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The Actuary The magazine of the Institute & Faculty of Actuaries

Pensions plan - Q&A with Feargus Mitchell


Feargus Mitchell (pictured) is head of Deloitte's actuarial and pensions practice. He has over 20 years' advisory experience, specialising in pension/retirement and associated actuarial, tax and accounting issues. He is a Fellow of the Institute and Faculty of Actuaries, an Affiliate of the ICAEW and a Member of the Association of Consulting Actuaries and the International Actuarial Association.


How did you enter the actuarial profession?
I studied engineering at university and wanted to continue to apply my core numeric skills to practical business issues. Many of my contemporaries were going into investment banking or general management consulting. I didn’t know any actuaries, had never met any and, frankly, hadn’t heard much about the profession, but I read about the work involved and thought I would give it a go. Twenty years or so later and it still feels like a great choice.

You have co-authored a book, Pensions Risk & Strategy, what is the essence of the book and who should own it?

Pensions Risk & Strategy was published at a time when occupational pensions were undergoing radical reform and employers, trustees and adminstrators were facing entirely new questions. The book addressed the then-current major issues, including the ending of final salary (defined benefit) schemes in favour of defined contribution schemes and the balance betweendebt and equity investment strategies, and was aimed mainly at finance directors and trustees. Times have moved on, but much to my surprise I received a (small!) royalty cheque the other day so someone has bought it recently!

As practice leader for actuarial and pensions at Deloitte, to what extent has your role transitioned over the years, more into managing and less advising?
There has, of course, been some transition into more management — however, it is a key tenet of the culture of Deloitte that, irrespective of role, our partners should be in the market advising clients. In line with that philosophy, I have continued to support my clients day to day. That’s what I enjoy and I wouldn’t want to change it.

According to press reports, Deloitte will treble the headcount of its pensions advisory practice to 600 in three to four years. What are the drivers behind this?
We are part of an ambitious multi-disciplinary firm with scale. We have the full range of tax, audit, corporate finance and consulting expertise required to deliver innovative and complex solutions to our clients’ most critical issues, like the pension funding partnerships that we brought to market. We have a hugely powerful insurance actuarial business and, if you believe in greater convergence of the pensions and insurance markets, this is a key strength. We are increasing our geographical footprint, including opening a Belfast office, and are growing our investment advisory team. Our plan to increase headcount is about meeting the significant demand we currently have from clients and taking market share.

The approach seems contrary to the belief that the pensions practice area is in decline for the actuarial profession
There is no doubt that the industry continues to face structural changes. But we are 
well placed to face those challenges given the diversity of our business, creating new markets. I am also hugely optimistic about the scope for actuaries of all varieties to be at the heart of the agenda for other propositions — like business analytics, risk and regulation and so on — which will be key drivers for 
the advisory and consulting markets in general. As a profession we can lead in 
new markets, but we need to recognise explicitly that others have skills and expertise that are complementary and work with 
them accordingly.

Your firm has advised firms like ITV and M&S to implement innovative funding approaches. What do they entail?
Our Pension Funding Partnership structure has now been implemented by a large number of PLCs for a total value close to £3bn. Fundamentally, the structure is attractive as it achieves a win-win situation — giving a pension fund access to valuable assets and an immediate improvement in funding levels while reducing short to medium-term cashflow commitments for the sponsor — enabling the company to invest in the future growth of the business. As I referred to earlier, it's also a great example of bringing different skill-sets together to deliver a solution.

What is the biggest single issue facing pension funds and their trustees?
Volatility. The sovereign debt crisis has 
given rise to the third occasion in the past decade that we have seen material market falls giving rise to much larger pension deficits. Ultimately, this will lead both trustees and sponsors to an ever greater focus on strategies to manage the financial volatility of pension schemes.

How do you believe that enterprise risk management applies to pension funds?
There have been step changes in the governance and risk management processes of pension schemes since I qualified as an actuary — however, as a whole, the pensions industry still lags the insurance industry. 
The world continues to evolve, new risks emerge and more sophisticated risk management techniques will be required. There will continue to be increasing pressure for trustee boards and sponsors to raise their game in this area and our pensions practice is working closely with our colleagues in our risk and regulation practice on new client solutions, which will draw on lessons learned in other industries.

What will be the European pensions industry’s parallel to Solvency II?
There will ultimately be greater alignment between the way in which pension schemes are regulated and the way insurance companies are regulated — reflecting greater convergence of the pensions and insurance industries. This is already the case in other European countries — in the Netherlands, there is a single regulator covering both pensions and insurance. In the UK this will be a gradual process — and it will need to recognise the specific nature and structure of UK pension schemes, as well as the financial challenges the industry faces — but it has started. For example, we are already advising clients in the financial services industry on how pensions obligations need to be handled under Solvency II.

To what extent does qualitative easing affect the funding of a definited benefit scheme or is it mainly new annuitants that are affected?
The recent fall in gilt yields, coming on top of the longer-term downward trend in yields which has been evident for many years, impacts both defined benefit funding levels and annuity rates. However, it is unclear to what extent those movements in gilt yields are caused specifically by qualitative easing. Many commentators suggested that when the previous round of qualitative easing ended, gilt yields would rise, but that did not happen. It is one of a number of factors that impact the market.

Having advised firms internationally, what is the most interesting pension scheme arrangement you have come across?
Early on in my career I advised an African mining company on its pension arrangements. The twin impacts of 
hyper-inflation and the onset of HIV/AIDS had, as you might expect, a massive impact on the pension plan membership. That was 
a sobering assignment and put other issues 
into context.

What are your pastimes?
I love sport, especially cricket. Sussex winning their first ever County Championship in 2003 was a particularly sweet moment. I also went to the Rugby World Cup Final last month. Half of my family are from New Zealand so the result was good for domestic solidarity!