The State Scheme Premiums (Actuarial Tables) Regulations 1992

Explanatory Note

(This note is not part of the Regulations)

These Regulations revoke and supersede the State Scheme Premiums (Actuarial Tables) Regulations 1987 and the State Scheme Premiums (Actuarial Tables) Amendment Regulations 1988 and 1991 (which amended the Regulations of 1987). They prescribe the tables in accordance with which the Secretary of State is required to make calculations in relation to, and for the purpose of determining the amount of, state scheme premiums (other than contributions equivalent premiums).

In accordance with section 16 of the Social Security Act 1986, the Regulations prescribe tables which are to be adjusted according to the current yield on investments. The adjustment is made by reference to the appropriate “market level indicator”. These indicators are derived from the market price of Stock Exchange securities and are constructed in such a way that the value of the indicator is 100 when the average yield on Government securities of certain coupons and terms of redemption is 12% per annum (convertible annually) and, where relevant, the average dividend yield on equities is 4.8% per annum.

The market level indicators are averaged over the first 5 days on which the London Stock Exchange is open during the month in which the liability for the payment of a premium arises.

In the case of guaranteed minimum pensions which accrued before 6th April 1988 the appropriate figures in the tables are multiplied by the market level indicator and divided by 100. In the case of guaranteed minimum pensions accruing after 5th April 1988 the appropriate figures in the tables are multiplied by the market level indicator and divided by the average of the monthly market level indicators over the 5 year period preceding the month in which the event giving rise to the liability for the premium occurred.

For cases where the person in respect of whom the premium falls to be paid is already a pensioner, the market level indicator is derived from the 15-year gross redemption yield (that is, the gross redemption yield compiled by the Financial Times, the Institute of Actuaries and the Faculty of Actuaries applicable to 15-year British Government Stocks with high coupons) by means of the table in Schedule 6.

For other cases, the market level indicator is made up of two components, based on the yields on equities and fixed interest securities respectively, weighted on the ratio 63:35. The equity component of the indicator is taken as 65 times the ratio of 4.8% to the gross dividend yield (that is, the gross dividend yield applicable to the All-Share Index compiled by the Financial Times, the Institute of Actuaries and the Faculty of Actuaries) on the day in question. The fixed interest component of the indicator is derived from the 20-year gross redemption yield (that is, the gross redemption yield compiled by the Financial Times, the Institute of Actuaries and the Faculty of Actuaries applicable to 20-year British Government Stocks with high coupons) by means of the Table in Schedule 7 to the Regulations, which also applies the weighting factor of 35.

The report of the Government Actuary relating to the actuarial tables, together with a statement by the Secretary of State showing that these Regulations give effect to the recommendations in that Report, is contained in Command Paper No. 1850 published by Her Majesty’s Stationery Office.