Arrogant and self obsessed! How we see actuaries
There’s a silly letter in the FT this week which I print in full.
Sir,
Jo Cumbo’s report “Mortality update bodes well for pension deficits” (May 4) refers to an assertion by PwC that slowing mortality improvements could reduce UK defined benefit pension scheme liabilities by £310bn, which is about 15 per cent of their estimated total liability of £2tn.
In our opinion, this is a relatively extreme outcome and would be widely viewed as such among UK actuaries.
We feel it is potentially misleading to refer to liability reductions of 15 per cent without placing such estimates in a proper context.
Andrew Cairns, Professor, Heriot-Watt University
Deborah Cooper, Risk and Professionalism Leader, Mercer
Cobus Daneel, Consulting Actuary (Retirement), Willis Towers Watson
Sacha Dhamani, Head of Longevity, Prudential
Matthew Edwards, Head of Longevity/Mortality (Insurance), Willis Towers Watson
Matthew Fletcher, Longevity Consultant, Aon Hewitt
Tim Gordon, Head of Longevity, Aon Hewitt
Dave Grimshaw, Head of Longevity Consulting, Barnett Waddingham
Steve Haberman, Professor of Actuarial Science, Cass Business School
Stuart McDonald, Head of Longevity, Lloyds Banking Group
Kevin O’Regan, Head of Longevity and Portfolio Reinsurance, PartnerRe
Brian Ridsdale
Peter Tompkins Actuarial Consultant
To which I make three observations
- What is said , is said badly – “a relatively extreme outcome” – relative to what? “Potentially misleading” – either the 15% figure is misleading or it isn’t – you’ve just told us it is so why caveat? The first sentence is too long, the use of the subjunctive in the second sentence drains the statement of any vivacity.
- What isn’t said is what the reader wants to hear – the article leads nowhere.
- The bulk of the copy is used to list the actuaries and their ridiculous titles.
This kind of letter does nothing but bring actuaries into disrepute. They have slagged off PWC (Raj Modhi) but to what end? If they wanted to put PWC’s comment into context, they could have used the space they wasted with their list of titles. They have showed they cannot make a point simply , they have wasted an opportunity to educate the readers of the FT’s letter column.
Is 15% or £320m too high?
Our actuaries at First Actuarial have been asking this same question. They were asking it before PWC put it in the FT , because I asked for them to comment on it.
I have been banging away about the changes to the IFOA’s continuous mortality research ever since Douglas Anderson mentioned them to me 5 months ago (they agree with Vita Life’s own research). You know this if you read this blog.
Their general feeling is that 15% is too high, the reduction in the rate of increase in life expectancy is probably a blip and will be explained as an anomaly in time, it is too early to reduce pension scheme liabilities (certainly by 15%). That is a reasonable position to adopt – “wait and see” is a prudent policy when you are dealing with problems that have durations measured in decades.
But that is their opinion and the conversation is “ongoing”! It is a conversation we are having with our clients and with Government and with anyone who will have it with us in formal and social media! It is a great conversation to have.
Is this worth this public attention?
You bet it is! What the actuaries are arguing about has immediate impact
Your State Pension Age – recently reviewed by John Cridland – depends on the outcome of this debate; the Government were supposed to report on Cridland (the deadline was last week), it is such a hot potato – they have left it in the oven till after the election.
The triple lock – one of the key issues of this election, may be more affordable it PWC are right – the IFoA CMI tables are key to this issue.
The Royal Mail – is in dispute with its 130,000 staff and the CWU as to whether it continue to promise them a pension for life – or just a sum of cash at retirement.
The PPF/ Tata Steel/BHS/ Cluttons/ Bernard Matthews and the Pensions Regulator are engaged in complex and sometimes acrimonious disputes over the affordability of the pensions promised by the employers in the middle of that sandwich.
Everything from our wages to our council tax bills is impacted by the collective life expectancy of the 60 million of us who live in Britain. It is not just our propensity to die (mortality) that is in question, it is our propensity to detoriates in health as we close in on death (morbidity). Understanding what our liabilities are for ourselves , our children and our parents is critical to how we manage the public finances.
Time these actuaries stopped arguing among themselves!
This is not PWC’s fault. Raj has put some good stuff into the papers and has aroused a public debate. The silly letter looks no more than a marker for internal squabbles at the Institute and Faculty of Actuaries. The debate is more important than to be conducted behind the IFOA’s closed doors.
This blog is open to any actuary who wants to put forward a point of view about this which is framed in language that ordinary people can understand. It is also open to Con Keating!
I will continue to look at the affordability of old age in my articles – offering an “inexpert” view.
Actuaries should be taking the debate to us
All these views will be shared with anyone who reads this blog and I expect most of them will contradict each other. That is not a bad thing. What is bad is for actuaries to complain about “relatively extreme outcomes” and “proper context” without any explanation of what they mean – as if their disagreement meant something to those outside their magic circle.
There are many ways to get people engaged with these questions, you can comment to the newspapers, or blog, or tweet, or you can do work with trustees and employers and you can even explain these things to ordinary working people through financial education sessions.
But please actuaries – don’t belittle yourselves again -with your silly letters to the FT!
An actuary who isn’t on the list!
You can read the silly letter in its original context here https://www.ft.com/content/ee61cf36-3630-11e7-bce4-9023f8c0fd2e
I am sorry to hear that you found the simple and concise letter to the FT to be silly.
As you will be well aware, many of the signatories have both professional accountabilities and obligations to their employers, whose approval of public statements may be required. This can lead to more mitigated language than might otherwise be the case.
Perhaps you will find my personal response, sent on the day of the PWC press release, to be more to your taste.
https://twitter.com/actuarybyday/status/860140917931593729
Of course there is some healthy debate within the actuarial profession about likely future mortality. This is right and proper and to be encouraged. A consensus on something as uncertain as life expectancy, which will be influenced by unknown medical advances and social changes over the coming decades, would be foolish and, I’d argue, dangerous.
However, still more dangerous in my view is putting into the public domain, the idea that a 200 year history of mortality improvement has forever ended, life expectancies have peaked, and pension liabilities can be reduced by 15%. A statistical model used by expert practitioners to calculate uncertainty around life expectancy forecasts suggests that there is less than a 1% chance of the PWC scenario materialising.
Scheme trustees and senior executives at sponsoring employers, who may never have had to subject themselves to the detail of actuarial reports, had sight of these headlines. Indeed several of the signatories has already fielded questions from such individuals by the time the letter was submitted. Hence in my view it was right for members of the profession to respond quickly, in the same forum, using such language as all were able to sign up to, in order to mitigate the impact of the initial press statement.
PWC had every right to point out what the financial impact of no further increase in life expectancy might be. Just as Professor Aubrey de Grey has a right to speculate that we might live to be 1000. However, by presenting such a scenario as their updated forecast, rather than acknowldgeing that it is one possible but extreme outcome, they risked misleading people.
As you might encourage, my comments here are spontaneous, unchecked and made in a personal capacity. They are not the necessarily views of my employer, the actuarial profession or the other signatories to the “silly” letter.
There is no purpose in turning this into an argument. Like so many actuarial explanations context is all. PwC isn’t saying that pension liabilities WILL fall by 15%. Rather the context that that is a very unlikely but not impossible eventuality is not seized in the same way by the press as the 15% headline figure is.
Remember the predictions of hundreds of thousands of AIDS deaths from the first actuarial survey of the issue. It was an attention-grabbing headline from a report which also postulated it might be far smaller but that the distribution of outcomes was huge. So it might be on future longevity which is why the context needs to be covered.
As actuaries we need to explain the uncertainty to the public to avoid the inference that we predict the result which might be inferred from the initial coverage of the PwC contribution.
It amazes me that PWC’s comments are inspiring such passion! And it’s very good to see what’s behind it!
If PWC are right – then I assume that pension liabilities are so over-stated we could pack-in these expensive recovery plans and use the extra cash-flow to improve productivity, we might re-expose our pension funds to growth assets and consider re-opening them to provide people with pensions rather than pension freedoms!
If PWC are wrong, and what we have is a blip (which is what most of my colleagues think -BTW) then we don’t have a funding windfall but we do have the prospect of longer life – which is good.
Either way, I’m pleased we are having this conversation – which touches on so many of the things we as electors , should be thinking about right now. Informed debate needs stimulus and PWC have given us that stimulus – well done Raj.
an anonymous actuary writes…(e-mail)
The actuaries letter was wimpish.
What it should have said was.
We deplore the PWC press release with its deliberately misleading figures.
Although the ft obtained a quote from one actuary saying the assumptions were extreme, we are disappointed that the ft nevertheless see fit to publish the essence of it with a ludicrously provocative title.
The facts are
Population mortality does not appear to be improving as fast as previously expected.
Mortality of better off individuals IS improving at roughly the expected rate.
Mortality of worse off individuals is improving at a significantly lower rate.
DB pension liabilities are very much weighted to the better off.
So EVEN IF the mortality change is not a blip, and we recognise the uncertainty, most of the DB liabilities seem likely to be UNAFFECTED by the population change.
Experience of individual pension schemes differ.
It has long been recognised that there is a significant difference between “Lives” and “amounts” mortality, i.e. People with higher pensions (or annuities) tend to have lower mortality) so it is dangerous to naively use lives experience for valuing pension liabilities. And very naive to use population experience.
It is particularly misleading to go on to assume such incorrectly derived lower mortality will continue in future and publish grossly misleading numbers.
It is not good enough to justify it in footnotes and to treat it simply as an arithmetical exercise.
At the very least it should be made clear that it is not what is expected and something like “best real world estimates” published at the same time. . And of course such real world best estimates need to be properly based on reality and proper analysis of the data.
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