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The 3rd Younger Members Convention
Matthew Farraker - Aon Consulting
Do We Need Actuaries In A DC World?
Do We Need Actuaries In A DC world?
Trends towards Defined Contribution Arguments for & against our involvement Views of employers Adapting to change
Do you think there is a trend towards DC?
Trends Towards Defined Contribution
UK private sector pension schemesDistribution of scheme types for selected years
source:NAPF (National Association of Pension Funds) Survey 1985-2003
1985 1990 1995 1997 1999 2001 2003
Defined Benefit
99% 89% 85% 79% 79% 75% 64%
Defined Contribution
1% 6% 7% 15% 12% 21% 30%
Hybrid nil 5% 6% 5% 9% 4% 6%
Trends Towards Defined Contribution
Source:NAPF Annual Survey of Occupational Pension Schemes 2003
2003 No of schemes % of schemes
Final Salary Including Career Average
655 64%
Occupational Money Purchase Scheme
177 17%
Contract Money Purchase 134 13%
Hybrid 60 6%
TOTAL 1026 100%
Trends towards Defined Contribution
Who has changed?
Specific sectors Finance, utilities, retailers
Other sectors once firmly committed to DB Motor sector, heavy industry, public sector
Smaller companies Some larger companies Rate of change on the increase
Trends towards Defined Contribution
Reasons for change from employers:
Reduce financial risk Cost control Peer pressure Regulation Employee expectations
Flexibility for employees Individual responsibility Tailor pensions to workforce Portability
Do We Need Actuaries In A DC world?
Trends towards Defined Contribution Arguments for & against our involvement Views of employers Adapting to change
Arguments for and against our involvement
Do you think we have a role to play in a DC world?
Arguments For
Respected and trusted Integrity Know what we’re talking about Project management skills Communication to employers (and employees) Know the pensions market
Arguments For
Design of DC Schemes Previous design experience Technical skills
Modelling techniques Expertise in setting assumptions Scenario testing
Investment knowledge Highlight and eliminate risks Innovative
Arguments For
Ongoing management Projections of costs/benefits (SMPI) Investment reviews Design reviews Risk management Statutory Occupational valuation
Arguments Against
De-Regulation of pensions market Scheme actuaries required by
legislation for DB Certification of:
Transfer values Valuations
Accounting Figures
Not for DC
Arguments Against
Assumed actuaries are the ‘best people for the job’ Non actuaries can know the pensions
market better Non actuaries can project manage Non actuaries can provide advice
Design Investment Ongoing Review
Arguments Against
Companies know what they want No need for modelling Benchmark against competitors Cost driven
Loss of Trust & Respect Deficits in DB Schemes Misselling Equitable Life Morris Review?
Arguments Against
Expensive No added value Costs outweigh benefits
Standardised Products in the Market Cheap Easy No advice required
Do We Need Actuaries In A DC world?
Trends towards Defined Contribution Arguments for & against our involvement Views of employers Adapting to change
Views of Employers
Institutes response to the Morris Review Q1.1 The main value provided by actuaries
Make financial sense of the future Construction of financial models for help with; Problem solving leading to; Strategy for accepting and managing risks which enables; Actuaries to manage long term financial vehicles
Why didn’t we see the DB deficits coming?
Views of Employers
Comments from Press, Internet & Clients “My actuary gives unagressive and total support to
my Company” “My actuaries provided added value to my business
in helping me to manage my pension risks” “Without an actuaries input on pensions, we would
have bought the Company for well over the odds” “I need them for my FRS17 numbers”
Views of Employers
Comments from Press, Internet & Clients “What’s an actuary?” “A funny little man that talks numbers” “An expensive resource that I’d rather do without” “Whenever I see my actuary they give me bad news” “A necessary evil through government regulation” “Comes up with innovative solutions and asks us to
pay for them”
Views of Employers
Comments from Press, Internet & Clients “Actuaries are to blame for the Equitable Life and
pension misselling saga. They should stand up and be counted”
“My actuary helped me with the introduction of my DC Scheme. However, looking back, I think I could have reached the same conclusion without all the modelling. I also don’t see the need for actuarial involvement once a DC Scheme is up and running”
Do We Need Actuaries In A DC world?
Trends towards Defined Contribution Arguments for & against our involvement Views of employers Adapting to change
Adapting To Change
Key drivers of demand: DB schemes – Closure reducing demand Regulation – Increasing Demand Wider fields – Increasing Demand
Adapting To Change
Where do we go from here?
Adapting To Change
We change & adapt – a few ideas Flexible Benefits Administration Consulting Risk Management Management Consulting HR Consulting
Adapting To Change
Flexible Benefits Extension of our current role in pensions Next ‘generation’ of benefit provision Knowledgeable about other employee benefits e.g:
Private Medical Insurance Critical Illness Childcare/Retail Vouchers
Design/Implementation/Review
Adapting To Change
Administration Consulting Assistance with outsourcing Change management Independent forensic audits Due diligence Computer systems consultancy
Adapting To Change
Risk Management Employee Benefits Identity/Prioritise/Control
Operational risk Financial risk Strategic risk Hazard risk
Full corporate risk management?
Adapting To Change
Management Consulting Corporate Strategy Business Funding Business Plans Financial Health Checks Marketing Strategies Are we too logical?
Adapting To Change
HR Consulting Assistance with outsourcing Benchmarking Competency modelling Role profiling Performance management modelling Aligning people strategy with business strategy
The 3rd Younger Members Convention
Matthew Farraker - Aon Consulting
Do We Need Actuaries In A DC World?
