Page 7 - Pillar 3 Disclosure
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that its income source is not reliant on one product or one area of its business. This is an area the Board considers, usually within the context of 

its business planning.

Pension obligation risk

Pension obligation risk arises as a result of the Society’s defined benefits pension scheme. The scheme was closed to new entrants on 1 January 

2001 and made paid-up on 31 March 2006. The effect of the decision to make the scheme paid-up removes the Society’s exposure to funding 

future service, though the following exposures remain:

- Volatility (economic value and earnings) from mismatched assets and liabilities within the scheme;

- Volatility through investment performance shortfall; 

- Increased life expectancy rates amongst members.

A specific amount of capital is allocated under Pillar 2 to cater for a stress reduction in asset values or an increase in pension liabilities. External 

actuaries are appointed by the trustees to carry out a valuation every three years.

Capital Risk

Capital risk is the risk that the Society does not hold sufficient capital to safeguard its members in the event of a severe stress. This is a 

secondary risk as capital is held to mitigate other risks that would cause the Society to fail. The Board complies with the Basel II Capital 

Requirements Directive (CRD) which requires the Society to assess the adequacy of its capital through an Internal Capital Adequacy Assessment 

Process (ICAAP). To assist the Board in determining the level of capital required, stress testing and scenario analysis is performed on key 

business risks to assess whether the Society could survive a severe economic downturn and other severe business shocks. Through the 

application of the ICAAP the Board ensures that the Society holds a level of capital to satisfy both the CRD’s Pillar 1 minimum capital 

requirements and to cover those risks that the Board has identified under Pillar 2.

Residual risk

The Board recognises that in any business there are inherent residual risks which may not be identified specifically. Adequate provision has been 

made for general residual risks in the Society's ICAAP by applying a buffer to the individual capital guidance (ICG) requirement issued by the 


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