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Section 67: The actuarial equivalence requirements
Section 67 of the Pensions Act 1995 applies whenever a power to modify an occupational pension scheme is exercised to make a change (known as a “regulated modification”) which would or might adversely affect a member’s subsisting rights.
There are two types of “regulated modification”. These are “protected modifications” and “detrimental modifications”. Each type of modification requires certain conditions to be met before the modification can be made. For further details, see Section 67: Basics.
The actuarial equivalence requirements comprise three essential elements:
- the information requirement;
- the actuarial value requirement; and
- the actuarial equivalence statement requirement.
The information requirement
Where a change is proposed using the actuarial equivalence route, the trustees must take all reasonable steps before the change is made to provide an affected member with a written explanation of the changes being put forward. The written information must be “adequate to explain the nature of the modification and its effect on him”. An affected member must be given a reasonable opportunity to make representations. The Pensions Regulator’s code of practice suggests a period of at least four weeks.
The actuarial value requirement
Essentially, the actuarial value requirement will be met if the “actuarial value” of each member’s subsisting rights immediately after a change is no less than it was immediately before. The test is in essence a before and after valuation of a member’s cash equivalent transfer value.
The actuarial equivalence statement requirement
The actuarial equivalence statement must be obtained “within a reasonable period beginning with the date on which the modification takes effect”. The Pensions Regulator’s code of practice indicates that the “reasonable period” for this purpose is one month from the effective date of the change).