The 3rd Younger Members Convention

1
The 3rd Younger Members Convention

• Matthew Farraker - Aon Consulting
• Do We Need Actuaries In A DC World?

2
Do We Need Actuaries In A DC world?

• Trends towards Defined Contribution
• Arguments for against our involvement
• Views of employers
• Adapting to change

3

• Do you think there is a trend towards DC?

NO
YES
4
Trends Towards Defined Contribution

• UK private sector pension schemes
• Distribution of scheme types for selected years
• sourceNAPF (National Association of Pension
  Funds) Survey 1985-2003

5
Trends Towards Defined Contribution

• SourceNAPF Annual Survey of Occupational Pension
  Schemes 2003

6
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

All SECTORS
7
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

8
Do We Need Actuaries In A DC world?

• Trends towards Defined Contribution
• Arguments for against our involvement
• Views of employers
• Adapting to change

9
Arguments for and against our involvement

• Do you think we have a role to play in a DC world?

YES
NO
10
Arguments For

• Respected and trusted
• Integrity
• Know what were talking about
• Project management skills
• Communication to employers (and employees)
• Know the pensions market

11
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

12
Arguments For

• Ongoing management
• Projections of costs/benefits (SMPI)
• Investment reviews
• Design reviews
• Risk management
• Statutory Occupational valuation

13
Arguments Against

• De-Regulation of pensions market
• Scheme actuaries required by legislation for DB
• Certification of
• Transfer values
• Valuations
• Accounting Figures
• Not for DC

14
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

15
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?

16
Arguments Against

• Expensive
• No added value
• Costs outweigh benefits
• Standardised Products in the Market
• Cheap
• Easy
• No advice required

17
Do We Need Actuaries In A DC world?

• Trends towards Defined Contribution
• Arguments for against our involvement
• Views of employers
• Adapting to change

18
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 didnt we see the DB deficits coming?

19
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

20
Views of Employers

• Comments from Press, Internet Clients
• Whats an actuary?
• A funny little man that talks numbers
• An expensive resource that Id 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

21
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 dont see the need for
  actuarial involvement once a DC Scheme is up and
  running

22
Do We Need Actuaries In A DC world?

• Trends towards Defined Contribution
• Arguments for against our involvement
• Views of employers
• Adapting to change

23
Adapting To Change

• Key drivers of demand
• DB schemes Closure reducing demand
• Regulation Increasing Demand
• Wider fields Increasing Demand

24
Adapting To Change

• Where do we go from here?

25
Adapting To Change

• We change adapt a few ideas
• Flexible Benefits
• Administration Consulting
• Risk Management
• Management Consulting
• HR Consulting

26
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

27
Adapting To Change

• Administration Consulting
• Assistance with outsourcing
• Change management
• Independent forensic audits
• Due diligence
• Computer systems consultancy

28
Adapting To Change

• Risk Management
• Employee Benefits
• Identity/Prioritise/Control
• Operational risk
• Financial risk
• Strategic risk
• Hazard risk
• Full corporate risk management?

29
Adapting To Change

• Management Consulting
• Corporate Strategy
• Business Funding
• Business Plans
• Financial Health Checks
• Marketing Strategies
• Are we too logical?

30
Adapting To Change

• HR Consulting
• Assistance with outsourcing
• Benchmarking
• Competency modelling
• Role profiling
• Performance management modelling
• Aligning people strategy with business strategy

31
The 3rd Younger Members Convention

• Matthew Farraker - Aon Consulting
• Do We Need Actuaries In A DC World?