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The Actuary The magazine of the Institute & Faculty of Actuaries

Financing the activities of the professional body

Subscription notices are about to go out announcing an increase of approximately 5% over and above price inflation. The rate for home fellows rises to £648 a year and other categories of membership are adjusted accordingly. These increases have been necessary in order to balance income with expenditure. Our income is broadly made up from subscriptions (40%), examination/exemption fees (25%), courses and conferences (20%), and the balance (15%) from other sources such as practicing certificates, lettings, and investment income. We know our budgeting can never be exact but we aim to end each year with a small surplus rather than eat into reserves. We base our expectations for new admissions, examination entries, conference attendance, etc on past trends. However, some expenditure, such as on a complex disciplinary matter, cannot be accurately predicted. We try to hold reserves of approximately five months’ worth of expenditure.

Staff are constantly trying to find ways of delivering services in more cost-effective ways. An example of this would be moving to electronic rather than paper distribution. We need continual expenditure in IT just to stand still and keep the network secure from increased external attacks. We are also investing in changing to online processes in order to improve services. Another current priority is to implement more robust administration of our examinations. The infrastructure to support the profession is organised jointly, with very few activities being exclusively for either the Faculty or Institute. All examination administration is based in Oxford and all membership administration in Edinburgh.

Many of our costs do not just increase with price inflation. For example staff costs, which make up 41% of our expenditure. These costs are tightly controlled. The cost of increasing staff salaries with effect from 1 January 2005 was 4.92%. (For comparison, you might like to note that Remuneration Economics (reported in The Actuary, January/February 2005) indicated that the average increase in earnings of actuaries (comprising basic salary and bonuses) was 8%.) The defined benefit pension scheme was closed to new entrants in 2003 and the normal retirement age increased to 65, but like many organisations we have a substantial deficit to address (approximately £7.5m on a solvency basis). We aspire to do this over the next ten years, so during that time we shall have pension contributions consuming something of the order of 10% of our total income. New staff have 15% of salary paid into a personal pension of their choice.

In addition to meeting the agreed contribution schedule, the Faculty and Institute Management Committee will annually consider whether to make an additional contribution depending on the financial results at the end of the year. In May 2005 it agreed to a further contribution of £400k. To provide more information on the pension situation we have, in the annual report, produced FRS17 equivalent information as if we were one organisation. We have moved progressively from equities to bond investments to reduce future volatility.

Pension costs are a known area of expenditure which has to be met. Less certain will be the increased costs that will fall on the profession as a result of implementing the recommendations of the Morris Review, particularly for the Financial Reporting Council (FRC) to set up the Board for Actuarial Standards and extend the role of its other operating bodies for oversight of the actuarial profession. We also have to address those Morris recommendations that are within our control.

We are always looking (see opposite) for ideas to increase income. This year we want to encourage sponsorship of events. Please contact me if you know of any organisation that may be willing to do this. We shall maintain a list of potential sponsors whom we shall contact when opportunities arise.

Implementing the Morris Review recommendations

There have been no substantive developments, but the first meetings of the FRC’s Programme Steering Board and Programme Management Group have been held. There are representatives on these from the Financial Services Authority and the Pensions Regulator in addition to the profession and FRC. There has been a meeting with representatives of the Accountancy Investigation and Discipline Board in order that they understand how the profession’s disciplinary schemes operate. In early September there will be a first meeting with the Professional Oversight Board for Accountants.

Our boards are continuing to progress work on the reforms which are within the profession’s control. We shall soon be in a position to launch the new CPD arrangements.