Legal – We Know Zero

May 8, 2023

A Tale of Two Weekends

If I were John and John were Me,

Then he’d be six and I’d be three.

If John were Me and I were John,

I shouldn’t have these trousers on.

AA Milne

Two weekends, two weeks apart.

In each children spent hours preparing their own personal tributes to the focus of the weekend. Parents arranged accommodation. Face paints were in profusion. Cardboard constructions abounded. There were placards and banners and flags.

One got minute by minute coverage in hushed tones, with talking heads running out of things to say after 6 hours or so and then needing to start projecting what various people, having their every movement and facial tic filmed, might be betraying in a momentary expression. The other one was almost totally ignored, despite both events occupying almost exactly the same space in central London.

Imagine if the media priorities had been reversed:

“And, as the man with the giant mosquito on his head, slowly makes his way around Parliament Square, we reflect on how many hours must have gone into constructing that mighty insect. And now we see the scientists, garbed in their traditional white coats, making the point that no nature means no future. What a riot of colour it is and so many volunteers have given up their time, not only today but in the months of preparation for the Big One. So, Sir David, are you surprised by the number of children in the procession today?” “Not really, Huw…”

“Meanwhile in other news, police arrested a Mr Charles Windsor and his wife Camilla at their home. Police seized several crowns, an orb, sceptres, rings, some very large chairs and other paraphernalia which could be involved in coronation activity. Royalists claimed that the police had been ridiculously heavy-handed. The police said that their actions had been entirely proportionate.”

In Christopher Clark’s new book about the revolutions throughout Europe in 1848, Revolutionary Spring, he talks about the origins of radicals and liberals in opposition to the establishments of the day, divisions which still seem to be with us today. But it is our Government which is radical, prepared to do great violence to the status quo, the opposition which seems to be liberal, bogged down in endless arguments about tiny differences, and the BBC which appears to be left on its own representing what it sees as the current Establishment.

Now there will be many who say that journalists should not be involved in defending any status quo, and I can understand that. However it can also be argued that a state broadcaster like the BBC does have some responsibilities in this respect. But which status quo do you defend?

The Government’s agenda is problematic – it’s not just about the lying and the corruption, but the constant changing of position, the most obvious being the Kwarteng fiscal event in the autumn. Climate protesters are remarkably consistent by comparison, not surprisingly really as the limits imposed by physics are not changing with each quarter. And their focus of sustainability is surely the most critical part of any status quo which needs defending, ie the ability of the planet to support life in all of its forms.

Television is extremely good at focusing our attention on something, and away from something else. This is why companies spend so much on television advertising and why our televised sports halls and pitches and the combatants within them are festooned with logos and messages from a myriad of sponsors. However, the Communications Act 2003 prohibits political advertising, which includes campaigning for the purposes of influencing legislation or executive action by local or national (including foreign) governments. The BBC have interpreted this as not allowing any form of protest to be visible during televised sporting events (most recent example being the Just Stop Oil protest with the orange powder at the World Snooker Championship), an event for which the title sponsor is Cazoo, Europe’s leading online car retailer. Similarly, the police have said that one of the considerations in their level of policing response to the Republic demonstrations this weekend, including pre-arrests before the procession or any protest had taken place, had been the wall-to-wall television coverage of the event.

46% of the UK population are very or extremely worried about climate change, but the biggest demonstration in the UK in the climate movements’s history was not covered on television at all. 62% of the UK population support the monarchy and we get all the main channels turned over to coronation coverage. I think what I am calling for is a bit more balance here, something we used to think, with some pride, was a national characteristic.

February 1, 2023

Day 1 of the UCU Strike and it feels like a class war entirely manufactured by the Government

Hundreds of thousands of public sector workers were on strike today. I was one of them. Meanwhile the Bill above is making its way through Parliament – it was voted through earlier this week by all but one of the Conservative MPs, but is currently getting rather more scrutiny and push back in the House of Lords.

It seems likely that there will be legal challenges to some elements of the Bill and that some of them will be successful. The Labour Party have promised to reverse it if they win the next election.

I spent my first strike day ever (yes, I know, I am just a political union member and a mere picket tourist – all of these criticisms are entirely justified) by attending a meeting of the Leicester Actuarial Science Society with the Institute and Faculty of Actuaries (IFoA) President Matt Saker. It was a very well attended event and there were a lot of questions for Matt. These ranged from the IFoA strategy in Africa, to mutual recognition agreements with the Institute of Actuaries in India to the pros and cons of the recent vote to create a Chartered Actuary status for associates and fellows to the future relationship of the profession to AI applications, reflecting the global nature and broad range of interests of the student audience. I felt very much like I was witnessing the next generation of actuaries getting stuck into the issues that would be important to them through their careers, and it was inspiring to see.

Back to the strike. I differ from many of the strikers interviewed in that, in my view, I was not doing anything particularly altruistic by striking. I was standing up for my own pay and conditions. Which, it seems to me, everyone should be able to do in a free society. Years of anti union legislation, uberization and the growth of sectors with weak unions has made us used to having to negotiate for ourselves individually or in small groups against much more powerful employers. The fall in real pay over the last 12 years indicate that this has not really worked for us and perhaps a new era of collective bargaining is now necessary.

Meanwhile the Government thinks that it is a better idea to muzzle unions and repress future strike action than to deal with any of the grievances of the workers they represent. They think this is a better idea than to build anything, invest in anything, or do anything positive at all. You have to ask who such a move, temporary and largely struck down as illegal as it is likely to be, is designed to impress: future party donors perhaps?

The next generation I saw today did not strike me as one which will have much patience for such manufactured class wars and the governments which manufacture them.

It is my hope and, after today, my belief that they will think we have more important things to be doing.

January 13, 2023

Trade unionism: my part in its downfall (with apologies to Spike Milligan)

Source: Department for Business, Energy and Industrial Strategy *Trade Union Membership, UK 1995-2021: Statistical Bulletin*, 25 May 2022

It all began for me on 23 September 1985, the first day in my first graduate role as a management trainee at the home counties factory of a security printing firm. From the beginning I was left in no doubt by my new employers that the fairly powerful print unions at the time (SOGAT and the NGA) were the biggest impediment to the captains of industry within the firm from running the business successfully. Occasionally I was allowed into management meetings, where all of the things we could do if it wasn’t for the unions were discussed endlessly.

During my time in this first role, the printing industry changed dramatically: the typesetting was computerised, massively reducing the number employed virtually overnight and Rupert Murdoch set up his non-unionised newspaper factories at Wapping. There had already been three pieces of trade union legislation in the 1980s by the time I started work, the latest being the Trade Union Act of 1984, which required secret ballots for union elections and strikes rather than the show of hands which had been possible up until then. The Miners Strike had also only just ended in March 1985, which had a devastating impact on the trade unions more generally.

Further legislation now quickly followed:

the Public Order Act 1986 (which introduced new offences related to picketing, and increased police powers over protests involving groups of 20 people or more);
the Wages Act 1986 (which reduced many of the restrictions on employers fining and deducting money from employees’ pay, removed statutory holiday entitlement and reduced state funding for redundancies);
the Employment Act 1988 (which gave workers the right to not join a union, and trade union members the right to challenge strike ballots);
the Employment Act 1989 (which restricted trade union officials’ time off for duties and abolished government support for redundancy payments);
the Employment Act 1990 (which finally removed the closed shop – ie a workplace where union membership was compulsory – and secondary action protection);
the Trade Union and Labour Relations (Consolidation) Act 1992, which consolidated the legislation of the 80s and 90s, while clarifying that the right to take strike action was protected when it was “in contemplation or furtherance of a trade dispute”; and
the Trade Union Reform and Employment Rights Act 1993 (which gave trade unions a duty to inform employers of upcoming strikes).

This would appear to have given my first employers everything they could have wanted in terms of containing union power but, after some retrenchment in the 1990s owing to the incoming Labour Government taking the UK back into the Social Chapter of the Maastricht Treaty (which we had originally opted out of in 1992) in 1997, there was further legislation in the form of the Trade Union Act of 2016, which, amongst other measures:

introduced a new requirement of 50% of union members to vote in a ballot for strike action;
required that workers in important services (health, school education, fire, transport, nuclear decommissioning and border security) must gain at least 40% support of those entitled to vote in a workplace for a strike to be legal;
required two weeks’ notice of industrial action to be given to an employer (the employer can agree to one week);
limited the right to take industrial action after a strike ballot to six months, or nine months if the employer agrees.

Over the period since 1985, wealth inequality, which had been steadily reducing since at least the end of World War I stalled and has been generally on a slightly increasing trend since:

Source: Resolution Foundation *The UK’s Wealth Distribution*, December 2020

And the position with respect to income inequality is even worse, with the UK having the 9th worst income inequality of the 38 countries in the OECD:

Source: *Income inequality in the UK*, House of Commons Library, 30 November 2021

However, perhaps this was a price worth paying, if the forces of creativity and entrepreneurship had at last been allowed full rein, freed from the stifling dead hand of union power? Unfortunately not (TFP stands for total factor productivity in the graph below):

Source: *The UK Productivity “Puzzle” in an International Comparative Perspective*, Fernald and Inklaar, April 2022

So whatever, the continuing problems of UK PLC, it does not look like union power was ever really one of the major ones. Undeterred, the Government is proposing further restrictions on trade unions and their members, including enforcing minimum service levels during strike action for ambulance staff, firefighters and railway workers and requiring some employees to work during a strike under threat of being sacked if they refuse.

The TUC has made a submission to the International Labour Organisation of the United Nations over what it sees as breaches of Conventions 87 (Freedom of Association and Protection of the Right to Organise) and 98 (Right to Organise and Collective Bargaining). As David Allen Green has blogged:

But regardless of your view on the ultimate rights and wrongs of strikes by public sector and other public service workers, there is something fundamentally objectionable in the current government’s proposals to compel certain “key” workers to attend work when they otherwise would be entitled to strike….Simply prohibiting other key workers from being able to strike, without sufficient alternative entitlements and arrangements to balance this loss of a right, is misconceived and illiberal.

It is an authoritarian gesture, rather than a solution to a problem.

Roy Lilley (at the Institute of Health and Social Care Management) in a postscript to a recent blog, focused on what a strategic failure the proposals represent within the NHS industrial dispute:

HMG plans, to ban strike action by some public workers is a further example of ‘push-back’ management. Push the disputes into the courts instead of dealing with the root-cause of strike action, improve industrial relations and representation.

So what has my part been in the downfall of trade unionism to date? In my first job, other than an abortive attempt to develop a new shift pattern(!) for the security guards in the factory, I had few skirmishes with union leaders compared to those with my management colleagues. In the finance sector, where I spent most of the middle 20 years of my working life, I rarely came across any staff representation at all. As a school teacher I joined the ATL rather than the NUT (they have since merged to form the National Education Union) due to its reputation for being determinedly non-militant. And, in my current role, I rather flounced out of the UCU over a difference of opinion over the pensions dispute raging at the time.

So I have not been a very good supporter of trade unionism over the years. However it now seems clear to me that the industrial austerity (ie the crushing of labour power within the economy, further discussed here) described above during my lifetime has been a political rather than an economic project all along. None of the economic justifications given for it since the 1980s have been borne out and the unopposed rugby of industrial management we have increasingly witnessed since has resulted, in my view, in poorer outcomes than if the 99% had been consulted regularly.

I sense that the current Government will only be satisfied when trade union membership levels fall to zero. So if, like me, you don’t want that to happen, the time to push back against running the economy at all times exclusively in the interests of the owners of capital is now.

I have rejoined the UCU.

September 20, 2019September 21, 2019

Actuaries and the Green New Deal

Images from the Birmingham Climate Strike on 20 September 2019

On the day millions have taken to the streets across the globe to demand a more urgent response to the climate emergency, it seems a good time to write about the crossbench Decarbonisation and Economic Strategy Bill, originally tabled by Caroline Lucas and Clive Lewis in March this year, which has now been formally launched. This “Green New Deal Bill”, as it has been dubbed, sets out a legislative framework for the changes that are needed to make the Green New Deal (a programme of action neatly summarised in the Green New Deal Group’s fifth report here) a reality. The impacts of these proposals would be far-reaching and radical, changing the way our economy operates and what we value. As well as revolutionising the way we live, this would also significantly affect the current work of actuaries and provide many opportunities for people with the actuarial skill set to be centrally involved.

The main proposals which I think would impact actuaries are as follows:

Bring offshore capital back onshore to make sure that government, not markets, can make the big economic decisions. This would obviously impact all businesses operating in financial markets. There would also be large movements in the value of some businesses as a result of economic decisions which have previously been left to the market now being made by government. Modelling the impacts of such changes and helping businesses manage the transition are examples of where actuaries can add value here. We are already seeing increasing disinvestments from coal, but this would seem to be just the start of a much wider realignment (one possible view of the potential is discussed here).
Greater coordination between the Bank of England, the Treasury and the Debt Management Office. This means the end of the independence of the Bank of England by the look of it, with monetary policy and fiscal policy run in much closer cooperation with each other. It also means more regulation for banks and the supported emergence of local banks and a new national investment bank.
New bonds, nationally and locally, and new pension arrangements targeted at the green renewal of our infrastructure. For instance, tax rules on pension schemes could be changed to require a minimum percentage of assets invested in such bonds in order to continue to qualify for tax relief.
New objectives for business, and new kinds of businesses. For instance, the UK-based Corporate Accountability Network argues that the whole focus of corporate reporting will have to change, and so too then would corporate behaviour because there is very strong evidence that what is reported by any organisation is what becomes important to it. The Green New Deal Bill provides for changes to both company law and accounting to embrace the need for legally required and enforceable reporting on progress towards any company becoming carbon neutral. This will certainly lead to new business structures as a result and, I would imagine, many new business opportunities for those with actuarial skills as a result.
Replacing our measures of progress. This is something I have long supported. The main problem is that there are many possible candidates for this, but that also means that there is a great opportunity for actuaries to be involved in constructing appropriate indices which are globally respected, thereby helping to change what we value away from our current GDP and FTSE fixations.

Of course there are also opportunities for those with actuarial skills to block the transition to an economy that isn’t constructed in such a way as to make environmental destruction inevitable. Employers like these would probably make those with the actuarial skillset very lucrative offers to use their skills. I hope that most of us, and particularly those just at the start of their careers, will resist such offers. We now know that tobacco firms hid the evidence of the damage done by their products for decades and firms such as Exxon have done the same in denying the science on climate change for over 40 years. Please don’t be part of the problem when you could be such a valuable part of the solution.

At Leicester, we intend to launch a new module on our MSc Actuarial Science with Data Analytics programme next year, specifically on the ideas behind the Green New Deal and focusing on the areas where ideas still need to be developed (one of the most exciting things about the Green New Deal is that it is still an area of live discussion, with many of the policy details still being developed). I would welcome any input from members of the Green New Deal Group or those with research interests in this area who would be interested in helping us develop the detailed curriculum of this module before launch.

This is an exciting time for those who are comfortable working with data and communicating what they have found in it. Let’s make sure that those skills are applied to the needs of 99% of the global community.

July 11, 2019

Whether or not there is a strike, USS’s future depends on trusting its members

On 23 March 2018, Universities UK (UUK), the universities’ employer body, issued an offer to the University and College Union (UCU) to end the Universities Superannuation Scheme (USS) pensions dispute. The UCU agreed to put it to their members and, on 13 April, announced that the proposals had been accepted by a margin of around 2 to 1. The main proposals, as summarised by Sally Hunt the UCU general secretary, revolved around the setting up of a Joint Expert Panel (JEP).

The JEP’s members were proposed by UUK and UCU – Ronnie Bowie, Sally Bridgeland and Chris Curry were proposed by UUK (two actuaries and the Director of the Pensions Policy Institute respectively). UCU proposed Saul Jacka (professor of statistics at the University of Warwick and a Turing fellow at the Alan Turing Institute), Deborah Mabbett (professor of public policy at Birkbeck) and Catherine Donnelly (associate professor at Heriot-Watt University, where she heads up a unit focusing on pensions, investment and insurance research). The Chair is Joanne Segars, a well respected and very experienced former CEO of the Pensions and Lifetime Savings Association (PLSA) who had most recently been working with the Local Government Pension Scheme.

The Terms of Reference of the JEP were also published, which stated that the purpose of the panel was to:

make an assessment of the 2017 valuation;
focus in particular on reviewing the basis of the scheme valuation, assumptions and associated tests; and
agree key principles to underpin the future joint approach of UUK and UCU to the valuation of the USS fund.

They also stated that the panel would take into account:

the unique nature of the HE sector, intergenerational fairness and equality considerations;
the clear wish of staff to have a guaranteed pension comparable with current provision whilst meeting the affordability challenges for all parties; and
the current regulatory framework.

All of the bits relating to the 2017 valuation were reported on in September 2018, with recommendations from the JEP on ways of bringing the total contribution rate below 30% of pensionable pay.

In response to this, the USS Trustee made a proposal for concluding the 2017 valuation and preparing a 2018 valuation which could more fully take account of the JEP recommendations. This was accepted by UUK after a reduction in deficit reduction contributions from 6% to 5% was made and finally by the Pensions Regulator here, which noted that the proposal for the 2017 valuation is at the very limit of what TPR finds acceptable as it would see the Scheme carry higher levels of risk than we would consider manageable for a ‘tending to strong’ covenant.

The 2018 valuation process has been proceeding at pace, with the USS Trustee proposal following the consultation response from UUK of 3 options for future contribution patterns leading to indicative agreement from UUK for the third option of a total contribution rate of 30.7% from October 2019 and a further valuation in 2020. Following the September 2018 report, the JEP is working on a follow up report for September 2019 in relation to the USS valuation process in general. The second phase of work on the USS valuation has two parts; the first is concerned with the valuation process and governance, the second with the long-term sustainability of the scheme.

UCU have rejected all 3 options and set out a timetable for ballots on industrial action from 9 September in the event of any agreement which does not represent no detriment to members, ie no reduction in benefits or increase in employee contributions from the 8% level they were at before 1 April 2019. The JEP have suggested (while accepting that their numbers are indicative only, without detailed modelling) that, if all the measures they propose were adopted, the contribution rate could be reduced to 29.2%, split 20.1% employer and 9.1% employee in accordance with the cost sharing agreement. This compares with the USS Option 3 proposal of a split of 21.1% employer and 9.6% employee.

The UCU position looks a long way from the one that the Trustee and UUK appear to be edging towards, and I fear that a strike ballot may therefore be inevitable.

However, I think there is an equally important area mentioned in the JEP report where USS can radically improve how its members engage with a scheme which will be, for most, their major source of income in retirement.

How USS engages with its members

In their report the JEP, rightly I think, devoted several pages to member involvement in the valuation process, information and transparency and building trust and confidence, matters which will be a particular focus of their second report. They observed that:

longer consultation periods, initiated at an earlier stage, could facilitate member involvement via universities’ internal processes, which might help to build confidence in the valuation and a shared sense of ownership – helping to avoid future, damaging, industrial disputes.
there is no formal, scheme-wide mechanism for involving members in the valuation process or for assessing their appetite for changes to the Scheme
for future valuation cycles it will be important that the Trustee and Scheme Actuary interact more, at an earlier stage, with all stakeholders, particularly with regard to setting valuation assumptions and expectations
lack of understanding is likely to have contributed to falling levels of member confidence in the Scheme. It might be helpful for the Scheme to provide simple-to-understand guides which use clearly defined terminology to aid the understanding of the majority of Scheme members
the lack of trust in the valuation process and the Scheme has given rise to a view, albeit not a universal one, that USS is not being as open as it could be with stakeholders….whilst observing the need for confidentiality…the Panel suggests the Trustee may wish to consider how to share more of the information currently deemed confidential, eg on a redacted basis or in a summarised form. This would aid understanding of the valuation process…and, importantly, help rebuild confidence in the Scheme and its governance.

I would take such suggestions a step further, as I believe much of this communication would be wasted within the current adversarial environment, and indeed would be likely to be “spun” by one side or the other. It is clear that there is little trust in the USS Trustee on the part of the UCU officers. However, the ability of the 21,685 (out of 24,707 total votes) who voted to strike and then the 21,683 (out of 33,973 total votes) who voted to end the strike to determine what could or could not happen to a scheme with 396,278 members (as at 31 March 2017, 190,546 of them active) was, I think, unhelpful to the process of achieving a consensus more generally. Engagement needs to go much further than negotiations between UUK and UCU during valuation processes. USS does need to do far far more, in conjunction with the UCU and others, to engage members to help them understand their finances first before launching into what can be fairly abstract pensions discussions even for university professors.

The good news is that the membership have become much more aware of their pension scheme, mainly as a result of last year’s industrial action, and, being the inquisitive people they are, will I am sure now be looking for a higher degree of information (and education) from their pension provider about their benefit provision in future.

As the Pensions Policy Institute and many others have been saying for years, the decisions we are asking people to make are complex and subject to many different influences and biases. These decisions can be helped enormously if more care is taken in the nature and timing of how members are communicated with. Members will not value benefits they don’t understand and ultimately this scheme is only going to work in the long term if the people in it are trusted to be part of the decisions about its future.

June 30, 2018

The Bullshit Alternative

I have seen two very different pictures of the future of professional life over the last year or so. The first, which I wrote about over a year ago, was presented in The Future of the Professions by Richard and Daniel Susskind, and has been much debated since within the actuarial profession for what the implications might be for the future. In summary, the Susskinds 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. Indeed Richard Susskind has gone further in setting out what that future might look like for the legal profession, where he sets out future strategies for surviving in a world of increasingly capable machines as:

providing more for less (ie charging less (in particular the end of time cost fees), alternative billing arrangements such as “value billing”, making efficiencies and collaboration strategies where clients come together to share costs);
liberalising services (ie allowing a wider range of people to provide legal services); and
technology (ie online services in all of their forms to make the delivery of these cheaper, increasing use of data scraping, text mining, etc to replace what was previously done through expert judgement).

So far, so expected. The relentless increase in technological capability is bound to demand increased efficiency and leaner organisations competing ruthlessly in a pitiless market, right?

Enter an alternative vision for the future. Pointing out that we have been here before and that Keynes had speculated in 1930 that

In quite a few years – in our own lifetimes I mean – we may be able to perform all the operations of agriculture, mining, and manufacture with a quarter of the human effort to which we have been accustomed.

David Graeber, in his latest book Bullshit Jobs, points out that this never happened, despite pretty much all of the technological developments and income increases which Keynes predicted. He suggests that this future which the Susskinds are predicting is already happening in terms of needing fewer people to fill the meaningful roles within organisations but that, rather than employing fewer people, we are either creating “bullshit” jobs which even the people doing them can see no point to or bullshitizing existing roles for which the meaningful need has passed. It is as if the organisations themselves have attempted to maintain the outward appearance of the same structures by disguising the hollowing out of so many of their functions with simulated business.

It is an intriguing alternative vision of how the professional world might develop which has come in for some criticism, the most serious of which Graeber attempts to address in his book. One of the reasons he thinks the situation has been allowed to develop is that noone believed that capitalism could produce such an outcome. But that is only if you accept the rational profit maximising principle, which many economists have now abandoned as an explanation for corporate or individual behaviour. Graeber gives one particularly important example of this in the creation of Obamacare, where Barack Obama “bucked the preferences of the electorate and insisted on maintaining a private, for-profit health insurance system in America”, quoting him as follows:

“I don’t think in ideological terms. I never have,” Obama said, continuing on the health care theme. “Everybody who supports single-payer health care says, ‘Look at all this money we would be saving from insurance and paperwork.’ That represents one million, two million, three million jobs [filled by] people who are working at Blue Cross, Blue Shield or Kaiser or other places. What are we doing with them? Where are we employing them?”

So which vision of the future is more likely? I think, at the moment, there is probably more evidence for the Susskind vision, mainly because he has been working in this area for 30 years and therefore many of his predictions, such as the use of email to provide legal advice, have had time to emerge. Many of the stories in Graeber’s book ring true for me and are similar to experiences I have had at times myself, but he has only obtained 300 of them. The YouGov poll which highlighted that 37% of working adults say their job is making no meaningful contribution to the world – but most of them aren’t looking for another one, was based on a sample size of 849. There was also a similar result (in this case 40%) from a survey in the Netherlands, for which I couldn’t easily find the sample size. However this does also lend some weight to one of Graeber’s other contentions in the book that the financial industry might be considered a paradigm for bullshit job creation, as the following graph (from a working paper on this issue by Stolbova et al) shows that the Netherlands and the UK are by far the most financialised economies in the EU.

There are other parts which ring less true for me. For instance, I do not recognise the alternative “non-managerial” university exam paper production process to that shown below (which is just the academic staff sending the exam to a teaching assistant to print and the teaching assistant confirming that he/she has done so) as ever having been remotely acceptable, but this may just reflect the fact that I have been working in academia for a far shorter time than Graeber. However there is no doubt that this is an interesting and useful field of enquiry and potentially concerning for all of us trying to support our graduates in negotiating a meaningful and rewarding entry into the workplace.

There is likely to be significant disruption over the next couple of decades in how we do things and it seems likely to me that there will be many seeking to protect familiar organisational and power structures along the way, as our assumptions about what we want and how we are prepared to have it provided to us are seriously challenged in sometimes unnerving ways. Of the sustainability of these protections ultimately, I am less sure.

April 30, 2017September 3, 2017

Actuaries and Climate Change

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.

June 21, 2016

Burying a Bad Consultation

The Government has launched a consultation into what unique arrangements could be put in place purely for the British Steel Pension Scheme (BSPS) so that:
• It won’t be a burden on the new owner of the steel business in the UK
• It won’t be a burden on the Pension Protection Fund (PPF)
• It won’t be a burden on UK PLC

The consultation document states that “In such a complex situation, the Government needs to listen to a wide range of opinions in order to decide what course of action we should take. We are therefore seeking views on the options and proposals set out in this paper. We would welcome both answers to the specific questions posed and also wider thoughts on the ideas discussed.” It therefore seems strange that they have chosen the period leading up to the EU Referendum to launch the consultation, when a wide range of opinions is likely to be the last thing they get. It is almost as if they are trying to bury a bad consultation.

In fact it is not complicated, because this is the poor collection of options it is considering (my responses are in italics):

Option 1: Use existing regulatory mechanisms to separate the BSPS

ie the regulatory mechanisms which have been good enough for:
• MG Rover Pension Scheme
• United Industries PLC Pension Scheme – United Industries PLC section
• Caithness Glass Group Benefits Plan
• Denby 2001 Pension Scheme – DH Realisations Limited (formerly known as Denby Holdings Limited) segregated part
• Do It All Pension Plan – Do It All Ltd Section
• Allied Carpets Group Plc Pension Scheme
• Polaroid (UK) Pension Fund
• The Royal Worcester & Spode Pension Scheme
• Woolworths Group Pension Scheme – Woolworths Group Sections 129
• British Midland Airways Limited Pension and Life Assurance Scheme – UK DB Section
• Railways Pension Scheme – Relayfast Group Shared Cost Section
• Royal Doulton Pension Plan – Royal Doulton (UK) Limited segregated part of section
• HMV Group Pension Scheme
• Industry Wide Coal Staff Superannuation Scheme – UK Coal Operations Section
• Industry Wide Mineworkers Pension Scheme – UK Coal Operations Section
• The Kodak Pension Plan
• Saab GB Pension Plan – Saab Great Britain Limited segregated part
Amongst many others (only 5,945 schemes of the original 7,800 defined benefit schemes protected by the PPF remain outside).

Consultation question 1: Would existing regulatory levers be sufficient to achieve a good outcome for all concerned?

Yes. These levers were good enough for all these other schemes.

Apparently these are not good enough for Tata Steel.

Option 2: Payment of Pension Debts
Under the defined benefit pension scheme funding legislation, a sponsoring employer can chose at any time to end their relationship with the scheme – even if the scheme is in deficit. However, the employer must pay to do so.

Tata have indicated that Tata Steel UK (TSUK) would not be able to make such a payment, and that this would be unaffordable.

The usual options in this case would be:
• A sale with the pension scheme
• The insolvency of Tata Steel (how ridiculous this sounds shows that the required payment is not unaffordable)
• A sale without the pension scheme, in which case the PPF would be looking for substantial mitigation from Tata Steel and/or a share in the company in exchange for taking on BSPS

Apparently these options are not good enough for Tata Steel.

Option 3: Reduction of the Scheme’s Liabilities Through Legislation

The proposal would reduce the level of future inflation increases payable on all BSPS pensions in payment and deferment to a similar or slightly better level than that paid by the PPF. If adopted, this would mean that in the future existing pensioners would receive lower increases to their pensions than they would under the current scheme rules, or possibly no increases at all. Deferred members would also receive a lower increase to their preserved pension when they reached normal pension age, and would then receive the lower increases to their pension payments.

This approach is not without risk – which is why it is not routinely used.

Actually I am not aware it has ever been used.

Although the intention would be for the scheme to take a low risk investment strategy, there is always residual longevity and investment risk, and it is possible that the scheme would fall into deficit in the future. In the event of scheme failure, the downside risk would ultimately be covered by the PPF and its levy payers.

ie after all of the legislative hyperactivity for the benefit of one scheme, it could easily just end up in the PPF anyway.

Question 2: Is it appropriate to make modifications of this type to members’ benefits in order to improve the sustainability of a pension scheme?

No. As there is no guarantee it will improve the sustainability of the only pension scheme being considered, ie BSPS.
Regulations under section 67 of the 1995 Act
Section 67 of the 1995 Pensions Act (‘the subsisting rights provisions’) provides that scheme rules allowing schemes to make changes can only be used in a way which affects benefits which members have accrued if:
• the changes are actuarially equivalent – this means that an actuary has certified there is no reduction in overall benefit entitlement, only in the way the benefit is paid (for example, indexation is reduced but initial pension level is increased to compensate); or
• the individual member consents.

Consultation question 3: Is there a case for disapplying the section 67 subsisting rights provisions for the BSPS in order to allow the scheme to reduce indexation and revaluation if it means that most (but not all) members would receive more than PPF levels of compensation?

Ie they want to remove the need to get members’ consent before reducing their benefits. The answer is again no.

Option 4: Transfer to a New Scheme
This option would allow for bulk transfers without individual member consent to a new scheme paying lower levels of indexation and revaluation.

A bulk transfer with consent has been used previously as a mechanism for managing exceptional problems around an employer and their DB scheme.

However, the BSPS trustees have concerns about getting individual member consent to a transfer. The sheer size of the scheme means that getting member consent for a meaningful number of members would be difficult and the transfer would only be viable if enough members consented to transfer. Setting up a new scheme and transferring members to it may also need to be done rapidly in order to facilitate a solution to the wider issues surrounding TSUK – and this would be difficult to achieve in the necessary timescales if individual member consent to a transfer had to be achieved.

Consultation question 4: Is there a case for making regulatory changes to allow trustees to transfer scheme members into a new successor scheme with reduced benefit entitlement without consent, in order to ensure they would receive better than PPF level benefits?

No, as it would not ensure that they received better than PPF level benefits.

Governance of the New Scheme

The British Steel Pension Scheme (BSPS) operates as a trust. The scheme is administered by B.S. Pension Fund Trustee Limited, a corporate trustee company set up for this purpose. The assets of the Scheme are held in the name of the trustee company and, as required by law, are separate from the assets of the employers.

The trustee board has 14 members, seven are nominated by the company and seven are member-nominated trustees. The role of the trustees is to ensure that the scheme is run in accordance with the scheme’s trust deed and rules, and the pensions legal framework. The trustees’ duties are also to ensure the proper governance of the scheme and the security of members’ benefits.

Consultation question 5: How would a new scheme best be run and governed?

Under trust, separate from the assets of the employer, and subject to full existing pensions law. You could probably manage with considerably fewer than 14 trustees, but these should include member nominated trustees and, probably, a professional independent trustee.

Consultation question 6: How might the Government best ensure that any surplus is used in the best interest of the scheme’s members?

Pensions legislation already has provisions for how to apply assets to secure full benefits for members with an insurance company and deal with any surplus that occurs (it is usually set out in the scheme rules). A surplus is a highly unlikely scenario.

What the Draft Regulations Would Say
Disapplication of the subsisting rights provisions to the British Steel Pension Scheme Regulations (section 67)
These regulations would disapply the subsisting rights provisions to changes made in relation to indexation and revaluation under the BSPS Scheme Rules. This would mean that TSUK can exercise the power in the existing scheme rules to reduce levels of indexation and future revaluation to the statutory minimum without member consent. We intend to make any disapplication of the subsisting rights provisions subject to certain conditions being met to ensure member protection is not further compromised.

This is a terrible idea. Section 67 has protected many members from reductions to benefits they have already built up over the years. It should be maintained.

These would include requiring the BSPS trustees to agree unanimously that the changes to indexation and revaluation would be in the best interests of the scheme members. We are also considering whether it may be appropriate to make it a condition that the Pensions Regulator agrees to the changes being implemented.

Why has the Pensions Regulator not been asked for its view already?

Consultation question 7: What conditions need to be met to ensure that regulations achieve the objective of allowing TSUK to reduce the levels of indexation and revaluation payable on future payment of accrued pension in the BSPS without the need for member consent, balancing the need to ensure that member’s rights are not unduly compromised?

The objective is inappropriate. Disapplication of section 67 should be abandoned.

Consultation question 8: What conditions need to be met to ensure that regulations achieve the objective of allowing trustees to transfer members to a new scheme without the need for member consent, balancing the need to ensure that members’ rights are not unduly compromised.

They can’t. And this therefore shouldn’t be attempted.

All in all, a very bad consultation rushed out under cover of a much higher profile campaign.

February 16, 2015February 16, 2015

Time to take a look outside?

The Institute and Faculty of Actuaries (IFoA) is introducing a new mandatory Actuarial Profession Standard (APS) in relation to review of actuarial work. The existing requirements in the APS applying to scheme actuaries will be withdrawn.

APS X2 Review of Actuarial Work will come into force on 1 July 2015 and is accompanied by a detailed, practical Guide. One of its key requirements is that actuaries, for any piece of work they wish to have reviewed, will need to consider the need for that review to be independently carried out, ie by someone not otherwise involved in the work in question.

I should declare straight away that I have a conflict of interest about this new standard, having set up a business because I felt scheme actuaries should have access to peer review services from an experienced scheme actuary outside their organisations. I am delighted that an idea which seemed a little odd to some when I first started offering these services in 2013 should now be regarded as sufficiently mainstream by the IFoA to prompt a revision of peer review guidelines.

Under APS X2, review processes are defined as either work review or independent peer review. Whereas work review is a general term covering all forms of review processes, the term independent peer review can only be applied to review processes involving reviewers not otherwise involved in the piece of work under review.

There are many reasons why you might want to have your work independently reviewed, for example:

Work reviewed within a firm might be influenced by the respective positions of the actuary and his/her reviewer within the management structure of the organisation;
Even if the work is reviewed by a colleague completely objectively, it might not be seen to have been;
There is a risk of group think in any organisation. Review from outside can significantly reduce this risk;
An independent reviewer may have a different range of experiences to draw on from those within your organisation. This can be particularly useful when reviewing work where there are potential conflicts of interest or concerns over how best to communicate a piece of work.

If this sounds of interest and you think it might be time to take a look outside for some of your peer review needs, my details can be found by following the link.

June 5, 2014

Freedom and choice – a response to the Treasury pensions consultation

The consultation on the proposals for pensions announced in the Budget, and contained in yesterday’s Queen’s Speech, ends on 11 June. I have set out my response below. I hope that it will sufficiently incense one or two more people into making their views heard, before the chance disappears.

A.1
The government welcomes views on its proposed approach to reforming the pensions tax framework.

1 Should a statutory override be put in place to ensure that pension scheme rules do not prevent individuals from taking advantage of increased flexibility?

Yes. Otherwise you are just writing cheques to pensions lawyers.

2 How could the government design the new system such that it enables innovation in the retirement income market?

Reform preservation rules, the TPR code on funding, HMRC rules and the PPF levy framework so as not to penalise different arrangements across the defined ambition spectrum. Remove the annual allowance, controlling the level of tax relief offered through the lifetime allowance only (I got this the wrong way round in my first draft – the annual allowance assumes regular incomes, many people now have incomes which bounce up and down alarmingly from year to year. It is also ridiculously cumbersome to administer).

3 Do you agree that the age at which private pension wealth can be accessed should rise alongside the State Pension age?

No. There is already an issue around healthy life expectancy and the state pension age in some regions of the UK.

4 Should the change in the minimum pension age be applied to all pension schemes which qualify for tax relief?

Yes. The arrangements need simplification.

5 Should the minimum pension age be increased further, for example so that it is five years below State Pension age?

No (see answer to 3).

A.2
The government welcomes views on its proposed approach to supporting consumers in making retirement choices.

6 Is the prescription of standards enough to ensure the impartiality of guidance delivered by the pension provider? Should pension providers be required to outsource delivery of independent guidance to a trusted third party?

There needs to be more clarity about the charges which can be levied for guidance or if it is to be remunerated in some other way.

7 Should there be any difference between the requirements to offer guidance placed on contract-based pension providers and trust-based pension schemes?

No. In most cases the scheme members have not chosen to receive lower levels of service.

8 What more can be done to ensure that guidance is available at key decision points during retirement?

I think there needs to be a right (but not requirement) to it for everyone at 50, 60, 70 and 80 as a minimum, at an agreed national nominal charge. I imagine that the £20 million available to develop resources for this will need to be increased significantly to make an impact on the quality of guidance materials provided.

A.3
The government would welcome views on the options outlined in point 5.15, including their likely complexity, and the burdens they might place on scheme sponsors and HMRC.

9 Should the government continue to allow private sector defined benefit to defined contribution transfers and if so, in which circumstances?

Yes. In all circumstances.

10 How should the government assess the risks associated with allowing private sector defined benefit schemes to transfer to defined contribution under the proposed tax system?

The reasons the Government have advanced for the changes to DC are equally compelling when applied to DB:

1. There is a lack of choice for people at retirement, which has become more of an urgent concern now that auto enrolment is boosting DC membership. This is even more the case for DB members who are already numerous (although getting less so daily), as their only choices are how much cash to take up to the 25% tax free limit and (up to a point) when to retire.
2. Current regulations deter innovation. This is, of course, why defined ambition as an idea has been so slow to get off the ground.
3. Restrictions on cash commutation imply a lack of trust of members to be able to decide how they spend their savings.
4. The concern that the annuity market has not maximised income for scheme members. This is mirrored by the high cost of de-risking via bulk annuities, which is the ultimate “flight path” for most DB pension schemes, and which many argue has resulted in a big drag on the growth of UK PLC.

All that would be required to extend the proposed freedoms would be to allow DB members to commute as much of their benefits at retirement, whether for cash or income drawdown, as they wanted, with the rest taken as pension as now. This could be applied to private and public sector schemes and would, I believe, at a stroke head off the rush to transfer.

Even if the Government does manage to stop people pouring out of the exits before April next year, this has to be bad policy. To provide more freedom and choice to one group of pensioners and at the same time to remove a longstanding freedom (and one available at the point members joined the schemes) from the other groups is clearly unfair. What is worse, with an election looming, it is likely to be unpopular.

A.4
The government would welcome views on any potential impact of the government’s proposals on investment and financial markets.

For private DB schemes, the Government says the decision is “finely balanced”. I think their fears are exaggerated and rather contradict the earlier declaration of trust in pensioners to make appropriate decisions about their retirement – after all appropriate investment in support of regular income in retirement (which would presumably be recommended by the “guaranteed guidance” to be offered to DC members) should not differ markedly from the equivalent investments in DB schemes. Whether DB schemes invest on a longer-term basis than individuals is, as the Kay Review made clear, uncertain.
The level of the Government’s concern about financial markets rather makes it look as if individuals can be trusted to look after themselves, with a slightly bigger safety net and a bit of advice, but financial markets cannot. This cannot be right.