funds and life insurance companies. They also have a statutory role to provide actuarial opinions for managing agents at Lloyd’s.
- The Profession is governed jointly by the Faculty of Actuaries in Edinburgh and the Institute of Actuaries in London. A rigorous examination system is supported by a programme of continuous professional development and a professional code of conduct supports high standards reflecting the significant role of the Profession in society.
- Further information on the work of the Profession can be found on the Website – www.actuaries.org.uk
The Actuarial Profession Head of Communications: Iain Taylor 0207 632 1452 or 07979 914217
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