Actuaries blasted after pensions crisis
The actuarial profession, an elite group of experts on risk, is partly to blame for the pensions crisis that will leave millions of people with an inadequate retirement income, a government inquiry found yesterday.
The actuarial profession, an elite group of experts on risk, is partly to blame for the pensions crisis that will leave millions of people with an inadequate retirement income, a government inquiry found yesterday.
In a hard-hitting report, Sir Derek Morris, the former head of the Competition Commission, said: "The UK now finds itself in a position where there has been a flight from, and resistance to, a range of financial products which arguably consumers should purchase to maximise their lifetime economic well-being. It is not unreasonable to argue that of all those involved, actuaries were the most appropriately trained experts who should have provided the expertise necessary to avoid this situation.
He added: "They were not sufficiently innovative ... they remained too locked in the environment of the 1970s and 1980s and too persuaded of their own abilities ... fully to recognise how the economic environment was changing."
A review of the industry commissioned by the Treasury found actuaries were too slow to adapt to key economic changes. Sir Derek found actuaries "substantially" underestimated the scale of contributions needed for adequate pensions and overvalued the likely maturity values of funds. The industry could not be blamed for failing to forecast the future, he said, but they were too slow to adapt to the environment of low interest rates, low inflation and lower stock market returns.
Sir Derek also criticised pension and life funds for a lack of market testing and re-tendering of contracts.
He recommended a wide range of reforms but stopped short of calling for statutory regulation. Although the report is at an interim stage, Sir Derek said he was fairly certain about his main conclusions: an independent body should oversee the profession's self-regulation; a new body should be set up to determine common actuarial standards; this should be funded in part by the profession and probably be run by the Financial Reporting Council; there needs to be greater scrutiny of actuaries' performance; and broader education and training.
The Institute of Actuaries said it had already embarked on reforms. Michael Pomeroy, its president, said: "A lot of the events described in this report took place in the late 1980s and we are now almost in 2005 so we are a different profession."
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