The 3 rd Younger Members Convention

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? NO YES

Trends Towards Defined Contribution • UK private sector pension schemes Distribution of scheme types for selected years source:NAPF (National Association of Pension Funds) Survey 1985-2003

Trends Towards Defined Contribution Source:NAPF Annual Survey of Occupational Pension Schemes 2003

Trends towards Defined Contribution All SECTORS 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

Arguments for and against our involvement • Do you think we have a role to play in a DC world? YES NO

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

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”

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?

The 3 rd Younger Members Convention