The 3 rd 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 source:NAPF (National Association of Pension Funds) Survey Defined Benefit 99%89%85%79% 75%64% Defined Contribution 1%6%7%15%12%21%30% Hybridnil5%6%5%9%4%6%

Trends Towards Defined Contribution Source:NAPF Annual Survey of Occupational Pension Schemes No of schemes% of schemes Final Salary Including Career Average 65564% Occupational Money Purchase Scheme 17717% Contract Money Purchase 13413% Hybrid 606% TOTAL %

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 3 rd Younger Members Convention Matthew Farraker - Aon Consulting Do We Need Actuaries In A DC World?