There has been a lot written about the State Pension Age (SPA) in the UK in the last year. This was primarily because the UK Government has been carrying out its first periodic review of the SPA. John Cridland was asked to carry out an independent review of the State Pension Age, which reported in March this year with over 150 responses received and 12 recommendations made plus a proposal for an auto enrolment review. This was followed by the Secretary of State for Work and Pension’s report on the first Government review of State Pension age, as required under the Pensions Act 2014 last month, in which Cridland’s central recommendations on the timetable for SPA change were accepted, ie:

  • The State Pension age should continue to be universal across the UK, increasing over time to reflect improvements in life expectancy.
  • The State Pension age should increase to age 68 between 2037 and 2039.
  • The State Pension age should not increase by more than one year in any 10-year period (assuming there are
    no exceptional changes to the data used).
  • Individuals should get 10 years’ notice of any new changes to State Pension age.

However the report was noticeably silent about Cridland’s other recommendations, including:

  • that means-tested access to some pension income will remain at 67 and will continue to lag a year behind for rises thereafter.
  • that the conditionality under Universal Credit should be adjusted for people approaching State Pension age, to enable a smoother transition into retirement.
  • supporting working past State Pension age
  • to do more to help carers in the workplace:
  • the provision of a Mid-life MOT
  • support for the use of older workers as trainers

Other commentators have given their analysis, some, like the Work and Pensions Parliamentary Select Committee, have pointed out that many people will not live to see the new SPA, something rather lost in the massive groupings Cridland referred to where the lowest average was across a group titled “Routine”. These were described as socio-economic groupings but seemed in reality to be more occupational. There is some reference to healthy life expectancy, but no attempt to quantify how this varies by population. It therefore gives the rather misleading average of around 10 years of healthy life expectancy at age 65 for both men and women.

Contrast this with the Office of National Statistics’ (ONS) rather more comprehensive look at the subject and, in particular, these graphs:

The graphs are more encouraging for women in terms of life expectancy, but no more encouraging for healthy life expectancy.

Other commentators such as the OECD have suggested that the top 5-10% wealthiest stop receiving it altogether to allow it to be more generous for everyone else. The most prominent actuarial view so far has probably come from Paul Sweeting, who proposes a means tested approach to paying state pension which allows the pace of SPA increase to be slower but at the same cost. While I share most of Paul’s analysis of the problem, I do not share his conclusion that the only solutions are faster increases to the State Pension Age, or means testing. My problems with means testing as opposed to universal benefits boil down to two main objections:

  • People will not contribute to other savings vehicles if they think these will just reduce benefits elsewhere. This was how the Minimum Income Guarantee killed the Stakeholder Pension.
  • Many people do not claim means tested benefits which they are entitled to. Whether through pride or fear of the dauntingly long forms the DWP produce for any claimed benefit or a combination of the two, a study in 2003 indicated that 1 in 6 people did not claim benefits representing over 10% of their total income.

I therefore think there has to be another way, and I think it might be a form of universal basic income (UBI). Compass have produced one of the more recent reports on the feasibility of this, and there are many different forms, with full schemes or pilots now running mainly at a regional level at present in the United States, Canada and India amongst other countries.

The basic features of most of these schemes are that the personal allowance is abolished in favour of a regular income paid to everyone, perhaps with different rates at different ages but not means tested. Different schemes make different adjustments to existing taxes and maintain different combinations of existing benefits, both means tested and universal. Compass have modelled five possible schemes, and believe that paying a lower UBI but leaving in place the current means-tested benefits system while reducing households’ dependence on means testing by taking into account their UBI when calculating them may be a feasible way forward.

The main arguments for a UBI approach are:

  • it would directly address most of the inequality of outcomes discussed above, particularly the decile likely to be condemned to 18 years of work in ill health and a retirement of 4 years by 2037 unless both their life expectancy and healthy life expectancy increase, at exactly the time when both appear to be slowing (at the 0.4 months pa rate of improvements since 2011, these expectancies would only have increased by 8 months by 2037)
  • by providing a guaranteed minimum income, the safety net we provide as a society would be much more robust, and that reducing the reliance on means testing would tackle the problems of take up and the inevitable poverty traps which means testing creates
  • people could choose to work less and have more time for other things (although previous experiments suggest this number would be small), alternatively it would make retraining much easier
  • people would have more bargaining power in the labour market, which is clearly problematic in the UK in particular, with the stagnation of real wages for a considerable period now

Many people think their jobs are useless and that they are trapped in them with no marginal income to let them transition to something more meaningful. Neither does it seem as if getting everyone into work is good for us physically, further exacerbating the healthy life expectancy problem at lower deciles.

I am therefore surprised that there is not more research into feasible UBI schemes. The reference section at the back of the Compass report was shorter than that in many of my 3rd year undergraduate dissertations, and yet it is clearly an area in urgent need of some modelling. Anyone out there fancy joining me in a working party to look at this?

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Oceanic whitetip shark. (2014, August 29). Wikipedia, The Free Encyclopedia. Retrieved
11:13, July 22, 2017

Changing people’s behaviour is hard. Even if we have agreed that it needs to change, actually acting on this new knowledge is hard enough, but getting that agreement in the first place by shifting our beliefs is even harder.

It gets worse. The research suggests that providing risk information is ineffective in changing behaviour. You might need to read that again before it sinks in: risk information is ineffective in changing behaviour.

Professor Theresa Marteau, Director of the Behaviour and Health Research Unit at the University of Cambridge, and her team have been looking at the four behaviours responsible for the majority of premature deaths worldwide: smoking, eating too much, drinking too much (alcohol) and moving too little. The original focus of their work concerned how people responded to genetic test results indicating a greater predisposition to diabetes, cancer and other diseases. What they found is that the genetic test may get someone past the first barrier, ie agreeing that they need to change their behaviour, but not the second part, ie actually doing it.

As Marteau says: Few of us would swim in waters signed as shark-infested. On the other hand, when the risk of future disease is up against the pleasures of current consumption, it doesn’t tend to compete very well. Marteau summarises their findings as follows:

Put simply, we overestimate how much our behaviour is under intentional control and underestimate how much is cued by environment.

In my view, this research is directly applicable to the financial services industry and explains a lot of behaviours which have up until now often been considered as separate rather than related problems, eg:

  • The failure of consumers to shop around adequately in the annuities and investment markets (we know we should but get easily discouraged by the difficulty of the process);
  • The stampede to take transfer values out of defined benefit pension schemes (the possibility of immediate consumption trumping deferred gains); and
  • The surge in the tax take at HMRC caused by people removing all of their cash from defined contribution pension schemes (same again).

Turning to my own profession for a moment, and looking on the Become an actuary part of the Institute and Faculty of Actuaries website, we find: Actuaries use their skills to help measure the probability and risk of future events. A little further on we find: It is essential that actuaries have excellent communication skills to enable them to communicate actuarial ideas to non-specialists in a way that meets the needs of the audience.

So, in a nutshell, producing risk information and then communicating it.

As a pensions actuary, I spent most of my time overseeing calculations which underpinned reports to clients which I would then summarise in presentations in order to get them to move a little bit further towards fully funding their pension schemes than where they were starting from. And then we had to condense the whole of that process into a single meeting where we tried to persuade the people who were actually doing the funding as part of the negotiation of the final deal. While, unconsciously, I am sure that just my presence was having some kind of placebo or nocebo effect, all of my conscious effort was directed on providing risk information and communicating it.

And actuaries are not alone in focusing on the provision of risk information as the most important element in guiding consumer behaviour. From the Financial Conduct Authority’s Retail Distribution Review, to the Pensions Advisory Service and Pension Wise, we are obsessed with it.

However if we are going to really change behaviour in response to the many risks these consumers face, we need to be spending much less time on producing risk information (which coincidentally may be done for us in the future by increasing capable machines anyway)and much more time focusing on the design of the financial environment we all operate within.

But if changing the environment is so much more effective for changing behaviour, perhaps what we need is a framework of standardised definitions to characterise any interventions we make. Fortunately the social scientists are way ahead of us on this and have produced just such a framework. TIPPME (typology of interventions in proximal physical micro-environments) has been developed and demonstrated by applying it to the selection, purchase and consumption of food, alcohol and tobacco. As the authors state: This provides a framework to reliably classify and describe, and enable more systematic design, reporting and analysis of, an important class of interventions. This then allows evidence to be collected into what works and what doesn’t in changing behaviour across populations.

Our physical health and what interventions cause us to look after it better are thought sufficiently important for a coordinated approach to designing the risk environment, rather than the piecemeal legislation and partial solutions offered by commercial providers we have had to date, to be worthwhile. I would suggest that our financial health needs to be given similar consideration. This looks like a promising way forward that could result in truly evidence-based financial regulation, with the prospect of lasting change to the way we help consumers navigate a path through the financial seas. Far away from the sharks.


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This work is licensed under a Creative Commons Attribution-NonCommercial 2.5 License.

Daniel and Richard Susskind in their book “The Future of the Professions” set out two possible futures for the professions. Either:
• They carry on much as they have since the mid 19th century, but with the use of technology to streamline and optimise the way they work
• Increasingly capable machines will displace the work of current professionals

Their research suggests that, while these two futures will exist in parallel for some time, in the long run the second future will dominate. The actuarial profession is particularly vulnerable. As the Susskinds write:

Accountants and consultants, for example, are particularly effective at encroaching on the business of lawyers and actuaries.

Actuaries both here and in other countries are waking up to what is coming, but the response of the profession is a whole has been quite slow.

For the actuarial profession, we will see the extension of some trends which have already begun, eg:

  • Automation of processes not just leading to greater efficiencies but reconfiguring both what work is done and how it is done, eg propensity pricing and pensions valuations
  • Para professionalization, like CAA Global for instance
  • Globalisation
  • Specialisation
  • Mergers of businesses as markets consolidate
  • Flexible self employment

And the emergence of trends that have hardly started at all yet, eg:

  • The end of reserved roles for actuaries
  • Different ways of communicating advice (Richard Susskind got into trouble with the Law Society in the mid 1990s for suggesting that most legal communication between lawyers and their clients would be delivered via email in the future, which would strike us as an obvious observation now)
  • Online self-help for users of actuarial advice (ask discussed by the Pensions Policy Institute in their report last year)
  • The advance of roboactuaries and their assistants

Focusing on the last of these, a paper produced by Dodzi Attimu and Bryon Robidoux for the Society of Actuaries in July 2016 explored the theme of robo actuaries, by which they meant software that can perform the role of an actuary. They went on to elaborate as follows:

Though many actuaries would agree certain tasks can and should be automated, we are talking about more than that here. We mean a software system that can more or less autonomously perform the following activities: develop products, set assumptions, build models based on product and general risk specifications, develop and recommend investment and hedging strategies, generate memos to senior management, etc.

They then went on to define a robo actuarial analyst as:

A system that has limited cognitive abilities but can undertake specialized activities, e.g. perform the heavy lifting in model building (once the specification/configuration is created), perform portfolio optimization, generate reports including narratives (e.g. memos) based on data analysis, etc. When it comes to introducing AI to the actuarial profession, we believe the robo actuarial analyst would constitute the first wave and the robo actuary the second wave

They estimate that the first wave is 5 to 10 years away and the second 15 to 20 years away. We have been warned.

One of the implications of this would be far fewer actuarial students required and, in my view, a much smaller appetite amongst actuarial firms for employing students while they were sitting actuarial examinations, particularly the core rather than specialist ones. This in turn would suggest an expansion of the role of universities in supporting students through these stages of their actuarial education, massively increasing the IT and data analysis skills of the next generation of actuarial students and developing far more opportunities for students to develop skills more traditionally seen as “work-based”, such as presentation, project management and negotiation skills. Some universities, such as my own at the University of Leicester, are using the preparatory work in anticipation of the Institute and Faculty of Actuaries’ launch of Curriculum 2019 to do all of these things.

But universities and the education professionals in general face their own challenges from the rise of technology and increasingly capable machines:

  • The development of learning labs offering personalised learning systems
  • Online education networks, like Moodle, once used just to support traditional university teaching activities, but now starting to actively supplant them
  • Other online education platforms, like the Khan Academy
  • The rise of Massive Open Online Courses or MOOCs. For instance, more people have signed up to Harvard University’s MOOCs in one year than have enrolled at the University in its 377 year history

The actuarial profession and the higher education sector therefore need each other. We need to develop actuaries of the future coming into your firms to have:

  • great team working skills
  • highly developed presentation skills, both in writing and in speech
  • strong IT skills
  • clarity about why they are there and the desire to use their skills to solve problems

All within a system which is possible to regulate in a meaningful way. Developing such people for the actuarial profession will need to be a priority in the next few years.

Of course it is still possible to laugh at what Artificial Intelligence and Machine Learning (here and here) have not managed to do yet, despite their vast ambitions. But it should not blind us to the fact that those ambitions will be realised in our working lifetimes in many cases. And we need to start preparing now.



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The Institute and Faculty of Actuaries (IFoA), through its Actuarial Research Centre, is inviting research teams and organisations to submit proposals for a research project on modelling pension funds under climate change. The research is intended to address the need for pensions actuaries to understand the potential magnitude of climate change impacts, and hence if and when climate change might be relevant to the funding advice they give. What areas in particular might be useful to look at through the lens of a pension actuary?

The current concentration of carbon dioxide in the Earth’s atmosphere is around 400 parts per million by volume (ppmv), or a little over 140% of the generally accepted pre-industrial level of 280 ppmv. What level we can cap this at depends on how we respond in every country in the world. There are therefore many opinions about it:

Source: IPCC AR5: Fig 2.08-01 

Here RCPs stand for Representative Concentration Pathways, and are meant to be consistent with a wide range of possible changes in future anthropogenic (i.e. human) greenhouse gas emissions. RCP 2.6 assumes that emissions peak between 2010-2020, with emissions declining substantially thereafter. Emissions in RCP 4.5 peak around 2040, then decline. In RCP 6.0, emissions peak around 2080, then decline. In RCP 8.5, emissions continue to rise throughout the 21st century. What this means is that the best we can hope for now is a scenario somewhere between RCP 2.6 and RCP 4.5, with the US Government’s Environmental Protection Agency appearing to believe that RCP 6.0 is the most realistic scenario. As you can see, RCP 4.5 assumes an eventual equilibrium at around 500 ppm, or about 180% of pre-industrial levels and RCP 6.0 an equilibrium at around 700 ppmv, or about 250% ppmv.

Equilibrium climate sensitivity is defined as the change in global mean near-surface air temperature that would result from a doubling of carbon dioxide concentration. A doubling of the pre-industrial level to 560 ppmv (ie between the RCP 4.5 and RCP 6.0 assumption) has been projected to result in a range of possible outcomes:

Source: IPCC 2007 4th Assessment Report, Working Group 1 (Figure 9-20-1)

This is certainly a bit of a we know zero kind of graph, but has worryingly fat tails indicating reasonable chances of 10 degrees plus added to average global temperatures. To put this in context, let’s use the approach taken in Mark Lynas’ excellent “Six Degrees“, where the combined research into the effects of each additional degree above pre-industrial global temperatures is collated to allow us to view them as distinct possible futures. Some examples are as follows:

One degree

We are nearly here (around 0.8ᵒ so far):

  • Return of the “Mid-west American dust bowl” but with greater vengeance
  • Increase in hurricane activity
  • Loss of low lying islands, eg Tuvalu

Two degrees

The “safe” level we are trying to limit increases to:

  • Release of greenhouse gases begin to alter the oceans. May render some parts of southern oceans toxic to Ca CO3 and thus to one of life’s essential building blocks, plankton.
  • Heatwaves like 2003 which killed 35,000 people in Europe and led to crop losses of $12 billion and forest fires costing $1.5 billion will occur almost every other summer.
  • Crippling droughts can be anticipated in Los Angeles and California
  • From Nebraska to Texas the anticipated drought would be many times worse than the 1930s “dust bowl” phenomenon.
  • Polar bears would probably become rapidly extinct.
  • Mediterranean countries will become drier and hotter with significant water shortages.
  • IPCC estimate sea level rise of 18 to 59 cms.
  • Monsoons would increase in India and Bangladesh leading to mass migration of its populations.
  • International food price stability will have to be agreed to prevent widespread starvation.

Three degrees

  • Africa will be split between the north which will see a recovery of rainfall and the south which becomes drier. This drier southern phase will be beyond human adaptation. Wind speeds will double leading to serious erosion of the Kalahari desert.
  • Indian monsoon rains will fail. ·
  • The Himalayan glaciers provide the waters of the Indus, Ganges and Brahmaputra, the Mekong, Yangtze and Yellow rivers. In the early stages of global warming these glaciers will release more water but eventually decreasing by up to 90%. Pakistan will suffer most, as will China’s hydro-electric industry.
  • Amazonian rain forest basin will dry our completely with consequent bio-diversity disasters
  • Australia will become the world’s driest nation.
  • New York will be subject to storm surges. At 3° sea levels will rise to up to 1 metre above present levels.
  • In London, a 1 in 150 year storm will occur every 7 or 8 years by 2080.
  • Hurricanes will devastate places as far removed as Texas, the Caribbean and Shanghai.
  • A 3° rise will see more extreme cyclones tracking across the Atlantic and striking the UK, Spain, France and Germany. Holland will become very vulnerable.
  • By 2070 northern Europe will have 20% more rainfall and at the same time the Mediterranean will be slowly turning to a desert.
  • More than half Europe’s plant species will be on the “red list”
  • The IPCC in its 2007 report concluded that all major planetary granaries will require adaptive measures at 2.5° temperature rise regardless of precipitation rates. US southern states worst affected, Canada may benefit. The IPCC reckons that a 2.5° temperature rise will see food prices soar.
  • Population transfers will be bigger than anything ever seen in the history of mankind.

Three degrees obviously needs to be avoided, let alone ten, but the problem is that business as usual for the finance industry may not be the way to get there. As some recent research has suggested, financial market solutions to environmental problems, such as carbon trading, may be ineffective. As the authors state: By highlighting the tenuous and conflicting relation between finance and production that shaped the early history of the photovoltaics industry, the article raises doubts about the prevailing approach to mitigate climate change through carbon pricing. Given the uncertainty of innovation and the ease of speculation, it will do little to spur low-carbon technology development without financial structures supporting patient capital.

Patient capital is something developed economies have been seeking for some time, whether it is for infrastructure investment, development projects or new energy sources, and no good way to create it within the UK private sector has been found yet, including various initiatives to try and get an increase in pension scheme investment in infrastructure projects. It therefore seems to me to be the wrong question to ask what impacts climate change are likely to have on the assumptions used for pension scheme funding, when it is the impact of the speculation which pension scheme funding encourages which is one of the main drivers of our economies towards the worst possible climate change outcomes.

A more productive research question in my view would be to bring in legislators and pensions lawyers as well as environmental scientists and others researching and thinking in this area alongside actuaries to look at how we could change the regulatory framework within which pension scheme funding and investment within other financial institutions where actuaries are central takes place. There is already research into what changes may be necessary to international law to reflect the new Anthropocene era the planet has entered, where the dominant feature is the impact of human activity on the environment. In my view this should be extended to the UK legislative and regulatory landscape too.

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If the models are correct we are heading for a Zombie Apocalypse

Let’s forget the strapline of this blog for a moment and assume that the models are correct. The Pension Protection Fund (PPF) is targeting “self-sufficiency” by 2030, ie no more levies from sponsors of pension schemes required for it to independently fund all the future benefits of every scheme member whether they are already in the PPF or going to end up in it with only the insufficient assets their former employers allocated to their former pension schemes for company. BHS has concluded a very high profile deal in the last couple of weeks to set up a new self-sufficient scheme for its former employees. The Universities Superannuation Scheme (USS) has proposed a funding plan which targets self-sufficiency less a “covenant” (ie amount of money feasible to get out of the university sector in the future) by 2031. John Ralfe mentioned a few other examples in his article from 2015.
These are schemes which have been dubbed “zombie” schemes on the basis that they are basically dead, with no new money or new members coming in, but nevertheless dragging themselves along the floor year after year until all of their members have stopped twitching.
What does the UK pensions world look like in 2030? Well according to various sources:
• UK population will have increased to 70.6 million (assuming Scotland and Northern Ireland are still in it) with 21.4% of them over the age of 65 (S&P)
• Credit rating of UK will have fallen to A, with a further fall to BBB by 2035 assuming no change in economic policy (also S&P)
• Average life expectancies at birth in UK would be over 85 for women and 82.5 for men (Imperial College and WHO)
• Benefit outgo from defined benefit pension schemes is £100 billion more than contribution income pa (Hymans Robertson)

This does not sound like a happy place for our zombies to be negotiating with the occasional limb getting torn off as multiple doors are slammed in their faces. Although the self-sufficiency route is now a common approach amongst large schemes, it is largely untested. No scheme as far as I am aware has actually managed to run in a self-sufficient manner for any appreciable length of time, whereas the more expensive buy out route (where the benefits for members are purchased in the form of contracts with an insurer) is by comparison well established.

So off into this volatile landscape our zombies will be let loose, trying to run themselves like little insurance companies, but without the scale or diversification or experience which makes insurers (mostly) survive for long periods. However that better track record comes at a price which schemes are currently reluctant to pay. There is a good chance that this experiment will not end well.

My guess for 2030? That the volatile landscape will have claimed some casualties amongst the self-sufficient zombies and put them into the PPF with much bigger deficits than if they had gone there straight away. And then all the other zombies will T-U-R-N A-R-O-U-N-D V-E-R-Y S-L-O-W-L-Y and follow them there. At which point the PPF will realise that they are undead no longer.

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Public.Resource.Org SI Neg. 2001-1900. Date: na...Oblique aerial view from approximately 12,000 feet, 50 miles from the detonation site, two minutes after the detonation of a hydrogen bomb during an unidentified US atomic weapons test, circa 1950s. At this point in time, the mushroom cloud rose to 40,000 feet...Credit: Unknown USAF photographer. (Smithsonian Institution)

Public.Resource.Org SI Neg. 2001-1900. Date: na…Oblique aerial view from approximately 12,000 feet, 50 miles from the detonation site, two minutes after the detonation of a hydrogen bomb during an unidentified US atomic weapons test, circa 1950s. At this point in time, the mushroom cloud rose to 40,000 feet…Credit: Unknown USAF photographer. (Smithsonian Institution)

I have just started reading an excellent new book by Cathy O’Neil, Weapons of Math Destruction, where she sets out the case against devolving important decisions to mathematical models without adequate feedback loops. The opening example she gives, of a teacher fired from her job in Washington because a school feeding students into her school was manipulating test scores, makes her general point very well. I am looking forward to the chapter on insurance.

However, the thought that this raised in my mind is how, increasingly, we don’t even need the algorithms and mathematical models to behave in a robotic fashion – we constantly follow rules set by others rather than using our own judgement. Indeed regulators push us more and more in this direction. They are nearly all under-staffed and over-tasked and need shortcuts to manage their workloads. And the most obvious shortcut is to focus on the very big and the very different. The very big are normally very much better staffed than the regulators and difficult to win arguments with. Regulators are therefore left with the very different. So regulators make life for the very different very difficult. And, before long, the very different no longer exist and the systemic risk in your population of banks, schools, hospitals or whatever it is has increased.

What O’Neill rightly focuses on as the main danger of widely used models is their lack of a feedback loop. If nothing tells you when your model is not reflecting the world it is modelling, it will not be long before it is doing a great deal more harm than good. And when a regulators uses a model which does not rely on inputs from the system it is regulating, then the model becomes the world it is regulating, often with bizarre consequences. One of the main reasons that the 2008 crash was so dramatic is that so little was done to prevent it even as warning signs grew. This was because, in the model used to regulate banks, these warning signs didn’t exist. Unfortunately and worryingly for us, the lessons learned, in the main, were not that model-led regulation was bad, but that the models used just needed to be more complicated.

Every call for what is being regulated to be simplified (by breaking them up into smaller units, in the case of banks, or simplifying the regulations themselves, rather than the regulatory arms race of measure and unintended loophole we seem doomed to keep repeating) has been resisted, resulting in a regulatory framework which becomes more bafflingly complex with every passing year. This is a process recognised in Government and there have been occasional attempts to reverse the tide. To date, with little effect.

And the regulators themselves? They are cash-strapped and at the mercy of inconsistent Government policy. So we have CQC inspectors (of NHS Trusts) and Ofsted inspectors (of schools and colleges) making short visits, producing reports based on anything anyone has said to them on these short visits, allowing for no factual corrections, subject to no cross examination, just to get through their caseloads without causing headaches for their political masters, but often resulting in inconsistent scrutiny or, in some cases, in abrupt reversals in conclusions in successive inspections. At the same time, it appears clear that you can evade your financial responsibilities almost completely if you are rich and unscrupulous enough. Our regulatory systems have proved unreliable in too many areas and have in my view lost credibility as a result.

So where do actuaries fit in to all this? They are one of the professions centrally involved in building, updating and interpreting models across a wide range of financial firms. Everything from the amount a firm makes in pension contributions, to the amount held in reserve by an insurer or a bank, to the detailed agreements in a corporate restructure, often involving staggering sums of money. This work cannot be carried out effectively by playing to an unreliable regulator.

Upon accepting the Army-Navy Excellence Award on November 16, 1945, Robert Oppenheimer, who ran the US Government’s Manhattan Project in Los Alamos to develop the world’s first nuclear weapons, proclaimed: “If atomic bombs are to be added as new weapons to the arsenals of a warring world, or to the arsenals of the nations preparing for war, then the time will come when mankind will curse the names of Los Alamos and Hiroshima.” He realised that responsibility for the use to which your work is put can never be wholly given away to someone else.

If mathematical models are to be the dominant regulatory tool of a financial world, and of the consultancies and financial firms competing in that world, then the time will come when mankind will curse the names of the highly paid professionals who followed inappropriate rules rather than exercising their own expert judgement when it mattered.

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Party membership long timeline

Today I am going to talk about politics and how we tend to approach it.

When I was working as an actuarial consultant we had a client who wanted to write to the local MP about how the Pension Protection Fund levy his company were paying on behalf of their admittedly poorly funded pension scheme was endangering the viability of the business itself. Our view was that it would do no harm and the letter was sent. Nothing came of the complaint, not that we had expected anything would, but the letter was responded to. And so have my letters both times I have written to my MP in a personal capacity, one of them even came back with a Minister’s letter enclosed with it.

One way of looking at this is that it is fantastic. It shows democracy working for individuals and businesses at a local level about the issues they care about. A kind of democracy service. This is certainly how we are encouraged to think of it.

However another way of thinking about it is that this is just bonkers. To understand this, consider some numbers.

There are not nearly enough GPs, according to the latest of many similar reports of a “looming health crisis”. How many full-time equivalent GPs are there per 1,000 patients per practice in England? 0.58, meaning that on average there is 1 GP for every 1,724 patients. GPs frequently complain that the standard 10 minute consultation this necessitates is not enough time to fully explore their health.

Compare this with the position of MPs, another profession which runs “surgeries”. There are 650 MPs to cover the whole of the UK. That’s one for every 92,000 people, or 68,000 voters. It is therefore faintly ludicrous to expect MPs to be able to:

  • write to a relevant department or official;
  • send a letter to an appropriate Minister;
  • make a personal appointment to discuss an issue;
  • make an issue public; or
  • speak at an event concerning an issue.

for each and every one of his or her constituents and their businesses, as the blurb suggests. “These steps can often go a long way to providing a solution” it adds helpfully.

If we were all to take up this suggestion of course, the system could not cope. And it cannot, by definition, be fair: a 92,000th of the power of an MP, even if it’s the PM, is probably not worth having in your corner, so the process MP’s use to decide who to help becomes a postcode (or, in reality, power) lottery on a much grander scale than anything we might be concerned about in the NHS. So beware of MPs who say that their minds have been made up on an issue by what can only ever be anecdotal contact with their constituents at best.

Even when most of us don’t bother our MPs, they are still inundated with a level of enquiries, most misdirected, that makes it very hard for them to keep up with their parliamentary work.

So it is perhaps not unreasonable to suggest that an entirely parliamentary approach to doing politics might not be the only option. And now the Labour Party are exploring this idea in the current leadership election. To the side now coalescing around Owen Smith, Corbyn’s policy-making on the hoof and lack of organisation and discipline at times makes him unfit to lead a party set up in 1906 to promote “socialism via parliamentary means”. To Corbyn’s supporters, the party needs to become a movement not confined to Parliament, and the sudden surge in party membership to 450,000 and £4.6 million collected in 48 hours from the £25 fee paid by registered supporters are signs that he is the person who can deliver this.

People cannot agree whether Jeremy Corbyn represents the past or the future, which certainly makes the present very exciting. But if MPs are too busy to represent us the way we want to be represented, we may all need to get more involved in politics from now on.



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EU referendum

The increasing complaints about the counter-productive nature of most “expert” interventions in the EU Referendum Debate appear to have had no effect on their supply. In one of the latest, the Institute and Faculty of Actuaries (IFoA) has commissioned the National Institute of Economic and Social Research (NIESR) to research The Impact of Possible Migration Scenarios after ‘Brexit’ on the State Pension System. Concerned that this might be ignored, the IFoA helpfully released the following key findings in a press release:

  • Reducing annual migration numbers, for example by c150,000*, could cost the State more than £3bn per year by 2032 and more than £8bn per year by 2057
  • To offset this funding gap in 2057 might require a further increase in the State Pension Age from 68 to 69 or a reduction in State Pension of £300 per year
  • Government could also use policy levers such as National Insurance contributions, or the level of State Pension benefits to mitigate against the net increase in Government costs
  • Raising the potential earnings profile of immigrants could also mitigate, or even reverse, impacts

The report itself adds two important caveats to these findings. First, the net effect on the government budget is not statistically significant. Second, the increase in total state retirement benefits over the time period considered, without any change in migration policy, of around £94b dwarfs the higher costs due to any changes in migration scenarios considered. Only the second of these made it into the press release, several paragraphs down.

I am guessing, perhaps unfairly, that most of the UK press will only use what is in the press release. In which case they will not understand that the baseline scenario against which the six migration scenarios the report studies is itself based on Office of National Statistics (ONS) Principal Population Projections which show net migration falling to 185,000 from 2020-21, and remaining constant at that level in subsequent years. Now this may happen but, considering how much attention is being devoted to the immigration question within the EU currently, I would regard it as highly unlikely to represent the non-Brexit position. Which makes the comparisons rather meaningless. And there is of course the problem of projections to anything like 2057 which I have commented on before. The immediate conversion of financial scenarios into specific policy responses like changes to the State Pension Age is, I am afraid, pure Project Fear behaviour.

I am not a Brexiteer, but the constant barrage of “evidence” like this is not going to win any arguments for the Remain side in my view, which is shared by many others. My view is that Brexit might finally make it clear to us that our problems of democracy are at a national level rather than an EU one, as suggested in Chris Bickerton’s excellent The European Union: A Citizen’s Guide. This might be worth a certain amount of economic sacrifice. On the other hand staying in the EU might make action in areas where cooperation is required – such as climate change, pollution, migration and tax reform – more likely, although the EU’s track record internationally is mixed here. EU membership probably makes some kinds of policy change more difficult, perhaps encouraging more thought before radical change.

What has become obvious is that announcing the Referendum has done nothing for the discussion except to turn it into an adversarial one. I have lost count of the number of online petitions I have been invited to sign up to by people who have lost sight of the need to have a discussion and just want their side to win at any cost.

If enough people voting for a particular outcome do so with a clear reason about what they would do to improve our society after the vote, we will have won whatever the outcome. If it’s Brexit, we will need to roll up our sleeves, as we will have made life more difficult for ourselves in purely economic terms, but if the feeling of control and responsibility for sorting out our national problems energises a large segment of the population it will be a win. If it’s Remain, but we realise that the EU cannot continue as it is and that a massive shift of control away from the elite political class of all nations is required, whether via DiEM25 or something perhaps more relevant to the concerns of the UK, that would also be a win. What we need above all is for the most energetic and innovative people amongst us to decide to vote and follow it through.

The only way we will lose is if we vote for Remain and then just continue as we are.

So, if anyone under the age of 30 is reading this, I would encourage them to:

  1. Register to vote (you have until Tuesday 7 June) and can do this here;
  2. Stop listening to my generation and that of my parents (if you are, your deference to age and experience in this case is misplaced!); and
  3. Make up your own minds.

And whatever we all decide on 23 June, we can make it work out okay for all of us. Of that I am quite certain.

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Go on pick a card

It is election time for the UK Actuarial Profession. The annual Council election is our chance to have our voices heard and to help in setting the strategic direction of the Institute and Faculty of Actuaries (IFoA). And this year I am running!

I think the next 10 years could be one of the most formative periods the profession has seen – with politics and economics at something of a turning point globally, and the place for actuaries and the finance industry more generally within that open to question as never before. I feel, as a former pensions actuary who now works with the actuaries of the future every day, that I have something to contribute to the process of actuaries finding their place in this new world.

So if you are a member of the IFoA please watch my video below and, if you share my priorities for the profession, I would greatly appreciate your vote.

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Group of pins

Two women were fighting on my train the other morning. It was a packed train, with people standing the length of the carriage, so I didn’t see it so much as hear it. The first woman felt she had been pushed by the other one and complained very loudly and with much swearing. The second woman made some comment about the first woman’s mother and it escalated from there, getting louder and louder. Neither was prepared to let the other have the last word and, seeing the impact the mother comment had had, the second woman used it again. At which point the first woman hit her. The other passengers had been sitting and standing grim-faced up until this point, but now one or two intervened. One, who had the bearing of a lay preacher, attempted to assume sufficient authority to stop the argument. He was ignored. Another one stood and put the second woman in his seat and stood between them.

The second woman continued to make comments, but as much to herself as to the first woman. She kept stamping her feet in frustration. She was clearly in unbearable discomfort, but not from any physical pain. Finally she called the police and, as we pulled into New Street Station, started to give a physical description of her assailant. “Everyone on the train saw it” she said several times, while the passengers around her stared in any direction but hers.

I don’t know what happened next in the lives of these two women, although an announcement was made a couple of days later on the same service that police were working their way through the train for witness statements about the incident. They never appeared in my carriage, and I am not sure what I would have said if they had. And I don’t know what your reaction to my story is – whether that the other passengers, including me, should have acted differently or some commentary on the behaviour of the two women. I am, however, reasonably confident that you will have a reaction, perhaps quite a strong one, despite my limitations as a narrator. The reason I am confident about this is that I found myself, involuntarily, completely absorbed in the dispute, upset when one of the women expressed upset, constructing back stories for each of them, questioning their strategic wisdom at various points and, by the time we arrived at New Street Station and I dispersed with all the other witnesses, emotionally drained. And a look at the faces around the carriage suggested to me that most of my fellow passengers reacted similarly.

Why am I telling you this? Because it is a clear example of our domesticated brains in action. The almost physical pain this argument caused me and most of my fellow passengers is the reason we can travel from Sutton Coldfield to Birmingham every day with rarely an incident. It is often referred to these days, in pejorative terms, as Group Think. The shared assumptions and behaviours which allow us to live alongside each other in peace. I then get on a second train each day from Birmingham to Leicester, which I tell everyone is a great train to work on. But this is only because I can trust the 80 or so other passengers not to start an argument. The police could not cope if everyone behaved like the two women in my story. When the police do make an appeal for witnesses, they do so secure in the knowledge that nothing they say or do will encourage more than a handful to come forward, so strong is our group instinct to stay out of each other’s lives if we can. It is not indifference but survival. You need very strong structures to counteract the very strong instinct for Group Think.

However the reason Group Think is used pejoratively is that we have had vivid demonstrations of its power to make large groups of people behave stupidly. For example, herding behaviour in financial markets often causing the very problems people are trying to protect themselves from by going with the crowd. Or regulatory regimes which seem to encourage monocultures to develop, whether in finance, health, education, politics or academia, based on shared assumptions rather than encouraging diversity, because monocultures are easier to regulate. Many professions, including the actuarial profession, have introduced specific professional guidance to encourage whistle-blowing where appropriate, ie standing up to the policies and practices of their own organisations in most cases, which often means doing battle with Group Think. How successful such initiatives prove to be remains to be seen.

Encouraging challenges to Group Think is hard. It normally means going out of your way to allow views to be expressed you don’t agree with. It makes getting your own way harder to achieve. It can seem to us like the opposite of strong leadership and decisiveness when we seek out opinions that will make decision-making more complex. But we have made our society so complex and organisationaly fragile that this is what we are going to need to do more of in the future to stop it all from crashing down around us.

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