A Coleridge moment in the City

I walked into a church at the bottom of Bow Street yesterday afternoon to have a cup of coffee.

Slumped over his laptop, deep in thought, I saw a friend…

He awoke from a statistical revery and stared at me with wild surmise..

“Hold off! unhand me, grey-beard loon” ,

I cried before recognising Adrian Boulding, who has neither Grey-beard nor is a loon. 

Tapper (quoth Boulding) , tell me why transfer values are not calculated with reference to the member’s health!

“Never debate with someone cleverer than you, especially in the afternoon”

This maxim was taught me by my friend Mike Martin when I was in his tutelage at Gissings Consultancy in the early 1990s. It came in handy then

I explained to Adrian that this was not a Frequently Asked Question , and didn’t appear on the stock answer sheet I carry in my breast pocket (for chance actuarial encounters).

In truth, having come from a lunch with some good friends at Sweetings restaurant, my faculties were not as honed as they might have been some hours before.so I deferred my response and asked my esteemed actuarial colleague James Smith for a response.

Here is the email I got back later that day.

Hi Henry

The Trustees do not have any information on a member’s health.  They do not require this to be able to pay a member a pension while they are alive. 

Transfer values are based on best estimate assumptions.  So the trustees make a best estimate of life expectancy using averages. 

They could potentially ask the member for information on their health.  However, the member is not obliged to provide it.  And the member has a right to a transfer value even if they do not provide any information requested by the Trustee. 

So it is normal for Trustees to base transfer values on average life expectancy for the scheme.

 This is a crafty bit of work (as befits one of my face colleagues – available for hire at reasonable rates – speak to henry.h.tapper@firstactuarial.co.uk) 

It stops short of reminding me that I really should be better acquainted with the dynamics of actuarial advice to pension scheme trustees.

James gently reminds me that despite the headlong rush towards retirement funding based on freedom and choice, many of us receive pensions that might be considered “unfair”.

For the person expecting to live to 100 might expect a higher transfer value than the person expecting to die in his sixties.

And the person who dies in his sixties might appeal to that great ombudsman in the sky that he or she did not receive value for the money he or she paid into his or her pension.

Such a person would join a queue that might include the healthy 60 year old who had paid his taxes  , never visited a doctor and was knocked down by the Clapham Omnibus with nothing to show for his contribution to the NHS but an ambulance fare to the Morgue.

No doubt the queue would include other aggrieved souls who had also entered into social contracts which had worked for others but not for them.

I would very much hope that whatever Angel oversees the celestial courts of arbitration would give such folk short shrift.

None of us know the time of our departure , other than those who manage it themselves. We are subject to the vagaries of health and though these can increasingly be predicted with the help of genetics, we really don’t want to know how much of the rest of our lives we will spend in surgeries and hospitals.

The mystery of life, health and death

Old fashioned as it seems, I am happy to take my chance on the carousel. I am prepared to be a winner or a loser and will not curse on my death bed that I died a day before my pension cheque was due! Nor will I curse others older than me when I die for their good fortune nor fume that they will be living on the money I never received.

The mystery of insurance – life, health or longevity is that it protects you or your loved ones from the mishaps you cannot foresee.

For Adrian, contemplating the inequitably of transfer values , I suggest the whole of life insurance policy, which will pay a lump sum to those who die soonest funded from the premiums of the immortals!

The moral; pensions – like albatrosses are (usually) best left alone

‘God save thee, ancient Mariner!

From the fiends, that plague thee thus!—

Why look’st thou so?’—With my cross-bow

I shot the ALBATROSS.