Top 6 blunders of Scheme Actuaries – guest blog from Hilary Salt


The rarefied world of pension scheme actuaries often seems strangely disconnected from that inhabited by other professionals. But I’ve been struck recently by the overlap between criticisms made of other professionals and some of my own concerns about the actuarial profession. In his report on the failures at the Mid-Staffordshire NHS Foundation Trust, Robert Francis identified a “tolerance of poor standards and a disengagement from managerial and leadership responsibilities”.
There is a similar failure of leadership amongst actuaries. My top 6 criticisms are:
1) Many scheme actuaries just do what the Pensions Regulator wants whether or not that is in the best interests of their clients or scheme members.
2) Actuaries don’t spend enough time explaining to clients both ends of a funding spectrum. As gilts yields have fallen, using a gilts + discount rate methodology has meant successive valuation results retain the same margin against a pure gilts basis but a bigger and bigger margin against best estimate – so a greater and greater margin of prudence.
3) Actuaries selling flight path type models have imported the inefficiencies of dc into db schemes.
4) We have accepted the imposition of unreasonable limits on what we can do to help clients under the cover of “managing conflicts of interests”. A scheme actuary who really cares about an employer making the right decision, has to rule themselves out of advising on the basis that they have a conflict.
5) Rather than showing how to make db schemes sustainable, we are leading schemes into wind up. We are not acting as risk managers but as risk avoiders. It would be ludicrous to eliminate death on the roads by banning cars, but we are doing the equivalent by winding up private sector db schemes. Society is being done a grave disservice by our inability to see that the moderate risks of a properly managed db scheme are worth it.
6) Because we are busily closing down schemes rather than showing how to make them sustainable, the pool of schemes from which to earn money is shrinking. The large actuarial businesses, taken together, are not growing by gaining more schemes to advise. Rather, more and more advice is being sold to a shrinking number of schemes.
Being a proper actuary involves the meticulous application of professional judgement – a judgement often forged in the furnace of fierce and open debate. This is a difficult job – you need to look at the whole picture, balance different issues against each other, come up with individual solutions – and you need to take long term responsibility for the consequences of your advice.

We’ve replaced that with quick fix compliance actuaries who never argue but follow internal procedures, explain regulatory requirements and watch their backs. This institutionalisation of defensive practise has lots of causes. It’s easy to situate all these externally – the problem is the rise of professional indemnity claims, the commercial pressures to standardise advice or the wider cultural impacts of a society rejecting risk taking.

But there are also internal drivers – there is a real lack of confidence within the profession following Equitable Life and the Morris Review. The faith in the discipline of our peers has been corroded and we’ve filled the vacuum with codes of practice and regulatory oversight.
But if as a profession we continue to limit the scope for the exercise of professional judgement, we’ll weaken our capacity to work effectively, become further dominated by the herd mentality we already follow and lose any ability to provide the leadership that can really solve problems for our clients.
Returning to the comparison with other professions, the “flight path” actuaries are on leads us to the same destination as teachers and social workers now who are having to defend their professional integrity against the tick box, report everything, never think, never discriminate culture of mandatory reporting. That end point calls into question the whole presumption of professional competence and responsibility.

We must not end up there.

Hilary Salt is a Scheme Actuary and a Founder of First Actuarial

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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4 Responses to Top 6 blunders of Scheme Actuaries – guest blog from Hilary Salt

  1. Jill Turner says:

    Thanks for your honesty Hilary, a reflection of what is also happening in the personal advice world.

  2. David Hepplewhite says:

    Totally agree Hilary we are being led like lambs to the slaughter and very few people have the courage to arrest our descent into risk free oblivion

  3. Bob Compton says:

    Excellent article Hilary, reflecting a similar conversation I had yesterday with an Investment manager representative. Consulting Actuaries need to consult, computers don’t need Actuaries to number crunch when the assumptions have been pre determined elsewhere. I would suggest if a Scheme Actuaries duty of care was extended to all parties to a Trust i.e. The Employer and the members, as well as the Trustees, we would see more balanced outcomes, and less waste in professional charges and a more positive approach to DB.

  4. Steven Sowden says:

    While waiting for the link to load up I quickly thought of my view of the top 1 blunder. It was believing your point 2 and overstating expected equity returns as a result of not understanding the alternative model being used.

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