How modelling helps us understand and deal with the pandemic.

Screenshot 2020-04-04 at 07.26.22


Fighting this COVID-19 pandemic requires a good grasp on how the virus spreads, impacts health care demand and could be managed. This bulletin highlights some examples of how mathematical modelling has contributed to the understanding and intervention of this pandemic, “the health crisis of a generation”.

Slowing down the spread of the virus is central to international policies. A common measure for the spread of a disease is the average number of people who will catch a disease from one infectious person, the reproductive number R. If R is greater than 1, then the disease is expected to spread. If R is less than 1, the disease will become extinct. This has been used to define policy objectives, for example whether the policies aim to reduce R to a lower level, but above 1, to slow transmission or to aim to reduce R to below 1 to end the epidemic (Ferguson et al., 2020).

At the start of a new outbreak, there will be much interest on R in an environment when the whole population is susceptible to the new infectious agent. This is the basic reproductive number R0. The higher the R0 above 1, the faster the disease can spread.

Early outbreak

During the early stage of the outbreak in January 2020, much effort was put into estimating R0 of COVID-19 to understand the nature of transmission and enable further modelling. However, R0 is a calculated number requiring estimates on the duration a person can be infectious, in contact with people and the likelihood of transmission when in contact. Liu Y et al. (2020) reported that there were 12 studies that published R0 for COVID-19 between 1 January and 7 February 2020. All the studies agree that R0 is greater than 1, implying that the virus will spread. This finding when combined with statistics on demands for intensive care and death prompted drastic measures to contain the virus in China. However, the range of R0 of about 1.5 to 7 is wide. It is important to note that there is uncertainty around this figure. Models that uses R0 in China as an input, such as Ferguson et al. (2020) and Danon et al. (2020) will need to know how the wide range of estimates would affect outputs. 

Epidemic in China

Modelling has been used to better understand how the spread of COVID-19 changed over time in the epicentre of the outbreak in Wuhan and how the virus might be ‘exported’ from China to other countries. Kucharski et al. (2020) reported that the median daily reproduction number dropped from 2.35 a week before travel ban on 23 January to 1.05 a week after, suggesting travel bans have a rapid effect in slowing spread. The authors also estimated that it needs only 4 cases in a new population to have more than 50% chance of starting an outbreak, highlighting the importance of tracing newly infected cases and border control. However, attempts to contain the virus through tracing and isolation. A model suggests that we must trace and isolate 8 in 10 contagious persons introduced to a new environment susceptible to the virus to be 40-90% successful in avoiding a COVID-19 outbreak (Hellewell et al., 2020).

Given the severe financial impact of the epidemic in China, attempts have been made to model when the epidemic would be under control in China following different interventions. For example, Liu et al. (2020) considered ‘the unprecedented strict quarantine measures in almost the whole of China to resist the epidemic’. They concluded that the epidemic would peak in February and be controlled by the end of March, 2020 with stringent lockdown in China. At the time of writing at around end of March, the epidemic is indeed under control and lockdown measures are being lifted in parts of China. However, China is now worried about potential waves of new outbreak from imported cases from other countries. New cases, possible flare ups, are indeed being detected in China as shown in the following new case time series since 1 March 2020:Screenshot 2020-04-04 at 07.25.54

Tableau Public based on Johns Hopkins University dataset


By mid-February COVID-19 had spread to some 25 countries but pandemic wasn’t declared by the WHO yet. There were concerns that COVID-19 may overwhelm health care systems in countries with less comprehensive public health facilities in the African continent. Gilbert and co-workers (2020) estimated the risk of ‘importing’ COVID-19 from China into Africa, by examining the volume of air travel flying from various infected provinces in China into Africa.

The authors identified Egypt, Algeria and South Africa to be at high risk of importing the virus, while their public health systems have moderate to high capacity to respond to outbreaks. Nigeria, Ethiopia, Sudan, Angola, Tanzania Ghana and Kenya have moderate risk of importing COVID-19. They have variable health care capacity and are relatively vulnerable to consequences of a pandemic. By matching countries at risks of importing the virus and their capacity to cope, resources can be prioritised. The researchers proposed ‘Resources, intensified surveillance, and capacity building should be urgently prioritised in countries with moderate risk that might be ill-prepared to detect imported cases and to limit onward transmission.’


On 11 March, WHO declared COVID-19 to be a pandemic. The next day, the UK announced that the government would change tactics from trying to contain the virus to delaying spread, but without rules on social distancing, in contrast to lockdown measures in China and Italy. On 16 March, Ferguson and colleagues (2020) released the results of their modelling of the impacts of potential interventions on the spread, intensive care demand and deaths related to the virus in the UK. They concluded that, without interventions, the UK could expect to see 510k people killed by the virus in 2020. For context, total UK deaths in 2018 was 616k. They considered 2 types of strategies: Suppression and Mitigation summarised in the table below.




Reduce average new infections generated by each case, called reproduction number R to below 1.

Reduce health impact, not to interrupt transmission completely.

End result

Reduce case numbers to low levels like SARS or Ebola, for as long as possible or until a vaccine is available.

Herd immunity. Population immunity builds up, leading to rapid decline in cases.


Case isolation. Household quarantine. Social distancing: 70+/ all. Close schools. Combination.

Similar but without social distancing for all.


On-off 2 thirds of 18 months. 

5 months but risk a come-back in winter, as the population would not have achieved herd immunity.

3 months.


6-120k over 2020 and 2021, depending on scenarios.

250k in 2020

The model proposed that combined interventions of isolating symptomatic cases and their household, social distancing of the whole population and closure of educational institutions over 5 months would suppress the number of people needing critical care beds to be within capacity at each point in time. However, this risks a come-back of the virus to crash critical care capacity in the winter of 2020, as the population would not have had the required immunity. The authors suggested a scenario where the suppression strategy is implemented over at least two thirds of 18 months, with school closure and social distancing triggered on-and-off by critical care capacity, with the other policies being in place.

Their results highlighted the severity of the pandemic on the UK and urgent actions were needed to avoid a catastrophe. As number of cases and deaths continued to rise, the UK subsequently introduced school closure and social distancing measures. By 23 March the UK was under lockdown with rules including the banning of gathering of more than 2 people in public and people should only leave their homes for essential activities.

With a high proportion of infected people displaying little or no symptoms, the lack of a blood test to confirm how many people are indeed infected is problematic to modelling.

For example, without the number of people infected, we would not know if the proportion of infected at risk of severe disease is 1 in 10, 100 or 1,000. Lourenco and colleagues (2020) showed that this uncertainty could lead to a wide range of estimates for the percentage of people infected and immune in the UK, ranging from 5% to 70% by around mid-March.

This has an important policy implication. If the population is, say 70% infected and immune, no stringent measure is needed because we have achieved herd immunity. If it is only 5% immune, then the UK has challenging days ahead and the lockdown is essential. 


A wide range of mathematical models, designed with different purposes and features, have played important roles in understanding the nature, projection and management of this COVID-19 pandemic. They have informed policies to contain and delay spread.

However, the inputs, processes and outputs of the various models are subject to uncertainty and limitations. This means that we need to treat the results carefully.

Members of the Actuarial Profession are tasked to manage pandemic risks in insurance or reinsurance firms. It is important that the profession is at the forefront of understanding and modelling pandemics.

We recommend that the Institute and Faculty of Actuaries:

  1. Ensures it has access to international thought leaders in the area of pandemic modelling. This may be done through collaborative research or appointing eminent leaders in this field to be honorary fellows.
  2. Creates opportunities for members to learn and network with experts from other disciplines that involve in pandemic management.
  3. Encourages members to engage with international modelling community by sharing models, expertise and experience.

March 2020


Danon, L. et al. (2020) ‘A spatial model of CoVID-19 transmission in England and Wales : early spread and peak timing’, MedRxiv, pp. 1–10. doi: 10.1101/2020.02.12.20022566.

Danon L, House T, Keeling M. The role of routine versus random movements on the spread of disease in Great Britain. Epidemics [Internet]. 2009; Available from:

Ferguson, N. M. et al. (2020) ‘Impact of non-pharmaceutical interventions ( NPIs ) to reduce COVID- 19 mortality and healthcare demand’, Imperial College COVID-19 Response Team, (March).

Gilbert M et al. (2020) Preparedness and vulnerability of African countries against importations of COVID-19: a modelling study. The Lancet.  VOLUME 395, ISSUE 10227, P871-877.

Hellewell J et al. (2020) Feasibility of controlling COVID-19 outbreaks by isolation of cases and contacts.  The Lancet VOLUME 8, ISSUE 4, PE488-E496.

Kucharski A J, et al. (2020) Early dynamics of transmission and control of COVID-19: a mathematical modelling study. Lancet Infect Dis

Liu Y, et al. (2020) The reproductive number of COVID-19 is higher compared to SARS coronavirus. J Travel Med 27 (2) doi: 10.1093/jtm/taaa021

Liu X, et al. (2020) Modelling the situation of COVID-19 and effects of different containment strategies in China with dynamic differential equations and parameters estimation. medRxiv preprint doi:

Lourenco J, et al. (2020) Fundamental principles of epidemic spread highlight the immediate need for large-scale serological surveys to assess the stage of the SARS-CoV-2 epidemic. ‘Oxford Paper’.

This paper is part of a series of articles published by kind permission of the Covid 19 Actuaries Response group.

Thanks in particular to Joseph Lu for helping us look into the actuarial science that helps insurers and the more general public – understand what is going on.

Joseph Lu

Joseph Lu – the author

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Suppression vs Mitigation. What’s this all about?

Screenshot 2020-04-04 at 07.03.37

Screenshot 2020-04-04 at 07.03.50


Put simply the community of nations is responding to the COVID-19 pandemic by trying to implement a suppression strategy.  The UK government initially proposed an alternative mitigation strategy never before tried in any recorded history, but has now moved – at least partially, to suppression.  This article seeks to simplistically explain and dissect the two concepts.  Both are rational, but both are risky and the stakes are high.

Suppression – Contain and isolate

Screenshot 2020-04-04 at 07.04.00

This strategy is conceptually simple, and has almost achieved checkpoint one of a multi-stage marathon, at least for a few countries (such as China, Singapore, South Korea, Taiwan), but there are many stages ahead. 

Stage one’s objective is to constrain spread – forcing replication below 1.  Conceptually it may help to think of a grid with many millions of cells in it.  Picture the outbreak as clusters of cells on the grid that have changed colour to red (indicating infectious) and are able to infect adjacent cells changing them to red.  The suppress action surrounds the infected cells with barriers – preventing movement and infection outside those barriers.  Once the impenetrability of the barriers has been achieved the next step is to identify infectious cells within the contained zone and quarantine/isolate them so that they cannot infect other uninfected cells.  Whilst the detection process is ongoing all cells within the barriers are prohibited from moving.  Eventually the infection spread is arrested and after a period of time all cells within the barrier zone resolve to either recovered or dead.  Singapore (pop 5.6 M vs UK 65.2M)1 started this process back in late January and as of 23 March is evidencing 509 cumulative cases after scores of thousands of tests and innovative contact tracing such as using mobile phone proximity history.  Singapore’s new daily cases chart was as follows:

Screenshot 2020-04-04 at 07.04.23

For the first few weeks of the pathogen spread, it would appear to have been a successful strategy, but increasingly difficult to maintain.

Since contact tracing and isolation still leaves the general population susceptible and without immunity, total containment is likely to be hard to maintain with outbreaks flaring up as seems to be occurring.

  • The testing and isolation for stage 1 is only really achieved once new cases drop to zero and stay at that level for some three or so weeks.
  • Stage 2 is to prevent new imported cases – and ensure no new flare ups.
  • Stage 3 is to rapidly develop a vaccine so that population immunisation can start – this will take many months perhaps 12- 18 months assuming a safe vaccine can be developed.  [Vaccine development should be possible as many people have already recovered, but safety needs to be assured].
  • Stage 4 is to produce vaccines and vaccinate the whole population rapidly.


Mitigation – Herd Immunity through timing of controlled exposure

The mitigation strategy initially proposed by UK authorities is a far more nuanced strategy than may be assumed on first reflection.  The proposal is that from existing data we can identify the more vulnerable subsets of the population and get them to effectively self-isolate.  If they are self -isolated then the virus would be allowed to spread among the more resilient segment of the population in a controlled way – replicating slightly above 1 – and catching those who need hospitalisation. 

Hopefully resulting in a much smaller number than would have been the case were the vulnerable subsets not being isolated, and thus preventing medical resources from being overwhelmed.  Implementation would not preclude regional instances of broader isolation, such as envisioned in the suppression model.  In time it is theorised that the number of immune individuals can grow to a high enough proportion such that when isolation of the “vulnerable subset” is relaxed, the probability of them coming into contact with an infected person is small and thus the rate of any transmission through the vulnerable/older population is much reduced – and is possibly unsustainable.

The following information from Italy reveals most adverse mortality experience amongst the aged and thus the potential opportunity to be grasped if we could somehow protect this subgroup:

23-Mar 20203



Case fatality Rate

Confirmed cases

0 to 29



30 to 39




40 to 49




50 to 59




60 to 69




70 to 79




80 to 89




90+ to




not rep




The challenge with this strategy lies in its novelty and it received early criticism from several experts and senior people (even within the WHO).  To be successful the following need to happen:

  • successful identification of people the most vulnerable people
  • very high compliance to isolate the vulnerable and aged – potentially for several months
  • sustained support from the designated resilient segment – many of whom may get sick, but not be tested
  • co-operation from parents who will be anxious for their children.

Once embarked upon there may be no chance to turn back and indeed it may already be too late, not just for the UK, but for many European countries.  For countries with less resources this is likely the only route forward.

There are risks such as:

  • immunity may be temporary as the virus evolves
  • mis-timing exposures could still result in health system being overwhelmed
  • keeping the vulnerable safe (e.g. carers unknowingly carrying the virus into a care home)
  • unknown prevalence required to impart herd immunity

There are some desirable dynamics associated with the strategy:

  • if the population can remain largely at work it will keep the economy going – if only limping
  • reporting can change from the distressing infection/mortality prevalence to the more hopeful antibody/recovery prevalence – sociologically more hopeful
  • the emerging future has sociologically attractive elements of shared responsibility, actively doing something – working, isolation compliance to avoid overwhelming health services
  • innovative ways to manage spread may be strengthened – such as work from home, shift working to reduce on site numbers, delivery services and other social distancing techniques
  • possibility of lower reliance on development and distribution of a successful vaccine.


Policies to suppress the virus (i.e. lowering replication number below 1) are seen to be effective in delaying the spread of the virus in the short-run,  but slow-down the build-up of  immunity.  The population thus remains vulnerable to new outbreaks in the medium term, although not a problem if vaccination is soon available.  Crucially the strategy also buys time to expand health system resources.

Policies to mitigate/contain the virus (i.e. lowering replication number BUT NOT below 1) are much less effective in flattening the curve.  This may well have strong repercussion in the short-run because of limited health system capacity, but  allows population immunity to build up faster and so the  population may become less vulnerable in the medium term.

Practically the UK has tried to move to a suppression strategy, but limitations of testing capacity mean that a mixture of suppression and mitigation is actually being applied.  Each country will need to make its own decisions and hopefully we will be able to learn quickly from each other, unfortunately with the data arising from many individual tragedies. 


  1. Approximated from Human Mortality Database.  University of California, Berkeley (USA), and Max Planck Institute for Demographic Research (Germany). Available at  or
  2. Tableau Public based on Johns Hopkins University dataset!/vizhome/COVID-19Cases_15840488375320/COVID-19Cases

3. Epicentro Istituto Superiore di Sanità (

This article is published as part of a series from the Covid19 Actuaries Response Group. Thanks to them for helping us to understand what is going on and to Adrian in particular for this very helpful article

Adrian Pinnington

Adrian Pinington – the author

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IGC reports “good to very good”- as L&G closes member helpline.

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Dermot Courtier – IGC chair


L&G’s IGC has published its fifth report for savers ; here is the link  for the 2019-20 statement.

March must have been a difficult month for Dermot Courtier , the L&G IGC.’s chair

Clearly the report wanted to say goodbye to L&G’s legacy book to ReAssure, this deal was announced in 2017 supposed to complete in 2019 and has now been put off indefinitely because of the current pandemic. There is a lot of “nearly there” about what is happening at L&G at the moment.

  • The workplace pensions unit is piloting an app but this is still not generally available
  • The workplace pension plan has a new default (the Future World MAF) but it’s not the default default – employers will have to make a conscious decision to adopt it.
  • There are currently 10 self-select funds in special measures but we aren’t told which they are.
  • The IGC undertook a benchmarking survey with other IGCs – but the results are not published.
  • There is no mention of systems developments, there appear to be no plans to  extend the Bravura platform to workplace pensions
  • One of the IGC’s principal jobs for 2020, oversight of the introduction of the investment pathways, is no longer required by the FCA as a result of the pandemic.

The IGC statement is full of what the IGC got up to, but tells us very little about what is actually happening.  L&G workplace seems to have spent another year “consolidating”.

The IGC and the current pandemic.

But L&G is now faced with a challenge

At the time of the statement , information that appears on the L&G workplace member portal in a blunt fashion

Screenshot 2020-04-04 at 16.03.39

In case the print is too small – let me repeat

In these difficult times, we’re doing what we can to look after our customers and our employees. We regret that we’re unable to operate our normal helpline service and our phone lines are closed until further notice

You can reach L&G by secure message or email (though there is no mention of response times). Death and health claims can be made to . The implication is that other “claims” are not sensitive. The language is insensitive.

The links from this statement are helpful but it is simply not good enough for a major insurer to have no telephone helpline. Those who are not online cannot  send secure messages or emails. those who have urgent needs cannot speak with an L&G member of staff. The people who need the helpline most are L&G’s most vulnerable customers.

Bearing in mind the drastic measures being put in place by L&G’s investment arm (LGIM), having no one to speak to – is not good enough.

Screenshot 2020-04-04 at 16.04.18

This report has been published at a time when the suspension not just of funds, but of the member helpline is in force. Workplace pension savers might expect to have a rather stronger statement on this than that in the Chair’s statement.

Screenshot 2020-04-04 at 16.30.26

Earlier in the year , L&G had some kind of an admin meltdown. It has led to the IGC marking L&G’s member support falling to 3  on its value for money assessment. That 3 became 3.5 when the admin recovered late in 2019. It is clear however that L&G is suffering sustained problems delivering an acceptable service to customers.

There is nothing in the report about the closure of the LGAS HQ at Kingswood or of recent industrial action. Previous reports have touched on these problems and it seems reasonable for the IGC to be questioning whether the workplace pension book is being properly resourced.

Those who are saving in Legal & General’s workplace pensions have every right to think that though they have low charges and good funds, they are getting a second rate service which is struggling to provide the most basic support at this time.

The report is well -written and nicely produced (perhaps too many stock images). However it really doesn’t sound an effective report and though it’s good that L&G have (at last) abolished the charges levied for us to get our money back, it only gets an amber for its tone, and an amber  for its effectiveness.

Value for money assessment – successful on its terms

The report gives L&G a strong  endorsement. L&G are offering “good to very good” value for money.

The measures for determining value for money are sensible and the weightings make sense in terms of the industry consensus. The IGC is operating a very balanced scorecard.

Screenshot 2020-04-04 at 17.31.19

Properly, the report marks L&G down for poor member service. Surprisingly the report gives high marks for ‘member engagement” – presumably on some improvements to the member portal.

But all the evidence gathered over the years by IGCs shows that the only metrics that really matter to most savers is the amount of money in the pension pot, relative to the money that went into it.

I hope that the IGC look beyond their balanced scorecard approach in 2020 and start looking at what members have actually been getting from their plans , relative to what members get for the same money elsewhere.

For instance, the current approach of looking at investment returns is compromised by it looking only at the performance of funds. This is how we are introduced to the performance table of the various default funds that employers can choose from

The table above shows the performance of the current default funds, as at 30 September 2019. The fund performance is calculated after all fund charges. Other product charges – like the annual management charges – aren’t included

As seriously, especially for those drawing down on their fund, the performance tables don’t give any indication of the volatility of returns within the funds. So the sequential risk experienced by savers and spenders isn’t included in the report.

Experienced performance is what people want to know about – they want to know how their pots did, rather than the abstract top-down approach adopted.

Although the VFM assessment ticks all the boxes for the industry, it really doesn’t mean much to the saver. I give it an amber; it scores for its completeness on its terms, but it doesn’t score for the people who are supposed to be relying on this report – the savers.

The IGC on ESG

I asked the IGC chairs to send me their reports when they were published and Dermot, helpfully included a lot of information on the L&G ESG Hub (hub is the most overused word in financial services right now). The hub can be accessed via this link

I do think LGIM are very responsible investors, but I’ve been frustrated over the years that employers cannot access an overtly responsible default without taking advice.

Finally , L&G have adopted a green default in FutureWorld MAF , though its standout green fund – FutureWorld can only be used by employers as a default – with investment advice.

Even FutureWorld MAF is not the default default – it requires an employer to stick its neck out and take the risk of being the agent of change. I still think that L&G are not having the courage of their convictions, though I accept that other defaults – such as the pathway funds are being upgraded to reflect LGIM’s responsible ethos.

But so much more could be done than offering green funds. Software exists that allows savers to see inside the funds they invest in and even to vote on key issues relating to environmental, social and governance issues. If L&G have the courage of its convictions , it should be doing more to engage savers than simply offering an information hub.

The IGC should be concerning itself in how it can connect savers to the management of their funds.

The IGC on investment pathways

I have written on this blog about the importance of IGCs in overseeing the choices people need to take at retirement. The FCA has instructed the IGCs to oversee the implementation of investment pathways that people can follow if they don’t get advice on what to do with their money.

The idea was that the IGC would oversee these pathways – “the choice architecture”. Like most things else, the requirement has been superseded by the pandemic but the report has properly reported on its duties.

As with so much else at L&G, work needs to be accelerated to bring  these choices to life, they should be communicated, like ESG, through a modern-day engagement tool.

The IGC really need to get L&G putting solutions in the palms of its savers hands. The delivery of member engagement cannot be marked a five, when – years after first being mooted – an app is still under development.


The IGC -which includes Joanne Segars and Daniel Godfrey , seems to be tootling along at L&G’s place. Now it has to deal with the pandemic and its impact on members. So far, so underwhelming.

IGCs are there to protect members and members need a lot of protection right now.

For all the resource accorded the IGC, this is a me-too report. This IGC needs to raise its game – so does L&G.




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Social distancing – UK is not like China!

Screenshot 2020-04-04 at 06.48.56

A new paper “An international comparison of the second derivative of COVID-19 deaths after implementation of social distancing measures” has received some attention over the weekend.

Perhaps because it was published by individuals from the same university, the paper has attracted comparisons with the Imperial College London study that we reviewed in our first bulletin, with some commentators even claiming that the authors of that study have dramatically revised down their fatality estimates. It is important to note that the authors of this new paper are not part of the team that advised the UK Government. Our view is that the conclusions in the paper are not valid.

The authors, from the Department of Electrical and Electronic Engineering, took data on daily fatality rates in eight countries (China, Italy, Spain, France, USA, UK, Netherlands, Germany and South Korea). They noted that the trajectory of deaths in each country after social distancing and lockdown strategies had been put in place appeared to mirror that of China. They then used the shape of deaths in China (specifically the second derivative i.e. how fast the increase in deaths was slowing) to predict the pattern of deaths in the other countries.

Their modelling suggested that the total number of deaths from COVID-19 in the UK would be between 4,700 and 7,100, and that the maximum number of deaths in a single day in the UK would be around 260. Similar conclusions were also drawn for the other countries, as set out in the table.

Screenshot 2020-04-04 at 06.48.41

Despite this paper being based on data up to 24th March, various estimates can already be shown to be incorrect. For example, we have already seen 260 daily COVID-19 deaths, a figure that the team did not expect to see until their forecast peak on 5th April.

Whilst it is not inherently a bad idea to consider how the trajectory of a country’s COVID-19 outbreak might develop, by comparing it to other countries whose outbreaks started at an earlier date and which have implemented comparable control strategies, our view is that it is irresponsible, and potentially dangerous (as it risks undermining social distancing measures) to draw strong conclusions from such a simple analysis.

In particular, the conclusions set out are based mainly on the pattern experienced by China. This is unlikely to be a sensible comparator for most of the countries listed, as they have not introduced control measures as strong as those introduced by the Chinese Government and have indicated no intention to do so.

Finally, it is unclear to us why Imperial’s Department for Electrical and Electronic Engineering has chosen to publish a paper on COVID-19.


Pike, W.T and Saini, V – An international comparison of the second derivative of COVID-19 deaths after implementation of social distancing measures

This article is one of a series provided to the public (and published with the permission of) the Covid 19 Actuaries Response Group.

It does not take an actuary to work out that on the UK’s current actual trajectory, the projections in this report will be wrong. The lessons can now be learned and digested.

It is irresponsible, and potentially dangerous,  to draw strong conclusions from such a simple analysis

matt fletcher

Matt Fletcher – the author

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People’s Pension gets serious on small pots

Screenshot 2020-04-03 at 06.32.13

The changes announced yesterday by People’s Pension and its parent B&CE are significant.

  1. It’s furloughing its sales team, battening down the hatches to new business
  2. It’s changing its charging structure, protecting itself against the ruinous impact of small deferred pots.

While the furloughing is most significant for the 140 staff who are effectively on gardening leave, it is partly subsidised by the tax-payer and is reversible. It should not impact on service levels to current customers and shows an insurer being ahead of the game – I don’t read this as panic.

Patrick Heath-Lay used his words careful when announcing changes to the charging structure (in the longer term much more significant).

“As we evolve our charging approach to meet changing requirements, we think this approach combines fairness, incentives to save, and prudence”.

I remember John Jory telling me of the 0.5% mono-charge that People’s Pension would employ to simplify pension charging. At the time (2011) – it was expected that the pension cap on defaults would be set at 0.5% and Legal and General were actively lobbying for a cap this low (I tried to stop this madness by literally kicking Adrian Boulding’s butt ).

By introducing the £2.50 per annum member charge, B&CE will enhance revenues from People’s Pension by £10m but they will have abandoned John Jory’s dream. People’s Pension  will join NEST, NOW and some parts of Smart in adopting a complex charge, albeit a much lower fixed charge than their competitors.

This may be “evolution” to Patrick , but there will be many within B&CE and further, that will see it as a retreat from the proud announcements made nearly ten years ago.

A necessary retreat?

By introducing this small but significant charge, People’s Pension has given itself a safety valve. The master trust said its new approach would reduce the cross subsidy by active members of millions of small, inactive pots, which are increasingly created by auto-enrolment”.

As well as implementing the annual fixed charge, it has halved the starting rate for a rebate to a £3,000 pot, at which point members are eligible for a 0.1% rebate. This grows to 0.3% on savings over £50,000.

It expects around half a million members to benefit when this is implemented later this year, with an illustrative member on an annual salary of £20,000 and a pot of £3,000 paying the equivalent of 0.3% total annual management charges over 20 years.

The charging structure at People’s Pension has evolved from the simplest to the most complex in the space of a few months.  Is this necessary?

Is this a challenge to Government to get pots moving?

When I first read the report of this change, I assumed the £2.50 charge monthly (years of selling such charges had inured me). That the charge is annual (21p per month) surprised me and apologies to those who read my erroneous tweet

I don’t expect it to stay so low and for this reason.

Two of the four big auto-enrolment master trusts have now put in place protection against small pots (the other is NOW). Smart has some protection.

If the Government cannot get small pots to follow members when members leave employment, then pot proliferation will increase. The DWP estimate that there could be 50m abandoned pots by 2050.

With the average deferred pots size valued in hundreds rather than thousands of pounds, even a £2.50 pa charge is going to significantly reduce the value of several million small deferred pots , languishing with Peoples Pension and NOW.

Moving these pots on will increasingly become a commercial imperative not just for providers , but for Government and most of all the members. But there is no mechanism in place to do this.

Technology is not in place to allow the pots to tag along behind someone moving jobs and the cost of organising the transfer by a regulated financial adviser cannot be recovered by fees (in many cases the fees would wipe the pot).

This change of charging is a direct challenge to Government to get pots moving. If Government doesn’t listen, People’s Pension can further increase the fixed costs, effectively creating an active member discount to counter current cross subsidies.

Significant changes

Unlike  insurers, People’s Pension is a trust and has little recourse to capital other than from its parent – B&CE – itself a mutual.  People’s can rightly claim that it has been given little choice but to protect itself, its parent and its members from the calamity of pot proliferation.

It should be remembered that Patrick Heath-Lay, as CEO, has a responsibility to all parties to keep People’s Pension solvent and prosperous. These are necessary changes – albeit they make the People’s Pension a complicated beast.

Patrick Heath-Lay was one of the first advocates of a pension dashboard and has been at the forefront of the argument for a technology solution to the problems of pot proliferation.

Patrick Heath-Lay  has now thrown down the gauntlet. If they are sensible, policymakers within both DWP and the Treasury will take notice.

The sooner the pensions dashboard allows people to see their pots in one place the better.

The sooner that significant changes to the rules governing the aggregation of small pots are put in place the better.

The sooner that “pentechs” are allowed into this argument with their aggregation solutions the better.

Screenshot 2020-04-01 at 17.38.45

Finally – some more on the charges evolution

The announcement made to Professional Pensions, is fully inclusive of all changes. But some of the recent changes to the People’s Pension charging structure are so new that they need to be clarified.

Clarification to the new tweak in the People’s Pension charging structure was solicited by Darren Philp of Smart Pensions (formerly head of policy at People’s Pension) and disclosed by the current head of policy at People’s pension (small world)

This compares to the current rebate structure

For the part of their savings:

  • up to £6,000, no rebate is given
  • over £6,000 and up to £10,000, we give back 0.1%1
  • over £10,000 and up to £25,000, we give back 0.2%
  • over £25,000 and up to £50,000, we give back 0.25%
  • over £50,000, we give back 0.3%.

All that is changing is the substitution of the £6,000 trigger point with the lower £3,000 point.

Complex stuff.


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Aussie actuary flies DC…


I needed to travel to London. I began my preparations with a call to an airline that I hadn’t used before but that I was keen to try, given its appeal­ing advertising.

“Wombat Airways, good morning, this is Margaret and how can I help?”

“Good morning, Margaret, I’d like to book a ticket for a flight from Mel­bourne to London at the end of next month. My name is David.”

“Well, David, I can help, but before we talk about where you want to land, can I ask how much you want to pay?”

“Well, whatever it takes, I suppose. What’s your price?”

“I’m sorry, I can’t tell you that since that would be giving you advice. No, you must tell me how much you want to pay.”

“But you must give me some idea? What if I said $5000; is that enough?”

“It might be, David, but we won’t know in advance.”

“Well what are other people paying? What would you pay if you were me?”

“Look, I can’t tell you. It’s a risk and you have to make that choice; I can’t make it for you.”

At this stage, I was starting to be­come just a little tense, but did my best to be civil with Margaret. After all, she was probably following a script.

“OK,” I sighed, “we’ll stick with the $5000.”

“Fantastic,” she said “let’s pretend that $5000 is enough and see what happens!”

“Margaret, what happens if $5,000 is not enough?”

“If your money runs out, we will ask you to get off. There are an increas­ing number of passengers being ejected these days, so you probably won’t be alone. If you do fail to reach your objective, you will have to rely on a pair of roller skates and a dodgy plastic com­pass to get you home.

Those items are provided by the Government, but only to those people who don’t already have a pair of roller skates and a dodgy plastic compass. They call it their ‘means test’.”

“And if $5,000 is more than enough?”

I asked, looking forward to hearing a sensible answer for a change.

“In that case, we will send you a cheque for the balance, less a payment fee.”

“Will you pay interest?”

“Yes, but we don’t know how much. It could be positive or negative.”

I didn’t feel like entering into a discussion about interest and the theoretically interesting diversion about whether interest could be negative. In fact, I just wanted my tickets booked, paid for and the phone call to end. But Margaret wasn’t finished.

“Now,” she said with renewed brightness.

“What type of aircraft would you like to fly in? At Wombat, we have a range of options for you to choose from, to allow you to tailor the flight to your personal situation.”

“Margaret, you tell me which one is appropriate, given where I’m going and how much I’m paying.”

“I’m so sorry David, but I’m not allowed to. That would be giving advice. But I can tell you that our different aircraft have different characteristics; some are slower and noisier but they are exceptionally reliable, in that they will get there, but we don’t know when they’ll get there! The really new versions are very exotic, fast and quiet but we’ve lost a few recently.

Their engines have this new device fitted called a cognitive double-quick orbiter (CDO) that can fail unexpectedly but the engineers don’t really know why. It seems some of the pilots weren’t even aware the CDOs were installed.

The really scary thing was that a pilot would report a problem with their CDO on the Los Angeles route and a plane sitting in the hangar at Tullamarine would suddenly collapse under its own weight.”

“Excuse me, does that mean I’m less likely to land in London?”

“Yes, that’s right. There is a full description of all the risks in our Plane Details Specification, or PDS for short. I will send you a copy of the PDS. If after reading it you still have questions, you really should consult a licensed aeronautical advisor. But be careful, make sure your advisor is licensed by ASIC, the Aeronautical Surreptitious Investigations Commission.”

At this point, Margaret clearly felt the conversation wasn’t going as well as it should. She was only young and may have been put off by my surly manner coming over the line.

“Margaret, when I used to fly with one of your competitors, I said where I wanted to go and the airline told me how much to pay. It was easy.”

“I’m sorry, David. We have moved away from a Destination Bound (DB) system to a Destination Concealed (DC) system.”

Bewildered, I thanked Margaret, paid my $5000 and crossed my fingers.

Wombat air 2

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Were you thinking of retiring?

For a lot of people my age (58 going on 59), retirement was looking a cert. Now I and many like me, will have to think some more, save some more and maybe be a little less cocky about our financial reslience.


There are a couple of Australian actuaries – Jim Hennington and Stephen Huppert, who I’ve learned a lot from. Here’s Stephen talking about living with uncertainty in a blog written down under – which reads pretty well – the right way up – thanks to Jim for the share.



Living with Uncertainty

If we are to learn anything from the current situation we find ourselves in, it’s the challenge of trying to find certainty in an uncertain world.

For most Australians, retirement means living with uncertainty. The transition from employment often manifests itself in stress and anxiety, and although each of us differs in how much change and uncertainty we can tolerate, some situations challenge even the most resilient among us.

Understandably, financial considerations often take most of the focus: ‘How will I make my retirement savings last?’ ‘How do I manage my day-to-day savings?’ or ‘How should I respond to changing economic conditions?’ But broader considerations including purpose, family, social, health and wellbeing need to be addressed as well.

One of the biggest challenges for life after full-time work is dealing with uncertainty.

While it’s important to acknowledge that uncertainty is a natural part of life, it’s also important to take action on those parts of your life that you have control over.

As we have all experienced this week, often we have no control over events and circumstances can change quickly and dramatically. With an understanding how stress and anxiety can get in the way of decision making, sometimes the only thing we have control over is how we choose to react to the challenges we face.

Optimum Pensions was launched with a single mission: to help Australians lead a comfortable retirement. As working Australians contemplate dipping into their retirement nest eggs to help them through these tough times it is important to consider how will this affect their savings and their financial retirement resilience down the track.

We need to acknowledge that life has changed dramatically and in ways we could not have contemplated and move forward with this in mind. Living with uncertainty does not mean we give in to the fear and bemoan the comfort of what we leave behind, but rather evolve, adapt and recognise the possibilities in the new. How you choose to face uncertainty and make decisions that will determine your future, is up to you.

From all of us here at Optimum Pensions, stay safe and let’s look out for each other.


The Optimum Pensions Real Lifetime Pension is an investment linked lifetime income stream where the assets stay in investment options managed by the superannuation fund but longevity risk is transferred to a global reinsurer. Find out more Real Lifetime Pension.

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How will USS value itself today?


News has come in that the University Superannuation Scheme (USS) is going to press ahead with a valuation of its assets and liabilities as at the 31st March 2020. It reasons for it in a public statement.

Screenshot 2020-04-02 at 06.00.28

I had originally thought that this was to comply with the law but Professor Dennis Leech has put me right on that.

So the decision to spend hundreds of thousands of pounds valuing assets that have no market price (because nobody’s buying or selling) is being taken “not to take short term action”.

Not only is it extremely hard to work out what the price of USS’ pension scheme assets are, it’s virtually impossible to work out the impact of COVID19 at 31st March on  future and current pensioners. A valuation at 31st March 2021 could use actual mortality figures , the idea of comparing the 2020 guess with the reality a year on makes no sense to me at all.

The public has no expectation of anything going ahead right now, no Euro 2020, no Wimbledon, no premiership for Liverpool – there may not even be university exams. So why does Britain’s largest funded pension scheme insist on continuity? I just don’t get it. Nor do Kevin and Dennis

The valuation  doesn’t make common sense.

Nor (says Leech) does its methodology

Here’s Dennis commenting on a recent blog of mine  (my italics)

It is disappointing that you report – uncritically – that there are £100 billion of liabilities (in the USS).

The central issue in the valuation dispute is how the liabilities figure is arrived at. It is an artefact with no practical meaning in terms of the payment of benefits.

The expected future benefit commitments of a DB scheme are defined by projections of inflation and mortality rates and other factors. They are therefore are not affected by interest rates on government bonds which are nevertheless used to compute the liabilities figure.

Record low interest rates mean record high liabilities. The liabilities figure is highly misleading. All it does is say that gilt rates are very low (actually negative in real terms).

This suggest option 5 (See blog): do the valuation using common sense and look to see if the investment income from the portfolio would be likely to provide the pensions benefits given that the scheme remains open in the long term. That means looking beyond the daily gyrations in asset values at the economic fundamentals.

The present conditions are unique and not like the financial crisis of 2008-9 because it is impossible to forecast today what the economy will be like in the long term. But one thing is for sure the market ain’t doing that.

So what will USS do with the valuation?

USS say they will use this meaningless information and use it to

  1. Re-assess the support available from our sponsors
  2. The outlook for future investment returns (eg the growth assumptions)
  3. The deficit contributions due from universities from 2021
  4. The outlook for Higher Education and Financial Markets

Taken together, the actuarial valuation will be used by USS to put the scheme in lockdown. Quite obviously the sponsor covenant will weaken, the growth assumptions will be revised downwards, deficit contributions revised upwards and all this will be justified on the grim outlook for higher education and financial markets

USS have just commissioned a justification for pensions austerity for the foreseeable future.

This is not the way forward. The way forward is to keep the scheme open and flex the benefits

CDC lifecycle

It may be that the long term future of USS is CDC – that thought could not be spoken pre Covid-19.

If this is the plan then the trustees should be open about it. The public statement says that USS will be “flexible where we can” but this valuation is chaining it to its own railings.

Instead of pretending that USS is bigger than the pandemic and that its BAU trumps the reality of Britain on March 31st 2020, USS should cancel its 2020 valuation and put up a sign on its gates

All bets are off


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People approaching retirement face ‘financial emergency’ – Billy Burrows

Billy is a national treasure – this is the text of an article that first appeared in Money Marketing

Billy BurrowsThere is clearly a national state of emergency, but there is also a financial emergency for those approaching retirement with a money purchase pension and the over 70s who are at high risk of suffering the worst effects of Covid-19.

As the well-known pension commentator Henry Tapper wrote: “pensions are about people’s lives and older people are living in particular fear right now”. Justin Cash, editor of Money Marketing, tweeted; “We have all been caught with our pants down: @BillyBurrows on lessons for IFAs from the #coronacrisis”.

Pension emergency

There is a national pension emergency as many people have seen the value of their pension pots fall significantly and are worried if they have will have enough money to retire on. The average mixed investment pension fund is down by about 20 per cent since the beginning of the year and could fall even lower.

While this may not be an issue for younger people as they have time on their side, it is a real issue for those over age 55 who are approaching the time when they will be looking to convert their pension pots into cash and income.

It is only the financial aspects of the coronavirus induced stock market crash which we need to worry about, we must also worry about the emotional and behavioural aspects because anxiety and fear may result in irrational behaviour and poor decision making.

How to help the over 55s at a time of national and financial emergency

Everyone who is concerned about the effect falling fund values will have on their retirement plans should be able to speak a qualified and regulated adviser.

No matter how small or large their financial assets everybody who needs financial advice should be able to get the appropriate advice.

There are other sources of help available, e.g. from the government’s Pension Wise service or from pension providers, but good as these are, they cannot give people what they need the most. What most people need at times like this is someone with whom they can have a frank discussion and get practical advice or get a second opinion about what to do next. If this results in changes to their investments or new solutions, they want someone to arrange this for them.

A guidance service cannot give an opinion or tell people what they should do. People are left to make their own decisions and make their own arrangements. Whereas an adviser will help them make the right decisions and take care of all the arrangements.

It can be difficult for the over 55s to get the appropriate level of advice

There are many reasons why the over 55s don’t get the financial advice they need and deserve.

Speaking to a financial adviser can seem scary and the process may appear to be complex and expensive.

But good financial advisers can give people advice in a way that is client friendly, uncomplicated and value for money.

The elephants in the rooms are trust and costs. Advice doesn’t have to be expensive. The cost of advice is the cost advisers incurred in giving the advice plus the ‘added value’.

Moving beyond performance

Those who think advice is expensive and of little value when times are good should think differently when times are difficult.

The value add is measured not only in financial terms but also in personal terms. How much is ‘peace of mind and financial security’ worth?

Financial advice should be available to everybody

At Better Retirement, we believe that everybody should have access to financial advice no matter their amount of financial wealth or circumstances.

In order to make financial advice available to as many people as possible we have launched our advice hotline and are offering a free initial consultation to anyone who is concerned about their pensions or retirement plans. There are absolutely no strings attached and we don’t expect people to appoint us as their adviser if they don’t need our services.

Customer champion

Our advice services are available to everyone; those with workplace pensions, personal pensions and self-employed pensions.

Sceptics may ask why a financial adviser would want to give advice to the mass market rather than concentrate a small number of high net worth clients.

I go back to Henry Tapper’s comment; ‘pensions are about people’s lives and older people are living in particular fear right now’ and at times of a national emergency it is only right that we do everything to we can help those who are need advice at these worrying time.

To anyone who questions my motives, I remind them what a previous pension minster told me: “we have the scars on our backs to show our commitment to be the customer’s champion”.

Billy Burrows is retirement director at Better Retirement

Follow him on Twitter @BillyBurrows

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How #Covid19 opens finance.

The pandemic is opening up finance in a way that we could not have imagined a few weeks ago. On the day of the closure of the FCA’s Open Finance call for input, Sam Seaton, CEO of MoneyHub told Professional Adviser

Open finance has the power to transform consumers financial wellbeing and is essential for informed decisions to be made by them… having readily available information is a “basic human right”.

Without the information, it is impossible for consumers to make informed short, medium and long term decisions for themselves, let alone their families.

Not long till the data’s blown

The pandemic has led to home-working and a surge in demand for data.

Screenshot 2020-04-01 at 06.23.28

Organisations holding out for wet signatures are now facing not just the Law Commission’s edicts but the practical impossibility of dealing with paper. Pension Bee’s skeleton staff come in to its office for “essential work” – scanning the post required to keep transfers moving. On the other side of London Wall, WeWork’s only staffed function is its post room, now overflowing with items signed for – never to be read.

This morning – a courier will arrive at Tapper Towers so that a deed can be witnessed and returned. The deed will be delivered – hopefully at a 6 foot distance- and returned. I anticipate a farcical flinging of clipboards accross a back-street in Blackfriars.

Meanwhile, we are learning that Zoom, Hang-outs and Teams all have “record buttons” that allow us to capture moments like the signing of deeds, and mail them to each other as MPEGs.

Band-width will drive us apart (again)

My partner and I are driven apart during the day by the lack of band width from our wi-fi. Though we are only yards from BT’s Openwork HQ, we do not have BT’s “fast” brand – but some crappy version coming to us down copper wires.

For us to work together, one of us has to be offline – most of the day both of us are on web-serviced calls. So I make my way over to WeWork (no work) and am likely to be today one of less than 10 people in a building that last month saw 3000 people a day pass through its doors.

Both and I and my partner can only do our jobs if we operate on separate wi-fis, bandwidth will drive us apart again.

Closed to data = closed to business

Last week, one large insurer , deferred a decision-making meeting from March 26th to August 6th. Presumably it was thought impossible for an organisation to progress its strategy if the decisions were not taken face to face.

The deal will most likely be done elsewhere, online and with agility. Ways will be found – within the law – to enable ordinary people to get access to the information needed.

As Sam Seaton says “having readily available information is a basic human right”.

So long as we regard information as accessible only with the help of postal services, we will be denying people that basic human right. Keeping important information  on microfiche or in physical filing cabinets is simply not acceptable. If information is personal and is needed, the GDPR says it must be accessible in a machine readable format.

Businesses that refuse to share our data will close, and the current pandemic will mean  most will not recover.

The risks of not going digital

Much is made of data security and the risks of scamming, data corruption, data theft and from many other forms of cyber-crime. The fear about these risks is that we do not fully understand them. Necessarily we amplify them out of  that fear . I am not saying there are not risks from the free transfer of data. We need secure networks, we need powerful verification and encryption and of course we need humans to behave in a responsible moral way.

But the risks of not going digital are greater. Sam Seaton’s comments are spot on. If we cannot get the information on which to take decisions, we will take bad decisions or no decisions – which could be worse than bad.

The DWP estimate that unless we take steps to stop current trends, 50m pension pots will be abandoned by 2050. The PPI tell us (via the ABI) that £20bn of money in pensions is unclaimed. People who lose their pensions – lose the right to the kind of retirement they have earned through saving during their working lifetime.

Can anyone say that “closed finance” is working for them?

Here is that video!

This video has been shared 565,000 times (As at April 1st – no fooling)

I’d be very pleased if it was viewed a few more hundred times on this link. It shows how a family in lockdown, can reach over half a million people by pressing “record” and sharing a data file on the internet.

You cannot suppress good things like the Marsh Family’s communal singing. You cannot suppress the free-flow of data to allow us to know about our financial situation.

I suspect that the next few weeks will force the issue and we will return physically to our workplaces later this year, with a radically different view on how data should be shared.

The FCA closed the open finance consultation on 17th March, about the day that Coronavirus opened the new one.


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