How GAD examines and advises on pension costs
Actuarial expertise to economic regulators.
GAD provided actuarial support and expertise to economic regulators including those which cover air traffic services and utilities. The economic regulators set price controls on the companies they regulate. This is to ensure consumers’ interests are protected in industries where there is a monopoly or a low level of competition.
Professional support
Our review for the Civil Aviation Authority (CAA) involved a large defined benefit pension scheme with liabilities of around £5 billion. Our professional support included enabling a consultation process between the CAA and the regulated company. The outcome of the review informed pension cost allowances and highlighted areas which may need further strategic review.
We also worked with Ofgem and the Utility Regulator Northern Ireland, reviewing the reasonableness of the pension costs incurred by the relevant regulated companies.
Pension costs
In some instances, the regulated company can pass on some of their pension costs to customers. The regulator needs to ensure the company has incentives to be efficient and customers see the benefits provided by these protections. The main areas we considered in these reviews are:
- member benefit design
- investment strategy
- assumptions used to set contributions
- wider risk/cost reduction practices
Expertise and knowledge
The reviews were informed by benchmarking against typical UK funded pension schemes, alongside using our expertise and knowledge to provide detailed advice on the reasonableness of the main determinants of the companies’ pension costs.
Our work provided the regulators with an informed view of the relevant pension arrangements, to help them determine the allowance to be made for pension costs (which can be a material component of regulated companies’ overall costs) when setting price control limits.