I am not an actuary, I work with actuaries and I work for an actuarial firm. I stand up for actuaries and I praise them where praise is due.
Yesterday saw an attack on the actuarial profession on twitter over CDC. Specifically this tweet.
I not sure the concept of open debate is part of their preferred environment. CDC appears to be the refuge of those who see their fee revenue dwindle as DB heads for the exit & public sector schemes consolidate to the point where their demand for services reduce dramatically
— rob reid (@reidremoney) November 28, 2018
John Ralfe’s comment had been to Kevin Westbroom’s exasperation
I’m coming to the conclusion there’s not a lot of point continuing the dialogue since you refuse to take on board any of the comments made, and just repeat your own unfounded assertions. You have your own agenda on this subject and are not listening. Better things to do …
— Kevin Wesbroom (@kevinwesbroom) November 28, 2018
Demystifying actuarial involvement in CDC
The amount of work that the actuarial profession will get from CDC will be minimal. It will not even register a mention on timesheets.
Pension Actuaries are not looking for work at the moment, they are overloaded with it. They are the people who will be sorting out the £15bn mess of GMP equalisation, they’re the ones tasked with steering defined benefit schemes through current hazardous waters. They are active in the CETV debate , creating the new TVCs , sorting out FSCS discount rates and managing the exodus of billions from occupational schemes. Not all this work is work actuaries enjoy doing. They would rather be doing better things.
One of the things that pension actuaries would like to do, is to help people get paid pensions. The seemingly relentless march towards “wealth” rather than income, culminating in the chimera of freedom and choice, has put the concept of a “wage in retirement” on the back burner. This is convenient for the wealth management industry but is not so good for ordinary people. The FCA revealed yesterday that pension transfer activity is up 567% year on year – the sound of stable door swinging!
I start my presentations on Port Talbot and its lessons with this quote from a South Wales steelworker
“I wonder how many of the financial advisors who recommend transfers out, predicted a 10% drop in the stock market in one week ? Not many is my bet?”
That quote was from early this year , when the FTSE had fallen 10% in a week. Year on year the FTSE (along with other world stock market indices ) is down. Here’s Al Rush talking to those he is advising
It may be alleged that it was (partially) paid instead, via an initial, undisclosed 5% ‘fee’. Before those (and other) costs, the fund has lost c7% since they were dropped into it. Given the the asset class, if you were getting out now, you’d have lost the thick end of c16%. pic.twitter.com/Jhq02fcw3A
— Al Rush (@RAF_IFA) November 28, 2018
The point is this, for many of those who collectively transferred £36.8bn out of DB last year, the uncertainties highlighted in these quotes will haunt those who transferred for decades to come. Many will have to watch the market rollercoaster and with the volatility will come that awkward and then desperate feeling that the financial security they have enjoyed cannot be returned to them, A typical transfer value comparator tells its story, the cost of buy-back to certainty is way beyond the levels of compensation from FSCS. People who transfer out are now having to face the financial consequences of BREXIT alone.
The actuarial involvement in CDC is currently about ensuring that 140,000 postal workers are not exposed to this uncertainty. In years ahead, many actuaries hope that everyone with a DC pot will have access to a CDC pension – whether sponsored by their employer or not. That is because these actuaries, under the umbrella of the Friends of CDC have to come together with lawyers, consultants like me and academics to find a solution to what one financial economist admits is “the nastiest problem in finance” funding an income that lasts as long as you do.
Actuaries are only part of the solution
The tripartite support for Royal Mail given by WTW, Aon and First Actuarial, is unprecedented , heartening and praiseworthy. But it is only support, these actuaries would be the first to accept that the real heroes are the Royal Mail , their staff and their staff’s representative body- the CWU. This has been acknowledge by the DWP Select Committee in parliament, by the Pensions Minister and will – we hope – result in legislation which could turn the anticipated CDC scheme for Royal Mail into reality.
Nonetheless, the modelling, the conceptual thinking, the sheer hard miles of negotiating, have been conducted mainly by actuaries. They may be only part of the solution but they are a key part of the solution. Without actuaries CDC will not happen.
Behind Hilary Salt, Derek Benstead, Simon Eagle, Kevin Westbroom and Matthew Arendts is the spectre of uncertainty that would return to Royal Mail if a pensions deal was not done – the strike over a DC pension scheme and a cash balance DB plan that the postal workers did not want. What is also in their minds, and I spend time with these people, is the thought of what the steelworkers and those like them, will have to endure in a world of wealth management so utterly unsuited to them.
CDC offers a way out of the nightmare of “guided investment pathways” being trod by the FCA. It’s a way out of products like self-invested personal pensions, which ordinary people are quite unequipped to use and its a way back to the collective pensions that ordinary people aspired to relying on – till recently.
Respect for the actuaries who do this work
Even for those actuaries involved with Royal Mail, the great part of their time devoted to CDC is “unrecoverable” – that means – they’ll never get paid for it. The work is being done largely for free and the time is being written off by the actuarial firm for the greater good.
The actuaries mentioned above – and many other besides – are worthy of our respect, indeed our thanks. They do not deserve the rubbish that is being thrown at them on twitter by people who should know better.
You might ask why I have devoted over 1000 words to saying this, you may wonder why you are still reading this blog! The answer to your puzzlement should be this…
Actuaries are doing a great job over CDC and it’s about time somebody pointed this out!