Actuaries warned of risks of giving ‘poor quality advice’ to pension schemes

Actuaries have been warned of the risks of giving “poor quality advice” that would result in trustees and employers unable to respond effectively to the challenges facing occupational pensions.

Publishing its Risk Perspective: 2018 Update, the Joint Forum on Actuarial Regulation (JFAR) noted that current economic conditions, and the ongoing low interest environment in particular, presents challenges for the management of pension schemes. The report highlighted the popularity of defined benefit to defined contribution transfers, increasing member protections for those in DB schemes with proposals to strengthen the powers of The Pensions Regulator.

The report stated that these developments are likely to change the behaviour of pension providers and members, and therefore may increase the uncertainty around actuarial work.

“Actuaries should keep up to date with changes and consider impacts on data, models and assumptions as well as the potential for commercial pressures, conflicts of interest or group think,” the report said.

The JFAR has also set up a pension working group with three workstreams – DB scheme consolidation, DB to DC transfers and the pensions dashboard. The workstreams will be reporting to the JFAR during 2019.

It also used the report to highlight nine distinctive risk hotspots that are impacting actuarial work. The hotspots relate to current or emerging risks which, due to their changing nature or level of uncertainty, pose increased risk to the public interest. These are: political and legislative risk; regulatory change; market performance and uncertainty; climate-related risk; financial security; pension scheme management; technological change - automation and digitisation, Big Data, Artificial Intelligence and cyber risk; terrorism and cyber-crime; and mortality.

The JFAR recommended actuaries take these hotspots into account when advising decision-makers and collaborate with other experts and users of actuarial work to mitigate the risk to the public interest. While hotspots should be monitored by actuaries to enable them to provide risk mitigation, many may also give rise to opportunities. For example, actuaries may be able to help users model climate-related risks, use new data sources to help design products for vulnerable groups, or advise on the new types of pension schemes coming out of Department for Work and Pensions consultations.

Commenting, JFAR chair and CEO of the Financial Reporting Council, Stephen Haddrill, said: “Actuaries play a key role advising decision-makers across a wide range of subjects and industries including the insurance, pensions and investment industries. We live in a time of relentless change affecting all aspects of society and the economy which increases risk and uncertainty for actuarial work. By raising awareness of these risk hotspots and sharing knowledge, the JFAR hopes to encourage actuaries, employers and users of actuarial work to collaborate effectively, to mitigate the risks to high quality actuarial work and to explore opportunities in the public interest.”

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