SERVING THE PUBLIC INTEREST THE ROLE OF ACTUARIES IN PUBLIC POLICY

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SERVING THE PUBLIC INTEREST - THE ROLE OF
ACTUARIES IN PUBLIC POLICY

• Chris Daykin
• The 2008 Peter Clark Memorial Lecture
• Actuarial Society of South Africa
• Johannesburg, 12 February 2008

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PETER CLARK MEMORIAL LECTURE

• Peter Clark (1947-2006)
• President of the Institute of
• Actuaries, 2000-2002
• MA, FIA, Hon Fellow of ASSA
• President-elect of International
• Actuarial Association, 2006

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OBLIGATIONS OF A PROFESSION

• A privileged community
• professions enjoy privileges
• high status
• public esteem
• protected position
• good remuneration
• professions erect barriers to entry
• or appear to others to do so
• professions often have statutory or reserved
  roles

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OBLIGATIONS OF A PROFESSION

• Privilege brings responsibility
• we are not a trade body
• or a labour union
• established only to serve the interests of our
  members
• society expects professions to act responsibly
• and to serve the public interest
• to repay our debt to society
• the existence of the profession is in the
  public interest

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OBLIGATIONS OF A PROFESSION

• How does the profession serve the public
  interest?
• it ensures quality control of qualified
  actuaries
• initial qualifications and requirements
• Continuing Professional Development
• practising certificates or qualification
  standards
• it sets a code of conduct and technical
  standards
• it supports statutory roles by education and
  standards
• it investigates complaints against members
• it disciplines where there has been misconduct

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OBLIGATIONS OF A PROFESSION

• How should the profession serve the public
  interest?
• participating actively in public policy
  formation
• entering into dialogue with government (and
  opposition)
• educating the media on relevant technical
  topics
• issuing public statements on matters of public
  policy
• promoting good practice and ethical business
• proactively promoting high standards
• encouraging reporting (whistle-blowing) when
  appropriate
• having a sensitive international perspective

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OBLIGATIONS OF A PROFESSION

• The Number One Guiding Principle of the CIA
• The Canadian Institute of Actuaries and its
  members take the role of serving the public
  interest seriously and have placed this duty
  above everything else.
• In carrying on its activities and programs, the
  Institute holds the duty of the profession to the
  public above the needs of the profession and its
  members.
• This is the number one guiding principle of the
  CIA.

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OBLIGATIONS OF A PROFESSION

• The Number One Guiding Principle
• The CIA ensures that the public interest is
  served through
• rigorous rules of professional conduct
• strong disciplinary process
• comprehensive review of standards
• close consultation with regulators and
  interested parties in matters such as standards
  development
• the professional development program

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PUBLIC INTEREST

• Public interest and the IAA
• The former mission of the IAA (adopted by the
  IFAA) was
• To encourage the development
• of a global profession,
• acknowledged as technically competent
• and professionally reliable,
• which will ensure that the public interest is
  served

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PUBLIC INTEREST

• Public interest and the IAA
• The new vision of the IAA (just adopted by
  Council vote) is
• To seek worldwide recognition for the actuarial
  profession
• as a major player in the decision-making process
  
• within the financial services industry,
• in the area of social protection
• and in the management of risk,
• for the well-being of society as a whole.

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OBLIGATIONS OF A PROFESSION

• Public interest - IAA Code of Conduct
• b) An Actuary shall act in a manner to fulfil
  the profession's responsibility to the public. An
  actuary shall act in a manner to uphold the
  reputation of the actuarial profession.

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PUBLIC INTEREST

• What is the public interest?
• The term is not usually defined
• but could be interpreted as meaning some or
  all of
• ensuring availability of a quality service
• ensuring transparency and accountability
• protecting ordinary people or those whose
  bargaining power is weak
• helping corporate clients to treat their
  stakeholders fairly
• and meet their reasonable expectations
• facilitating good corporate governance of
  organisations
• helping clients to stay within the law and meet
  their obligations

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PUBLIC INTEREST

• What is the public interest?
• What it is not intended to mean
• providing unquestioning support to government
  for their policies
• maximising the governments tax revenues
• taking a political stance
• lobbying on behalf of clients interests

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PUBLIC INTEREST

• What can the profession do to serve the public
  interest?
• We can define a number of strands
• quality control and professional development
• professionalism and standard setting
• investigating complaints and exercising
  discipline
• ensuring that actuaries pay regard to the
  interests of third parties
• encouraging whistle-blowing where it is
  appropriate
• actively engaging in public policy issues
• facilitating availability of advice to public
  sector
• encouraging some actuaries to be employed in
  the public sector

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PUBLIC INTEREST

• How can individual actuaries serve the public
  interest?
• We can define a number of strands
• act with integrity
• comply actively with the professional code
• maintain high standards
• ensure openness, transparency and
  accountability
• communicate advice well, especially risk and
  uncertainty
• report (blow the whistle) if necessary
• proactively consider the interests of third
  parties
• have sensitivity to public interest issues when
  advising clients
• advise on public policy issues
• work for public entities

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PUBLIC POLICY

• Where can actuaries contribute to public policy?
• design and financing of social security
• pensions policy, regulation and supervision
• health care financing
• financing of long term care
• financial services regulation and supervision
• consumer credit
• understanding demographic trends
• projecting the population

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PUBLIC POLICY

• Where can actuaries contribute to public policy?
• assessment of compensation, e.g. for injury
• appraisal, risk evaluation and financing of
  capital projects
• modelling catastrophes and epidemics
• assessing long-term liabilities, eg nuclear
  waste disposal
• implications of global warming
• evaluating costs associated with environmental
  damage
• modelling of subpopulations, e.g. manpower
  planning

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PUBLIC POLICY

• How can the government obtain actuarial advice?
• formal submissions from the actuarial
  profession
• informal discussions with actuaries or the
  profession
• the profession proactively responding to
  consultations
• the profession carrying out and presenting
  research
• getting individual actuaries on government
  working parties
• getting an actuary into the government!
• private consultancy contracts for government
• actuaries employed by individual departments
• shared actuarial services between departments
• government actuarys office or department

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ACTUARIAL ADVICE TO GOVERNMENT

• What is the Government Actuarys Department?
• separate UK government department
• established in 1919
• reporting to the Minister of Finance
  (Chancellor)
• actuarial consultancy providing services to
  many clients in the UK and internationally
• focussed primarily on public sector clients
• financed from fee income but not for profit
• in competition with private sector firms

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ACTUARIAL ADVICE TO GOVERNMENT

• Main current areas of GADs services
• financing and reform of social insurance
• pension policy, legislation and reform
• occupational pensions for the public sector
• regulation of private pension plans
• regulation of insurance companies

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ACTUARIAL ADVICE TO GOVERNMENT

• But also
• demographic studies (particularly mortality)
• financing of long-term care
• risk management of social security
• advice to tax authorities on insurance matters
• guidance to the Courts on assessing loss in
  damages
• guidance to Employment Tribunals on loss of
  pension rights
• consumer credit
• testing randomness of monthly Premium Bond
  draws
• manpower modelling and planning
• evaluating reversionary and life interests

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ACTUARIAL ADVICE TO GOVERNMENT

• Demographic studies
• from 1954 to 2006 GAD was responsible for the
  national population projections (of the UK and
  constituent countries)
• taken over by Office for National Statistics in
  Jan 2006
• GAD still a major centre of expertise on
  mortality matters
• GAD projections used for all official purposes
• current and past projections on GAD website

www.gad.gov.uk
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Improvement in smoothed mortality rates Males,
UK
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ACTUARIAL ADVICE TO GOVERNMENT

• Understanding the finances of social security
• slow build-up of promises
• strong cash-flows may be misleading
• demographic change has a long-term impact
• major component of public expenditure
• critical importance of development of private
  pensions
• interaction of public and private provision

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ACTUARIAL ADVICE TO GOVERNMENT

• Actuarial roles in social security
• demographic projections
• estimates of future benefit outgo
• estimates of future contribution income
• long-term projections of financial balance
• development of financing/funding strategies
• impact on individuals
• impact on employers

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ACTUARIAL ADVICE TO GOVERNMENT

• Government Actuarys role in social security in
  UK
• five-yearly reviews of National Insurance Fund
• with 60 year projections
• updated more frequently as necessary
• reports on annual up-rating of benefit
• financial consequences of reform proposals and
  new draft legislation
• reports to Parliament are in the name of and
  are the personal responsibility of the
  Government Actuary
• technical support for Pensions Commission

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Benefit expenditure as of GDP (assuming 2 a
year real earnings growth)
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Pensions by year of award as of earnings (at
average earnings levels)
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ACTUARIAL ADVICE TO GOVERNMENT

• Role of actuary in social security reform
• analysis of costs of existing arrangements
• consideration of risks to system
• advice on design of alternative structures
• evaluating policy options
• modelling the transition (for scheme and
  economy)
• modelling impact on public expenditure/borrowing
  
• modelling impact on individuals
• design and regulation of complementary schemes
• modelling impact on investment markets

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ACTUARIAL ADVICE TO GOVERNMENT

• GADs professional independence
• pressures from government
• sometimes a desire to present information with
  spin
• need for transparency in reform process
• disparate interests of different players
• potential conflicts with other forecasts
• GAD stands apart from political process
• GAs right to determine scope of report
• and to decide content and assumptions

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ACTUARIAL ADVICE TO GOVERNMENT

• Pension policy and regulation
• Advice to
• Department for Work and Pensions on social
  security and pensions policy
• Pension Protection Fund (guarantee fund)
• The Pensions Regulator
• HM Revenue Customs on taxation policy
• HM Treasury on public sector pensions policy

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ACTUARIAL ADVICE TO GOVERNMENT

• Development of pension policy
• legislation applying to private pension schemes
• regulatory requirements
• funding standards
• transferability and preservation of rights
• splitting of pension rights on divorce
• winding-up of pension funds

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ACTUARIAL ADVICE TO GOVERNMENT

• The Pension Regulator
• GAD staff seconded to regulator
• others advise on particular projects
• standard setting
• codes of practice
• individual cases
• professional issues
• work with team managing potential high profile
  cases where early intervention in needed

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ACTUARIAL ADVICE TO GOVERNMENT

• Public sector pensions
• advice to many public sector pension plans
• valuation of assets and liabilities
• making cash flow projections to assist in
  financial strategies, especially for PAYGO plans
• stochastic asset-liability modelling to
  identify the best investment strategy for funded
  plans
• modelling for manpower planning
• advising on terms for individual members,
  especially high level appointments/departures

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ACTUARIAL ADVICE TO GOVERNMENT

• Public sector pensions policy
• advice to Treasury on future cash flows of
  pay-as-you-go public sector pension plans
• design of new/revised schemes and support for
  negotiations with unions
• advice on transfer values (individual and
  group)
• pension aspects of public/private partnerships,
  Private Finance Initiative and privatisations

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ACTUARIAL ADVICE TO GOVERNMENT

• International developments
• training actuaries and actuarial technicians
• assisting in the establishment of the
  profession
• advising on insurance and pensions regulation
• advising on social security reform

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ACTUARIAL ADVICE TO GOVERNMENT

• Profile of GAD
• I was Government Actuary from 1989 to 2007 (the
  7th GA)
• GAD currently employs 105 persons1
• 40 qualified actuaries
• 35 actuarial trainees
• 30 other support personnel
• annual fee income is about USD 20 million
• 1 plus 2 on secondment to the Pensions Regulator

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ACTUARIAL ADVICE TO GOVERNMENT

• Advantages to government of a GAD
• ready availability of actuarial advice
• good value for money
• continuity of advice
• consistency of advice
• confidentiality
• reliability and defensibility of advice
• less likely to be affected by conflicts of
  interest
• focus on public policy, rather than commercial,
  issues
• ability to inform political debate
• without being political

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ACTUARIAL ADVICE TO GOVERNMENT

• Advantages of a GAD
• critical mass for recruiting actuaries
• professional environment maintaining quality
• viable for remuneration and keeping staff
• readily available for all government
  departments
• centre of expertise and excellence in actuarial
  work related to public policy

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ACTUARIES IN PUBLIC POLICY

• What steps can the profession take?
• participate actively in public policy formation
• respond to government consultations
• proactively enter into dialogue with government
• educate the media on relevant technical topics
• issue public statements on matters of public
  policy
• carry out or promote research relevant to
  public policy
• encourage government to take actuarial advice
• promote the role of actuaries in public policy
• assist in the global development of the
  profession

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CHALLENGE FOR THE PROFESSION

• How are we serving the public interest?
• as a profession?
• as individuals?
• Peter Clark saw the importance of repaying our
  debt to society
• and challenged others to do the same.

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SERVING THE PUBLIC INTEREST - THE ROLE OF
ACTUARIES IN PUBLIC POLICY

• Chris Daykin
• Peter Clark Memorial Lecture
• Actuarial Society of South Africa
• Johannesburg, 12 February 2008