This website is entirely my own creation and has nothing to do with any former employers. Not only do I accept all responsibility but also I assert all rights over the site's content. The views expressed are entirely personal and not endorsed by the UK actuarial profession, at least not yet, and my work has not been peer reviewed. Thanks are due to those who have discussed the issues… and to those who have refused to engage. Family and friends have been supportive, for which I remain grateful.

In the past, I have refrained from criticising either scheme actuaries or the pensions regulator, suggesting that the problem is just the framework within which they are forced to operate. However, I now believe that, together, the actuaries and the pensions regulator are responsible for having invented and then presided over a morass of regulations which don’t work. One of the factors that changed my mind was the manner in which the 2022 LDI debacle was greeted, as if there was no problem.

Some pages may appear repetitive but I don't know which route you'll take. Several pages have little content - deliberately. Although I have removed the symbol, all amounts are in sterling. Nothing on this website constitutes “advice”.

Although this website has a lot in common with DiscRate, this one is more complex.  There, I have been trying to explain why the discount process simply doesn’t work for long-term financial entities, even for really simple contracts. Here, I am trying to deal with defined benefit pensions. My basic question is why we think we can get complex stuff right if we can't get the basics correct - which I regret I rather doubt. We need much more balance between short term and long term views.

Typically, any financial entity's assets and liabilities are periodic cashflows over time, short or long; capital values are only poor representations of those cashflows. Consistency between future cashflows in both directions should be sought. However convenient it may have been in the past to represent them by scalar values, that approach conceals far more than is revealed. Given the enormous computing power now readily available, there is no good reason to retain scalars instead of using stochastic projections, so allowing stakeholders a more direct choice of risk appetite.

However, as scalars are still required by the regulators, at least in UK DB pension space, this website looks at modelling benefits with real assets backing them. The initial assets are assessed via discount rates and the cashflows are then run over 15 years. Rather than repeating stuff, I have frequently referred back to DiscRate.

Because I think the issues are important, I have written brief remarks about the background, actuaries, why we are here, the “long term” (including risk premia), professionalism and financial economics.

The model is summarised, with greater detail being provided for member data, the random numbers used, the return multiples and the pricing approach. We  can then look at outcomes, shown as dynamic  charts (now all in HTML5 rather than in Flash).

We had a new TPR consultation during 2020, upon which my comments are here. With more since then, I have really lost interest because I regard TPR as the problem. More recently, we’ve had the Mansion House proposals. While it’s still too early to sense what’s really happening, especially with a change of Government a few days ago, they’re hardly compatible with TPR’s risk aversion.

Ultimately, I am driven to the conclusion that actuaries should stop using discount rates alone for long-term projects with specified intended outcomes because cashflows are the key elements and that scalars alone are inappropriate. If we can't even do simple stuff, can we really solve complex problems?


Jon  07  Jul  2024