UK – A government-sponsored review of the actuaries in the UK has slammed the profession – finding among other things a concentration of advice to the largest pension funds and a possible restriction of competition.
The Treasury said of the report: “The profession overall has been too insular and slow to adapt to changing circumstances; there has been insufficient transparency in actuarial advice; there has been inadequate scrutiny, challenge and market-testing of actuarial advice by users: such as some pension fund trustees.”
There was “a lack of clarity about the accountability of actuaries to the wider public interest”.
“Professional standards,” it said, “have been weak, ambiguous or too limited in range - and perceived as too influenced by commercial interests.”
“Self-regulation has not been sufficient to address these issues,” the treasury added.
The 200-page report – commissioned by the government in the wake of the Equitable Life crisis – stated that there was a “degree of market concentration in advice to the largest pension funds”.
It feared that the provision of “traditional advice” to defined benefit schemes would eventually decline as schemes are phased out.
The report, under the chairmanship of Sir Derek Morris, said the commission did not receive any evidence or suggestion of explicit product tying or cross-subsidisation.
But it was “concerned about the extent to which full-service appointments may restrict competition from other non-actuarial professionals such as fund managers who may wish to compete for some of the services, in particular advice on asset allocation”.
“There is much confusion over to whom actuaries are accountable,” the report claims. “The review concludes that there is a real need to provide clarity over to whom actuaries are accountable and for what; to have a clear hierarchy of accountabilities; clear guidance on when the actuary must whistle-blow and act in the public interest; and clear protections and incentives for whistle-blowing.”
The report also called for a reassessment of the role of the Government Actuary’s Department. It said: “The review is considering removing the statutory requirement that GAD advise these public sector pension schemes, so that the administrators of the public sector pension schemes have a choice of provider.”
It suggested reallocating the GAD’s demographic work to the Office for National Statistics.
Watson Wyatt said: “While this initial assessment contains many criticisms of the actuarial profession, we are pleased that he acknowledges that the profession has already made much headway in addressing many of the concerns he highlights.
"Adverse economic circumstances and changes in legislation have led to some occupational pension schemes winding up with shortfalls, but the vast majority of schemes remain in existence and continue to provide the benefits their members expect.
“In these difficult circumstances, advice from consulting actuaries has been very important in enabling schemes to continue.”
Morris said in a statement: "The review has no reason to doubt that the overwhelming majority of actuaries in the UK are dedicated, skilled professionals providing important and useful advice, with commitment, integrity and a strong sense of duty.
“However, the review also identifies a number of quite serious problems faced by the profession in the UK.
"Against this background, the central question for this review, and for the actuarial profession, is how it can encourage and ensure the availability of best practice actuarial services to users."
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