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The Actuary The magazine of the Institute & Faculty of Actuaries
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Letters to the editor

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Letter of the month

Without whom...
I was saddened to hear of the death of Jim Lagden and enjoyed the appreciation contributed by Norman Freethy and Peter Tompkins (The Actuary, May 2009). I think they highlighted Jim’s many qualities very successfully.

I would, though, like to add a comment on the creation of Fiasco which, as indicated in the appreciation, was the forerunner to The Actuary. Not only was Jim the first editor, but he really was the driving force to get it off the ground. I was the honorary treasurer of the Students’ Society (now the Staple Inn Actuarial Society) at the time and remember discussing with Jim whether selling four quarter-page adverts for actuarial students at £25 per ad would cover the cost. In fact we made a profit — the costs being remarkably low since Jim’s labour came free. There was some resistance to the advertisements from the then Institute hierarchy, who were concerned lest the Appointment Board circulars, a significant money-spinner, were adversely affected. The fact that those circulars were limited to qualified actuaries, and Jim’s persistence, won the day. As a result we can say that, without Jim, I would not be writing this letter to this magazine and you would not be reading it (if indeed you are)!

Peter Felton
19 May 2009

The writer of the letter of the month receives an iPod Shuffle and a £15 iTunes voucher kindly supplied by Hazell Carr

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Presbyterian lessons
To the best of my knowledge, the Presbyterian Mutual Society (PMS) has had little publicity in the UK, although it is presumably big news in Northern Ireland, and has been covered extensively in the Belfast News Letter. I came across PMS in the debate about the Co-operative Bill in the House of Commons on 24 April 2009. The Bill was to upgrade the regulation of financial mutuals and all sides agreed with its provisions. However, the Conservative spokesman took the opportunity to raise the issue of PMS, urging the Government to learn from the lessons of its demise.

PMS is relatively small beer in terms of financial institutions, with around 10 000 members and £300m funds. It was set up in 1982 as a savings medium for members of the Presbyterian Church. As a Northern Ireland institution, it fell under the auspices of Devolved Government in Northern Ireland. It is the responsibility of the Department of Enterprise, Trade and Investment (DETI) which delegated the registration of PMS to the Stormont Executive.

The FSA did not regulate PMS; nevertheless, it did issue a statement to the effect that PMS had exceeded its mandate by acting as a bank. Predictably, the equivalent of the TUC in Northern Ireland blamed DETI vicariously for the Stormont Executive’s failure to spot that PMS was not permitted to act as a bank. Equally predictably, the Minister responsible for DETI placed the blame entirely on the management of PMS, claiming therefore that the Devolved Government was exonerated from all blame. In any case, as PMS is not a bank, the deposit guarantees applicable to bank depositors are not applicable to PMS members. Indeed, it is thought that there may have been a run on PMS funds by depositors favouring safer havens with the bank depositors’ guarantee.

Originally PMS members may have thought their money was underwritten by the Presbyterian Church — a 1982 advertisement may have contributed to giving this impression. However, the Presbyterian Church says it and PMS are separate bodies and that the Church has no financial responsibility for members of PMS. The circumstances surrounding PMS are of financial significance since proper regulations should protect the members of provident societies and therefore I think it should have been given much more publicity in the UK.

Anthony Pepper
3 May 2009
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Living Designs survey
Of the 4471 members who completed the Profession’s online survey, 3621 (81%) were members of the Institute and 850 (19%) were members of the Faculty. 17.36% (776) were undecided and 82.65% (3695) expressed an opinion one way or the other.

No doubt, some Faculty members were ‘for’ and some Institute members were ‘against’, but it would appear to be likely that there was a significant degree of positive correlation between Institute membership and being ‘for’ and between Faculty membership and being ‘against’. It would be interesting and perhaps instructive if those who have access to the data would calculate the coefficients of correlation for these two groups (and also for the undecided). As Private Eye would say, ”I think we should be told!”.

A. R. N. Ratcliff
26 March 2009
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Brave new world
It is with some trepidation that I read the cover of April’s magazine. The inadequately purple-eyed Lenina on the front page, who seems to have left her bottle green acetate uniform at home, was pleasing; but with helicopter-screws turning over page 8 and the prospects of an ever-ageing population, it occurred to me that indeed the time may have come to set up the (in)famous Central London Hatchery and Conditioning Centre. A few Bokonoski-fied eggs later and we’ll have the Major Instruments of Social Stability we indeed require to support the tax burden, without recourse to the dreaded burdens of family and vivipary.

‘Spoilt for Choice’, reads page 19. The only exciting option left (New York and the North Pole being somewhat passé) is a reservation. New Mexico, Samoa, New Guinea? No, it’s Tanzania (page 20)!

Among Huxley’s other lessons lies the gem (Chapter 1, Brave New World): For particulars, as every one knows, make for virtue and happiness; generalities are intellectually necessary evils. Anne Hagen suggests we will need “a deep understanding of the uncertainty of those reserves”.

In my mischief, though some may call it ignorance, I must ask: Will the actuary’s already deep understanding of uncertainty and reserves not be eroded, or at the least glossed over, by models incorporating spurious accuracy and extreme complexity of dubious value? Will we not lose ourselves in particulars? Was this not the lesson of the ‘credit crunch’?

H. Damelin
16 April 2009
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Setting the record straight
David Cule made two good points on our article, ‘Keep your eye on the ball’ (The Actuary, April 2009); namely, that trustees should consider deferring contribution demands that might ruin the sponsor and that advice to trustees should take account of not only the assets of the fund, but also the sponsor covenant and the safety net of the PPF. We think all that goes without saying.

However, he also seems to argue that, because many schemes are currently funded below PPF solvency, they can happily defer contributions from the employer. We do not believe that the Pension Regulator would be pleased to hear this but, more to the point, trustees should aspire to fund the full ongoing benefits of the scheme and not fall for this counsel of despair. Over time they should expect to be funded above PPF solvency and they will not achieve this by deferring contributions when underfunded. If they cannot realistically aspire to this target on account of a seriously weak sponsor covenant; they should be considering more radical alternatives.

Not many trustees regard PPF entry as other than an inadequate last resort, which is precisely why “the risks of deferring contributions are obvious”.

Paul Thornton and Richard Hall
12 May 2009
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Sir Fred’s pension debate
Sir Fred Goodwin’s pension is a matter of controversy and it raises some interesting actuarial issues. The press has stated that he has 30 years’ pensionable service rather than his actual service with RBS of 10 years. However, the press did not, to the best of my knowledge, explain why he had those extra 20 years of pensionable service. The reason is given in the letter to the Treasury Select Committee by Sir Tom McKillop. Sir Fred is deemed to have joined service at age 20, although he was actually about 40. This issue is not part of the controversy because the 30 years is contractual, see http://www.parliament.uk/documents/upload/SirTomMcKillop310309.pdf

The controversy about the pension and Lord Myners’ role revolves around the lack of an early retirement factor, since Sir Fred took his pension 10 years early at age 50 despite his retirement age of 60. The early retirement would have roughly halved the pension paid to Sir Fred. Lord Myners asserts that the Board of RBS had decided Sir Fred must leave the bank and therefore there was no ‘request’ for him to leave. The consequence of a ‘demand to leave’ rather than a ‘request to leave’ is that the early retirement factor appertains. Clearly, on Lord Myners’ account of the pension, the early retirement factor is contractual and therefore it should have been applied to Sir Fred’s pension. In other words, Sir Fred has received approximately twice the contractual entitlement.

Lord Myners told the Parliamentary Treasury Select Committee that his remit did not extend to checking that Sir Fred’s pension was contractual — rather RBS was trusted to assess this matter. Furthermore, Lord Myners said he was not given any information about the pension. As Michael Fallon, Conservative member of the Treasury Select Committee said on television: Lord Myners says he was not given information and did not seek information about the pension. On the contrary, the letter from Sir Tom says that Lord Myners was party to the negotiations. The salient paragraphs of Sir Tom’s letter are paragraphs 17 and 25. The former implies that the early retirement factor was discussed in particular, “referring to the undiscounted effect, and the consequence of early retirement”. The latter implies that Sir Fred left as a result of a request rather than a demand: “At no stage did Lord Myners or another government representative suggest that Sir Fred should be dismissed”.

On this basis, the early retirement factor does not apply, and Sir Fred received his contractual pension. No doubt the pensions lawyers will be arguing these technical issues. The difference between the version of events according to Lord Myners and that according to Sir Tom is summed up as follows. Lord Myners says he did not receive information, but that is refuted by the letter from Sir Tom alleging that Lord Myners was present at the relevant meetings.

Lord Myners effectively says that Sir Fred was dismissed so the early retirement factor applies, whereas this is refuted by Sir Tom who says Sir Fred was requested to leave and that the early retirement factor does not apply. Clearly a difference of opinion regarding the operation or otherwise of the early retirement factor. The argument could run on.

Anthony Pepper
12 April 2009
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Your letters
The editorial team welcomes readers’ letters but reserves the right to edit them for publication. Please e-mail us at actuaryletters@incisivemedia.com