What's new bulletin September 2022

TAXATION AND TRUSTS

Widow's tense relationship with trustee were not grounds for reasonable provision claim, finds EWHC
(AF1, JO2, RO3)

A challenge by a widow on her husband’s will, on the grounds that it left her only a life interest that could be terminated at any time by the trustees, has been dismissed by the England and Wales High Court (EWHC).

The will in question is that of Christopher Ramus, who died in June 2020, leaving an estate of approximately £1 million. He and his wife were in the process of separating and divorcing after a long marriage.

In his will he gave a life interest to his wife, with the trustees having the power to allocate her capital should she need it. However, trustees were also given the power to terminate the life interest should they decide that she did not need the income. Subject to the life interest, the trust fund was to be held on a flexible discretionary trust for their children and remoter issue together with Mrs Ramus unless the trustees decided to exclude her.

In a letter of wishes, Christopher asked the trustees not to give her capital, but stated that his wife should continue to receive income until she remarried, cohabited with another or until the trustees decided she did not need the income.

The issue in this case was the relationship between Mrs Ramus and one of the trustees, Claire Holt, who is the daughter of Mrs Ramus. In recent years, the relationship between them had become difficult, which led to Mrs Ramus deciding to divorce Mr Ramus.

Mrs Ramus was so concerned that the Trustees had the ultimate power to terminate her life interest that she made an application to the Court under the Inheritance (Provision for Family and Dependants) Act 1975. She based this on the belief that her husband did not make reasonable financial provision for her, as the trustees could stop the income at any time and refuse to advance capital. She was looking for the removal of Claire as a trustee, stating this would be an appropriate resolution.

The (EWHC) judge decided that “reasonable financial provision form the estate of the deceased does not become unreasonable financial provision because of the identity of the trustees”. In addition, as Claire is one of three trustees, she would not have the sole power to terminate the life interest and that there would have to be unanimous agreement before the trustees could exercise this power.

The judge also pointed out that he had no jurisdiction under the Inheritance (Provision for Family and Dependants) Act 1975 to remove trustees.

Comment

Clients ought to be very careful about who they ask to act as a trustee, either under their will or by trusts made in their lifetime. The removal of trustees can be particularly tricky. As can be seen by this case, the Inheritance (Provision for Family and Dependants) Act 1975 is usually used to ensure reasonable provision is made for dependents. Where clients want to remove trustees, this is usually either contained within the provisions of the trust or by referral to the Trustee Act 1925.

Economic labour market status of individuals aged 50 and over - latest statistics
(AF1, RO3)

This new publication details the trends over time in the economic labour market status of individuals aged 50 and over. Analysis is provided on the three headline measures announced in the Fuller Working Lives (FWL) Strategy 2017 that the Government use to monitor progress on FWL:

1. Employment rate of people aged 50 years and over, by five-year age bands and gender.
2. Average age of exit from the labour market, by gender.
3. Employment rate gap between people aged 50 to 64 and people aged 35 to 49 years, broken down by five-year age band and gender.

The DWP points out that as the coronavirus (COVID-19) pandemic has impacted the UK labour market, the statistics in this release should be interpreted in the context of COVID-19.

The main stories are:

• people aged 50 years and over have, like other age groups, been impacted in the labour market by the COVID-19 pandemic since March 2020, including the 12 months covered by this report. In the period April to June 2022 there are signs of recovery from the impact of the pandemic on the average age of exit and unemployment. For employment, the employment rate gap and economic inactivity, the impact of the pandemic has continued. It is too early to determine if changes since 2019 are short-term fluctuations or the beginning of a longer-term trend
• from the mid-1990s up to the start of the pandemic, the employment rate for people aged 50 to 64 years has been increasing (from 57.2% in 1995 to 72.5% in 2019) and the employment rate gap between people aged between 35 and 49 year and people aged between 50 and 64 years has been narrowing (from 22.2 percentage points in 1995 to 12.8 percentage points in 2019)
• also, from the mid-1990s up to the start of the pandemic, the average age of exit from the labour market has been increasing steadily for both males (from 63.1 years in 1995 to 65.3 years in 2019) and females (from 60.6 years in 1995 to 64.3 years in 2019)
• over the past year, the employment rate of people aged between 50 and 64 years has fallen by 0.3 percentage points from 71.0% in 2021 to 70.7% in 2022
• due to increases in the employment rate of people aged between 35 and 49 years and the fall in employment rate for those aged 50 to 64, the employment rate gap between the two age groups has significantly increased from 14.1 percentage points in 2021 to 15.1 percentage points in 2022;
• the employment rate for 50-64 year olds continues to vary by region and country. In 2022, the employment rate for the South East fell for 50-64 year olds, which resulted in the gap between the employment rate in the North East and the South East reducing from 10.0 percentage points in 2021 to 8.2 percentage points in 2022
• the average age of exit from the labour market has risen for both males and females over the past year. In 2022, the male average age of exit from the labour market was aged 65.4 years, compared to aged 65.1 years in 2021, and 65.3 in 2020, during which time, the State Pension Age (SPA) for men and women increased from 65 to 66 by October 2020, and the Covid-19 pandemic impacted the labour market. The male average age of exit has increased by 2.4 years since 1996 when it reached its lowest point of aged 63.0 years. The average age of exit for women in 1950 was aged 63.9 years. It fell and reached its lowest point in 1986 at aged 60.3 years. Since then, the average age of exit for women has increased by 4.0 years to aged 64.3 years in 2022. Between 2009 (before the change to female SPA) and 2018, when female SPA incrementally increased from aged 60 to 65 years to equal men’s SPA, the average age of exit increased from 62.4 by 1.5 years to 63.9 years. The average age of exit of women continued to increase by 0.4 years to 64.3 years in 2020, when male and female SPA increased to 66. Since 2021, the female average of exit has increased by 0.3 years to age 64.3 years in 2022, compared to aged 64.0 years in 2021
• being sick, injured or disabled continues to be the main reason why people aged between 50 and 64 years are economically inactive in the labour market (39.1%, or 1.4m), although the number of people in this age group stating retirement as a reason for not seeking work is close behind (33.4% or 1.2m);
• nearly 760,000 people aged between 50 and 64 years are either actively seeking work, or are inactive but are willing or would like to work, a fall from 810,000 in 2021

The DWP states that recent trends in employment should also be considered in the context of changes to SPA. Since 2010, female SPA gradually increased from 60 years, rising to 65 years by November 2018, at which point it equalled male SPA. In October 2020, SPA for both males and females increased to 66 years and will rise to 67 years by 2028. The 2017 SPA Review outlined a planned increase in SPA to 68 years by the period 2037-2039.

Working age is recognised internationally as people aged 16 to 64 years, whereby the SPA in the UK was formerly the upper limit. The DWP says that in order to understand trends over time, this release will continue to report on the 50 to 64 age group. However, data on people aged 50 to 65 years and more detailed tables containing statistics used in this release can be viewed in the tables accompanying this release.

In this report, everybody aged 16 or over is defined as either employed, unemployed or economically inactive. Employed is defined as being in work, including those working part-time and those who are self-employed. Economic inactivity is defined as not working, have not been looking for work within the last four weeks or who are unable to start work within the next two weeks. Examples of economically inactive people include: people not looking for work because they are students; looking after the family or home; because of illness or disability or because they have retired. Unemployment is defined as not working, have been looking for work within the last four weeks and are able to start work within the next two weeks. A common misconception is that the unemployment statistics are a count of people on benefits; this is not the case as they include unemployed people not claiming benefits.

The average age of exit from the labour market is broken down for men and women due to the historic difference of state pension age for men and women. In 1950, the average age of exit of men was aged 67.2 years. The average age of exit for men fell until 1980, when there was a change to the data source. Details of the change can be found in the background information and methodology.

60-day reporting and payment of CGT on residential property gains
(AF1, RO3)

HMRC is reminding those who are (or may be) selling a residential property about their CGT obligations.

According to the information received by the Chartered Institute of Taxation (CIOT), HMRC’s Wealthy External Forum has begun sending letters to those taxpayers who have recently sold a property, which was not their main residence, reminding them of their obligation to file a capital gains tax (CGT) return within 60 days of completion if a chargeable gain arises.

The letter is also aimed at those who are ‘considering selling’ and have put their property on the market. The letter warns that if the seller does not complete a CGT return when they should have done, HMRC may subsequently issue a determination to recover any tax due, along with interest and (potentially) penalties.

The letters come with a detailed Frequently Asked Questions sheet to assist the recipients in determining whether or not a return should be filed. Read the HMRC’s letter to taxpayers.

 

Note there are some differences in terms of payment and reporting depending on whether the individual is UK resident or not UK resident.

UK residents

Broadly, from 6 April 2020, UK residents, who make a disposal of UK residential property must use the CGT UK Property Account to report and pay to HMRC any CGT arising from the disposal:

• Within 30 days of disposing of the property, if the completion date was between 6 April 2020 and 26 October 2021
• Within 60 days of disposing of the property if the completion date was on or after 27 October 2021

There is no need to report any disposal where there is no CGT liability (although it is possible to report on a voluntary basis). So, if the gain is fully covered by the private residence exemption, annual exemption (currently £12,300), brought forward or current losses, or where a CGT relief applies which reduce the gain to nil, there will be no liability.

Non-UK residents

Non-UK residents must report all disposals of UK property to HMRC, even if there is no tax to pay or they have made a loss. This includes any disposal of residential or non-residential UK land and indirect disposals of UK property.

For more information, please see CG-APP18 Capital Gains Tax (CGT) on UK Property Account guidance.

Electricity bills
(AF1, AF2, RO3)

For the third time this year, the Government announced measures to deal with spiralling energy bills.

Late in may (now two Chancellors ago) the Government announced measures design to protect retail consumers from the October 2022 Ofgem price cap. At the time, the cap for the six months from October 2022 was estimated to be an annual rate of £2,800. Since then, Ofgem has reduced the price cap review period  to three months "to provide the stability needed in the energy market" and announced a October-December cap of £3,549. Projections from the likes of Cornwall Insights suggest that the next two cap reviews could take the figure up to over £6,600. However, the volatility of gas prices means such calculations often change in a matter of days.

Next month’s threatened 80% increase over the current price cap level (£1,971) has prompted fresh Government action which was set out in by the new Prime Minister, Liz Truss, during a General Debate on UK energy costs. The House of Commons Speaker was bitterly critical of this approach to making the announcement as it meant no details were published until Liz Truss got to her feet. It also limited scope for questions.

In the event the statement left much up in the air and, ironically, more information seems to have been given in a pre-brief to Martin Lewis than in Rees-Mogg’s written statement. What we know so far is:

• An Energy Price Guarantee (EPG) will be introduced from 1 October 2022 for two years set at an annual £2,500. This will apply on the same basis as the existing Ofgem cap, i.e. a limit on standing and unit charges for the various electricity and gas regions of England, Wales and Scotland.
• The £400 flat rate payment, spread over six months from October 2022, will remain in place. Although the Government did not say so, the consequence is to create an effective price cap on an annualised basis of £1,700 through to March 2023 and £2,500 thereafter. In other words, there is still a big jump currently due in April 2023.
• The additional assistance above the £400 flat payment announced in May by Rishi Sunak, e.g. the £300 extra for pensioners, will not be removed (hat tip to Mr Lewis).
• The green levies will be temporarily suspended, a fact already allowed for in the £2,500 EPG figure.
• Households with heating oil and LPG will have access to a discretionary payment (hat tip to Mr Lewis).
• The same level of support will be given to households in Northern Ireland.
• The Government says it ‘will also support all business, charities and public sector organisations with their energy costs this winter, offering an equivalent guarantee for six months’. After that period further (unspecified) support will be given to vulnerable industries, such as the hospitality sector.
• What the cost of all this will be and how it will be met are due to be explained by the Chancellor in his fiscal statement, ‘later this month’. The statement is currently expected on 21 September. All we have so far is that the Government believes that the measures will knock ‘up to 5%’ off inflation, which will reduce the cost of inflation-linked debt (assuming the Office for National Statistics plays ball – it did not with the £400).

Comment

The additional Government debt needed to fund these measures – £150bn on some estimates – will sit on top of the current £2,388.1bn could take the debt/GDP ratio above 100%. No wonder Kwasi Kwarteng talked about ‘fiscal loosening’ in his recent Financial Times article...

INVESTMENT PLANNING

August inflation numbers
(AF4, FA7, LP2, RO2)

The UK CPI inflation rate for August 2022 was 9.9%, down from 10.1% in July. 

The CPI annual rate for August just managed to fall back through the psychological double digit barrier, to 9.9%. That was 0.3% below market expectations, according to Reuters. A year ago, the August CPI reading was 3.2%. August 2022’s monthly CPI rise of 0.5%, compared with 0.6% in July and a 0.7% increase in August 2021.

The CPI/RPI gap widened to 2.4%, with the RPI annual rate unchanged at 12.3%. That remains the highest level for RPI since March 1981. Over the month, the RPI index was up 0.6%. The Office for National Statistics (ONS)’s favoured CPIH index fell by 0.2% to an annual 8.6%.

Remember, Tuesday’s news coverage of the 2.6% shrinkage of real wages reported by the ONS used CPIH data for May-July, not the higher CPI. The ONS notes that the increase in CPIH inflation was mainly due to the following factors.

Downward drivers

Transport: There was an overall decrease of 1.2% in this division (11.1% of the CPIH basket) between July and August 2022, compared with an increase of 1.2% in the same period last year. The fall was almost entirely due to the drop in the price of motor fuels, which declined 6.8% over the month as opposed to a 1.3% rise in 2021.

Upward drivers

Food and non-alcoholic beverages: There was an overall increase of 1.5% between July and August 2022 against 1.1% last year. This took the division's annual inflation rate to 13.1% in August 2022, up from 12.7% in July.

Seven of the nine CPI food and non-alcoholic beverage categories made upward contributions, with the fastest rise from oil and fats, which showed an annual increase of 26.3%. A year ago, overall food and non-alcoholic beverages inflation was 0.1%.

Clothing and footwear: The monthly rise for this division was 1.1%, against 0.2% between July and August 2021. Nevertheless, annual inflation in this division is 2% below the headline CPI figure.

Miscellaneous goods and services: Prices for this division increased by 0.8% between July and August 2022, up from 0.3% in the previous year. Notably, the household insurance category is up 25.7% year-on-year, which may in part reflect the Financial Conduct Authority (FCA)’s efforts to stamp out differential premiums between new and existing customers.

Four of the twelve broad CPI divisions saw annual inflation increase, while four (Transport, Communication, Recreation & Culture and Restaurants & Hotels) fell and four were unchanged. Housing, water, electricity, gas and other fuels was predictably the category with the highest annual inflation rate at 20.0% (unchanged from last month). Next highest was food and non-alcoholic beverages at 13.1%. Only one minor division (Health), accounting for just 2.1% of the CPI basket, posted an annual inflation rate below 4.5%.

Core CPI inflation (CPI excluding energy, food, alcohol and tobacco) rose by 0.1% to 6.3%. Goods inflation in the UK fell 0.6% to 12.9%, while services inflation added 0.2% to 5.9%.

Producer Price Inflation was 16.1% on an annual basis, down from 17.1% in July on the output (factory gate) measure. Input price inflation was 20.5%, down from 22.6% in July. Crude oil and petroleum products provided the largest downward contributions to the change in the annual rates of input and output inflation, respectively. On a monthly basis, input prices decreased by 1.2% and output prices decreased by 0.1% in August 2022, the first time the monthly rates have been negative since August 2020 and September 2020, respectively. 

Comment

The August CPI figure of 9.9% arrived a day after US inflation data which disappointed Wall Street with a reading of 8.3% (8.1% had been expected, down from 8.5% in July). Both the US and UK indices benefitted from reduced petrol and diesel prices, with the effect more noticeable in the USA because of much lower fuel taxes. Similarly, both countries saw a rise in core inflation (0.4% for the US and 0.1% for the UK), a move their respective central bankers will not like.  

The US inflation numbers have prompted speculation that the Federal Reserve (the Fed) will add a full percentage point to interest rates when it meets next week – at least 0.75%, thought only a possibility before the inflation data, is now baked in. At the Bank of England, which makes its deferred rate announcement on Thursday 22 September (the day after the Fed), a 0.75% hike is still on the table. With sterling weak, the Old Lady will not want rates to fall too far behind Uncle Sam.

PENSIONS

ONS reveals record number of people in employment beyond state pension age
(AF3, FA2, JO5, RO4, RO8) 

According to data data published by the Office for National Statistics (ONS), the number of people aged 65 and over in employment increased by a record 173,000 to 1.468 million between April and June 2022. The ONS said this was driven by a 17.7% uptick in the older generation entering part-time work.

Tom Selby, Retirement Policy Head at AJ Bell, suggested that that the figures show that those who stopped working during the COVID-19 pandemic hoping their retirement pot and any other assets would be enough to live on have now found this impossible. Mr Selby commented: “We have seen the number of over-65s in the workforce surge by 174,000 this year, effectively reversing the 'great resignation' we saw during the pandemic and replacing it with a 'great unretirement'. Some retirees, such as those receiving public sector pensions, will be lucky enough to have inflation protection baked into their incomes, [but] many will not.”

In addition, Becky O'Connor, Pensions and Savings Head at interactive investor, said: “During the pandemic, when savings were high and people were forced to stay at home, we saw many people bring forward decisions to give up work, because retiring early felt achievable. But now that inflation is rampant and stock market returns are volatile, the tables have turned, the retirement numbers don't quite add up and older people are taking a practical approach and returning to work in their droves.”

LITRG responds on draft pensions relief legislation

(AF3, FA2, JO5, RO4, RO8)

The Low Incomes Tax Reform Group (LITRG) have responded to HMRC’s draft legislation on the low earners’ anomaly: pensions relief relating to net pay arrangements. While they are cautiously optimistic about the new rules, the draft legislation does give rise to various concerns.

While the LITRG cautiously welcomed the publication of this draft legislation in July, they believe that the government’s proposal to treat these compensatory payments made by HMRC as employed earnings for income tax purposes could cause potential complexities. We therefore recommend that any top-up payments should be treated as tax refunds rather than earnings. It is our understanding that either way the payments would have mostly the same effect on Universal Credit (UC) claimants.

However, we would recommend that HMRC and DWP look together at our concerns that the wording of the UC Regulations arguably does not match DWP’s current practice in terms of deducting pension contributions from UC claimants’ income. Additionally, they believe it is important that HMRC and DWP share top-up payment information so that UC claims are adjusted accordingly without input from the claimants themselves.

If top-up payments are made to individuals who have already submitted a tax return prior to receiving the payment in the following tax year, their Self Assessment tax return would need to be amended. The LITRG recommends that HMRC take this into account when designing their processes around the payments.

The LITRG recommends that an ability to claim the relief is built into the legislation, together with an explicit right of appeal if HMRC fail to make a payment where the individual believes one to be due. They have again urged HMRC to backdate top-up payments to compensate pension savers for previous financial losses or further losses between now and introduction of top-up payments from April 2024.

FCA DB pension transfers redress calculations explained

(AF3, FA2, JO5, RO4, RO8)

The FCA has set out information on how firms work out how much redress (compensation) an individual may be due if they received unsuitable defined benefit (DB) pension transfer advice. The FCA also explains how their redress calculation methodology is impacted by changes in the economy, and potential changes to calculations following their consultation. This document is clearly aimed at consumers and covers the following questions:

1. What is redress for unsuitable DB pension transfer advice and what am I expected to do with my redress payment?
2.  How is the amount of redress I’m owed calculated?
3. Why does the payment I receive depend on when the redress calculation is carried out?
4. Should I delay having my redress calculated because of changes in the economy?
5. Why is the FCA consulting on changes to how redress is calculated for unsuitable pension transfer advice?
6. Will these potential changes affect me?
7. What does the FCA mean by consumers having a choice of whether to wait for their calculation while there’s a consultation on changes to the redress calculation methodology?
8. How will giving consumers choice work in practice?
9. What should I do if I don’t believe my firm has done my calculation correctly?

LCP: The “flex first, fix later” pension — is this the future of retirement?
(AF3, FA2, JO5, RO4, RO8)

Lane Clark & Peacock LLP (LCP) has published new analysis in one of their LCP on point reports, “The flex first, fix later” pension — is this the future of retirement? This would be a pension, where individuals start their retirement journey in drawdown, but automatically switch later to an annuity. The analysis joins the growing debate as to whether or not annuities still have a role to play in retirement provision, especially for those later in retirement. One of the paper's principal findings is that for many people there may be an optimum age at which to move from drawdown to annuity, mainly because eliminating “longevity risk” through buying an annuity becomes more attractive at older ages.

There are many ways in which the ‘flex first, fix later’ concept could be shaped, but the basic idea of a later life move to reliance on an annuity is one which is finding favour across pension schemes and providers.  The authors propose that this could be a new post-retirement ‘default journey’ for the unadvised mass market of people who had been auto-enrolled into workplace saving and now have to make choices about how to manage their retirement.

Commenting on the findings, LCP Partner and report co-author Phil Boyle said: “Pension freedoms have given people the opportunity to go on investing into their retirement, and in many cases this will give them a higher standard of living than buying an annuity as soon as they retire. But annuities are still valuable products, especially as we get older.”

LCP Partner and report co-author Steve Webb added: “A great deal of policy attention has gone in to designing default options for workers when they are building up a pension pot, and there is growing focus on the decisions people make around retirement. But there is currently no default journey for people through a retirement which could last twenty or thirty years. The ‘flex first, fix later’ pension could be a default option which would help people to make the most of their pension savings whilst also giving them the later life security which they need.”

High Court dismisses challenge against RPI reform
(AF3, FA2, JO5, RO4, RO8)

The High Court has dismissed the judicial review claim brought by the BT Pension Scheme, Ford Pension Schemes and Marks & Spencer Pension Scheme concerning the Government's decision to align the Retail Prices Index (RPI) with the housing cost-based version of the Consumer Prices Index (CPIH) from 2030. Permission for the review was granted by the High Court last December. All of the challenges brought by the pension schemes were rejected in a ruling by Mr Justice Holgate yesterday.

Responding to the judgment, a spokesperson for the schemes said: “We are disappointed that the [UK Statistics Authority] has been allowed to align the RPI with CPIH from 2030 without proper consultation and consideration of the impact such a decision will have on schemes holding RPI index-linked bonds and the retirement incomes of their members. Many investors, including pension funds, bought index-linked gilts in good faith and now face losses of £90 to £100bn. This decision will leave millions of pensioners in DB schemes with RPI-linked benefits poorer through no fault of their own and facing substantial decreases in their year-on-year income.”

Consultation: Local Government Pension Scheme (England and Wales): Governance and reporting of climate change risks
(AF3, FA2, JO5, RO4, RO8)

Department for Levelling Up, Housing and Communities has issued a consultation seeking views on proposals to require Local Government Pension Scheme (LGPS) administering authorities in England and Wales to assess, manage and report on climate-related risks, in line with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). This consultation closes on 24 November 2022. Under the proposals, administering authorities will need to:

• Establish and maintain, on an ongoing basis, oversight of climate-related risks and opportunities, including maintaining processes by which they can satisfy themselves that officers and advisors are assessing and managing climate-related risks and opportunities.
• Identify climate-related risks and opportunities on an ongoing basis and assess their impact on their funding and investment strategies.
• Carry out two sets of scenario analysis which must involve an assessment of the authorities’ investment and funding strategies. One scenario must be Paris-aligned (meaning it assumes a 1.5 to 2 degree temperature rise above pre-industrial levels) and one scenario will be at the choice of the administering authority. Scenario analysis must be conducted at least once in each triennial valuation period.
• Establish and maintain a process (integrated into the overall risk management process) to identify and manage climate-related risks and opportunities related to their assets.
• Report on four metrics as defined in supporting guidance (covering absolute emissions, emissions intensity, data quality and Paris alignment).
• Set a non-binding target in relation to one metric of their choice, against which progress must be assessed once a year, and the target revised if appropriate. The chosen metric may be one.

Philip Pearson, Head of LGPS Investment at Hymans Roberton, welcomed the consultation and commented: “This provides clear direction for funds on the steps they will need to take to further develop their approach to addressing and reporting on climate change risks. The timescales are sensible, with the first reports due by December 2024, although we expect that a number of funds will be in a position to report ahead of this deadline given the work that has already been undertaken to address climate issues.” However, Mr Pearson added: “We are wary of making the content of the climate risk report mandatory, which runs the risk of group-think and funds not giving enough consideration to the specifics of their own assets/strategy. Whilst further guidance from [the Department of Levelling Up, Housing and Communities] will be welcome on this, we believe a non-mandatory reporting template may offer a more practical solution for funds.”

Institute and Faculty of Actuaries issues risk alert on inflation
(AF3, FA2, JO5, RO4, RO8)

The Institute and Faculty of Actuaries has issued a risk alert to its members on the impact of high inflation on actuarial practice. Such alerts are issued when the IFoA feels that it needs to draw a topic to the attention of its members because of the consequences of actions actuaries are taking or not taking in the advice they give and the calculations they undertake.

The high inflation alert asks all actuaries to consider and adjust their work by taking appropriate consideration of expected future inflation, different types of inflation, the impact of the current high inflation environment on underlying methodologies, and the quantification of uncertainty to ensure that the potential range of plausible and possible outcomes can be understood by users of actuarial advice.

In relation to pensions, the alert sets out five aspects that may need to be considered. These include potentially reviewing retirement factors for deferred pensioners to ensure they are appropriate and consistent with preservation legislation, the impact of any caps and collars on cashflows and possible member or political pressures to ignore caps or apply discretionary increases, especially where the cost of living is outstripping pension increases.