A L i f e & Pe n s i o n s I n d u s t r y N e w s l e t t e r. 2012
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intelligent solutions for life & pensions
A double dip recession may overcome inertia // Tom Murray - Head of Product Strategy - Exaxe One of the key issues being addressed in the 2012 pension reforms is the reluctance of people to take responsibility for their own future welfare by engaging in long-term savings. This has been handled by entrapping people into pension schemes and playing on their own inertia to prevent them from opting out. At best this could be described as morally ambiguous. Inertia is a key driver behind the strategy to make more people save for their own future and thus ameliorate the looming crisis in state pension funding that is being driven by increasing longevity. Why has it come to this? Having failed over the decades to get people to start saving of their own accord the government commissioned various reports to try to come up with the answer. The committees thus endowed, notably Lord Turners commission, shied away from the guaranteed answer of compulsory pensions and opted for the approach of
scrutinised far more closely and without persuaders,
Therefore, the alternative is to reach out and engage
of interaction is highly automated and therefore
soft-compulsion, exploiting the key human weakness
they are likely to conclude that a pound in the hand
with the employees, an approach that runs counter to
low-cost; a key feature in schemes where cost control
of inertia to ensure that a large number of employees
now is far more useful than a future income stream
the idea of basing the whole approach on inertia. By
is a huge factor.
who were enrolled would stay aboard rather than
that isn’t terribly impressive anyway.
engaging with employees, it should be possible to
actively seek to opt-out.
bring about an awareness of the national problem and
As the new audience is generally, although not
Given this scenario, the industry needs to look at
how it will affect each of them personally. It should
exclusively, from the middle to low paid sector,
However, this policy was designed and decided upon
methods of making these reforms work. Inertia is
also be possible to educate them about what to
smartphone apps would seem to be the way to go.
at the time of the boom in the UK and amidst the
obviously not the answer. Two approaches that might
expect from a pension savings scheme so that they
These would allow people to see the value of their
global economic surge. The feeling at the time was
make a difference are either to move to compulsory
are not frightened by the ups and downs of the
own pensions and projections of future income and
that the general feel good-factor would ensure that
pensions or to engage with the customer in order to
normal investment cycle and should show how they
could also give them control of their investments
people would not examine the issue too closely.
ensure that they fully understand the long-term
can take control and protect their own future by
between the selected funds. All of this would
However, the world has turned and the
nature of the savings and have a proper expectation
maximising theircontributions to the scheme.
contribute to making employees feel in control of
ever-dominating global financial crisis is changing
of the likely outputs from annual reviews etc.
their own future and would encourage them to stay Those in charge of the qualifying schemes will need
attitudes across the population rapidly.
within the scheme.
Compulsion, while an ideal option, is politically
to think about how best to reach out to this new pool
The trouble with relying on inertia to keep the
infeasible at the current time. Insufficient effort has
of members; many of whom will never have been in a
Without this level of engagement, the economic
numbers up is, that for it to work, it relies on not
been made to increase awareness of the problems
formalised savings scheme before. Accessing these
downturn means that financial hardship will
engaging too strongly with the members so that they
with future pension provision and the general public
new members will be difficult via intermediaries,
overcome the inertia being depended upon, resulting
don’t think too much about it, especially at the early
are more obsessed with their day-to-day problems
given the cost of advice, so direct methods need to be
in a much higher level of opting out than is currently
stages when the annual statements and projections
and surviving the current downturn than in worrying
considered.
expected. If the numbers don’t add up, future
are likely to show poor returns and encourage
about their position in twenty or thirty years.
hard-pressed workers to opt-out or leave after a short
Consequently, the government would effectively be
The big plus is that large amounts of the population
unavoidable. This will also lead to more opt-outs and
time in the scheme. Now that so much of the
seen to be increasing taxation where they to impose a
are now happy to interact via mobile platforms and
begin a death spiral in terms of viability for the whole
population is struggling to make ends meet,
compulsory pension system and it would engender
social media. The advantage of this is that you are
project.
deductions from their pay packets are likely to be
major public opposition in the current economic climate.
engaging with them on their own terms and this kind
increases in costs for those who are in the scheme are
I believe the economic downturn means that a complete rethink of the strategy for auto-enrolment
Spreadsheets - The Ageing Actuary’s Friend // Mark Grall - Actuarial Analyst - Exaxe
needs to be undertaken before we end up with a costly failure that will inhibit future attempts to make
Is the Excel spreadsheet an ageing Actuary’s best
drudgery of repetitive tasks.We can then focus on the
Is the industry fear based on the assumption that
friend? It appears that the life and pension industry is
more difficult challenges that the future holds. Excel is
calculation engines would mean that actuaries would
meandering blindly into a world of endless spread-
merely a calculation machine, which continuously
only be needed for new calculations and to overall
sheets and reporting. Actuaries appear to be afraid to
needs reprogramming. Surely a pre-programmed
manage the system? I’m sure that no one actually
move away from the 2003 version of Excel despite
engine with discrete transparent calculations would
wants to spend his or her career in maintenance
those fears being largely unfounded. So why does this
provide a better basis for automating and document-
mode rather than tackling new areas. The correlation
fear persist?
ing actuarial formulae?
of the mortality of a spreadsheet and the author
people take responsibility for their own future.
In this issue
actuary are ever verging towards one.
A double dip recession may overcome inertia
Are spreadsheets really the optimal way to add value
Well, the good news is that the future has already
to our industry? Surely, the reluctance to move away
arrived. Configurable actuarial calculation engines
Secondly, automated engines mean that actuaries
from older models can’t be based purely on the fact
already exist and provide many benefits not readily
would be readily able to understand their peer’s
that bespoke spreadsheets make for astounding job
available to those who prefer the multitude of
calculations. This would provide more transparency
security. After all, despite these recessionary times, it
spreadsheets approach. However, there seems to be a
and surely improve our ailing market image. Greater
can’t be wise to snip the actuary who knows how the
reluctance to go down this route. Why and what
automation would likely lead to more mobility within
discombobulated array of figures actually work.Of
changes would the actuarial body have to undergo if
the actuarial industry. We should not be afraid of
course that’s not the reason, but there is no doubt
we were to move to using automated calculation
spreading knowledge across the industry by
that, actuaries appear to feel bound into a monoga-
engines as a standard?
becoming a more mobile profession.
Mifid II will encourage passporting
For a start this solution, once implemented, would
Thirdly, there is an ever-present risk that these
Exaxe reports 30% increase in revenues and job creation plans for next two years
eliminate the need for large actuarial teams, which is
bespoke spreadsheets contain errors. It is not
It appears that the next generation of actuaries feel
considered by many to be a frightening prospect.
unknown for spreadsheets, whose original author has
compelled to follow in the path of their professional
Maintenance would require vastly less knowledge of
now been turned out to pasture, to be left...
elders. Surely, we should grasp newer technologies
bespoke spreadsheets and we might even go as far as
with both hands and try to use them to automate the
to say could even be managed by a junior member of staff.
mous relationship with Excel till death, or possibly critical illness, do them part.
Spreadsheets - The Ageing Actuary’s Friend New Illustrate Plus iPad App Launched Are PRPPs the gateway to compulsory pensions? The cloud definitely has a silver lining
Exaxe Client wins 5 Star Financial Adviser Service Award! Why choose Exaxe?
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