Regulation 5 Valuation of liabilities
A valuation of liabilities shall be determined in accordance with the principles described as the “Projected Accrued Benefit Method” in the document entitled “Pension Fund Terminology: Specimen Descriptions of Commonly Used Valuation Methods” published in 1986 by the Institute of Actuaries and Faculty of Actuaries.
The actuarial assumptions and requirements for the purposes of the valuation to which paragraph (1) of this regulation refers are as follows—
the valuation rate of interest: the rate assumed to be earned on the investment of the future income of the scheme (net of expenditure) shall be 8.5 per cent. per annum;
the net investment yield (pre-retirement): the margin between the valuation rate of interest to which sub-paragraph (a) refers and general increases in salaries must be assumed to be 1.5 per cent. per annum;
the net investment yield (post-retirement):
the valuation rate of interest shall be reduced to take account of pension increases at the rate provided for under the scheme, provided the net investment yield is not so reduced to an amount less than 3 per cent. per annum;
where it is provided under the scheme that there shall be regular reviews of pensions currently payable and for pension increases (not exceeding any relevant increase in the retail prices index) to be given at the discretion of the trustees or employer (subject to availability of funds), paragraph (i) shall apply as if references to increases included references to such discretionary increases;
the pension increases under paragraph (ii) shall be arrived at after taking account of—
the average increase, measured either absolutely or relative to inflation, awarded during the period of 3 years preceding the effective date of the valuation; or
such rate of increase notified to the Board under a declaration of intent made jointly by the administrator of the scheme and the employer to pay increases (subject to availability of funds), provided also that the extent of the increase included in the valuation (either by reference to a rate of increase or by a margin in the rate of interest) is disclosed to scheme members;
where, under the scheme, the rate of pensions increase is effectively linked to increases in the retail prices index, the net investment yield shall be 2 per cent. per annum except where the obligation to make an increase is (under the scheme) subject to a stated (or overriding) maximum when an appropriate higher net yield must be used;
no reduction shall be made in the valuation rate of interest unless the requirements of this regulation are fulfilled.