4. For regulations 7(1) (manner of calculation and verification of cash equivalents) and 8(2) (further provisions as to calculation of cash equivalents and increases and reductions of cash equivalents (other than guaranteed cash equivalents)) of the principal Regulations substitute—
7.—(1) Subject to paragraph (5), cash equivalents are to be calculated and verified—
(a)by calculating the initial cash equivalent—
(i)for salary related benefits, in accordance with regulations 7A and 7B; or
(ii)for money purchase benefits, in accordance with regulation 7C,
and then making any reductions in accordance with regulation 7D; or
(b)in accordance with regulation 7E.
(2) The trustees must decide whether to calculate and verify the cash equivalent in accordance with paragraph (1)(a) or (b), but they can only choose paragraph (1)(b) if they have had regard to any requirement for consent to paying a cash equivalent which is higher than the amount calculated and verified in accordance with paragraph (1)(a).
(3) The trustees are responsible for the calculation and verification of cash equivalents and initial cash equivalents.
(4) Paragraph (5) applies where the cash equivalent is calculated and verified in accordance with paragraph (1)(a).
(5) Where a portion of the cash equivalent relates to a salary related benefit and a portion relates to a money purchase benefit, the initial cash equivalent is to be calculated—
(a)for the salary related benefit portion, in accordance with regulations 7A and 7B; and
(b)for the money purchase benefit portion, in accordance with regulation 7C.
7A.—(1) For salary related benefits, the initial cash equivalent is to be calculated—
(a)on an actuarial basis; and
(b)in accordance with paragraph (2) and regulation 7B.
(2) The initial cash equivalent is the amount at the guarantee date which is required to make provision within the scheme for a member’s accrued benefits, options and discretionary benefits.
(3) For the purposes of paragraph (2), the trustees must determine the extent—
(a)of any options the member has which would increase the value of his benefits under the scheme;
(b)of any adjustments they decide to make to reflect the proportion of members likely to exercise those options; and
(c)to which any discretionary benefits should be taken into account, having regard to any established custom for awarding them and any requirement for consent before they are awarded.
7B.—(1) The trustees must use the assumptions determined under this regulation in calculating the initial cash equivalent for salary related benefits.
(2) Having taken the advice of the actuary, the trustees must determine the economic, financial and demographic assumptions.
(3) In determining the demographic assumptions, the trustees must have regard to—
(a)the main characteristics of the members of the scheme; or
(b)where the members of the scheme do not form a large enough group to allow demographic assumptions to be made, the characteristics of a wider population sharing similar characteristics to the members.
(4) The trustees must have regard to the scheme’s investment strategy when deciding what assumptions will be included in calculating the discount rates in respect of the member.
(5) The trustees must determine the assumptions under this regulation with the aim that, taken as a whole, they should lead to the best estimate of the initial cash equivalent.
7C.—(1) For money purchase benefits, the initial cash equivalent is to be calculated in accordance with this regulation.
(2) The initial cash equivalent is the realisable value of any benefits to which the member is entitled.
(3) The trustees must calculate that realisable value—
(a)in accordance with the scheme rules; and
(b)in a manner which is—
(i)approved by the trustees; and
(ii)consistent with Chapter IV of Part IV of the Act.
(4) The realisable value must include any increases to the benefits resulting from a payment of interest made in accordance with the scheme rules.
7D.—(1) An initial cash equivalent may or, as the case may be, must be reduced in accordance with Schedule 1A.
(2) The trustees may request an insufficiency report from the actuary in accordance with Schedule 1B.
(3) The trustees may treat the actuary’s last relevant GN11(3) report as an insufficiency report.
7E.—(1) This regulation applies where the trustees have decided to calculate and verify the cash equivalent in accordance with regulation 7(1)(b).
(2) The cash equivalent is to be calculated and verified in such manner as may be approved by the trustees.
(3) The cash equivalent must be higher than it would be if it were calculated and verified in accordance with regulation 7(1)(a).
(4) For the purposes of calculating and verifying the cash equivalent, the trustees may request an insufficiency report from the actuary in accordance with Schedule 1B.
(5) The trustees may treat the actuary’s last relevant GN11 report as an insufficiency report.”.
Regulation 7 was amended by paragraph 11(4) of the Schedule to S.R. 1997 No. 160, regulation 15(2) of S.R. 2005 No. 171, paragraph 2(3) of Schedule 3 to S.R. 2005 No. 568 and paragraph 5(b) of the Schedule to S.R. 2007 No. 64
Regulation 8 was amended by regulation 2(3) of S.R. 2003 No. 337, regulation 15(3) to (6) of S.R. 2005 No. 171, paragraph 2(4) of Schedule 3 to S.R. 2005 No. 568 and paragraph 5(c) of the Schedule to S.R. 2007 No. 64
“GN11: Retirement Benefit Schemes – Transfer Values” was adopted by the Board for Actuarial Standards on 6th April 2007. The Board for Actuarial Standards means the operating body of that name of the Financial Reporting Council and can be contacted at Planning & Resources, 5th floor, Aldwych House, 71-91 Aldwych, London WC2B 4HN