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 schemes
Distribution of scheme types for selected years
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%
source:NAPF (National Association of Pension Funds) Survey 1985-2003
Trends Towards Defined Contribution
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%
Source:NAPF Annual Survey of Occupational Pension Schemes 2003
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:
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Reduce financial risk
Cost control
Peer pressure
Regulation
Employee expectations
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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
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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
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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
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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
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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
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“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
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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
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Assistance with outsourcing
Change management
Independent forensic audits
Due diligence
Computer systems consultancy
Adapting To Change
 Risk Management
 Employee Benefits
 Identity/Prioritise/Control
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Operational risk
Financial risk
Strategic risk
Hazard risk
 Full corporate risk management?
Adapting To Change
 Management Consulting
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Corporate Strategy
Business Funding
Business Plans
Financial Health Checks
Marketing Strategies
Are we too logical?
Adapting To Change
 HR Consulting
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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?