Pensions – The Ticking Time Bomb

Both the Conservative Party and the Labour Government have indicated that they will raise the state pensions age of men and women to help reduce the UK’s national debt.  In addition, more and more employers in the private sector are closing good pension schemes. The Association of Consulting Actuaries’ (ACA) recent survey on pension trends has revealed that 59% of employers are set to review pensions ahead of 2012 and 24% of employers will consider pension benefit reductions when they have to auto-enroll all employees into a scheme.

With taxes on business and individuals likely to rise over the next few years, it is difficult to see anything other than a deteriorating climate for pension savings unless there is a radical change of approach, says the ACA. It has proposed a standing Pension Commission that will challenge the legal and regulatory hurdles standing in the way of sensible long-term pension designs.

Perhaps, a more in-depth risk analysis may help the ACA make a stronger case to the government. As a related example, in the US, the Society of Actuaries and the Casualty Actuary Society, sponsored a research project with the Illinois State University to develop a model for projecting economic indices such as interest rates, equity price levels, inflation rates, unemployment rates, and real estate price levels. The model was created using Palisade’s @RISK and Microsoft Excel. In fact, @RISK’s built-in probability distribution functions, correlation matrices, and simulation results were essential to the study.

The UK ‘pensions’ landscape is set to undergo tremendous change, which will impact each and every one of us. Using scientific, risk analysis techniques, actuarial industry bodies can develop a strong argument and lobby the government so that informed policy decisions are made that are right for both the financial health of the nation and its citizens.

Craig Ferri
EMEA Managing Director of Risk & Decision Analysis

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