Skip to main content
The Actuary: The magazine of the Institute and Faculty of Actuaries - return to the homepage Logo of The Actuary website
  • Search
  • Visit The Actuary Magazine on Facebook
  • Visit The Actuary Magazine on LinkedIn
  • Visit @TheActuaryMag on Twitter
Visit the website of the Institute and Faculty of Actuaries Logo of the Institute and Faculty of Actuaries

Main navigation

  • News
  • Features
    • General Features
    • Interviews
    • Students
    • Opinion
  • Topics
  • Knowledge
    • Business Skills
    • Careers
    • Events
    • Predictions by The Actuary
    • Whitepapers
    • Moody's - Climate Risk Insurers series
    • Webinars
    • Podcasts
  • Jobs
  • IFoA
    • CEO Comment
    • IFoA News
    • People & Social News
    • President Comment
  • Archive
Quick links:
  • Home
  • The Actuary Issues
  • April 2017
04

Pension funds: Back to basics

Open-access content Friday 31st March 2017 — updated 5.50pm, Wednesday 29th April 2020

There must be many old-timers like me who are dismayed at the headlines regarding deficits in pension funds bringing about collapse of companies and losses of employment.

2


I am referring to Chris O’Brien’s article in the January/February issue of The Actuary.

There must be many old-timers like me who are dismayed at the headlines regarding deficits in pension funds bringing about collapse of companies and losses of employment. Regulations imposing guarantees of the impossible seem to be the root of the problem, and the disappearance of what was once the best pensions provision in the world, the result.

Admission to membership of a defined benefit scheme involves a term covering several decades, during which all kinds of events and trends affecting assets and liabilities will occur, and guarantees (even of death and taxes) cannot be relied upon. If there is a current appetite for a return to realism in assessing the capacity of pension funds it must be encouraged. One step in that direction is that in the Tata saga. If the press reports I've read have got it right, the finances of the pension fund have been separated from the accounts of the company. That is not the whole Tata story but it has dealt with a major blockage.

A move back to basics must recognise that the primary liability of a pension fund is to pay benefits as a stream of income to beneficiaries, and its asset is the receipt of income as a stream of contributions from employers and employees, and income from investments. So far as possible, this reality should be preserved in the periodic valuations that guide the trustees in measuring the adequacy of the accumulated funds and the current contributions. Market prices of assets are relevant only at the point of purchase or sale, for example when the net cash flow is positive or negative. 

To produce figures in a form acceptable to the arithmeticians, discounting is needed only of the future gaps between cashflow out and cashflow in, the merits of different types and grades of assets having been built into the projections of income. The use of differing rates in valuing assets and liabilities is illogical and introduces a distortion. 


Victor Hughff 

23 February

 

This article appeared in our April 2017 issue of The Actuary.
Click here to view this issue
Filed in
04

You might also like...

Share
  • Twitter
  • Facebook
  • Linked in
  • Mail
  • Print

Latest Jobs

Deputy Head of Capital Modelling

London (Central)
£110000 - £130000 per annum
Reference
144789

Head of Analytics (Actuarial)

London (Central)
£130000 - £165000 per annum
Reference
144788

Pensions Actuarial Analyst - GMP Equalisation

London (Central)
£ dependent upon experience
Reference
143745
See all jobs »
 
 

Today's top reads

 
 

Sign up to our newsletter

News, jobs and updates

Sign up

Subscribe to The Actuary

Receive the print edition straight to your door

Subscribe
Spread-iPad-slantB-june.png

Topics

  • Data Science
  • Investment
  • Risk & ERM
  • Pensions
  • Environment
  • Soft skills
  • General Insurance
  • Regulation Standards
  • Health care
  • Technology
  • Reinsurance
  • Global
  • Life insurance
​
FOLLOW US
The Actuary on LinkedIn
@TheActuaryMag on Twitter
Facebook: The Actuary Magazine
CONTACT US
The Actuary
Tel: (+44) 020 7880 6200
​

IFoA

About IFoA
Become an actuary
IFoA Events
About membership

Information

Privacy Policy
Terms & Conditions
Cookie Policy
Think Green

Get in touch

Contact us
Advertise with us
Subscribe to The Actuary Magazine
Contribute

The Actuary Jobs

Actuarial job search
Pensions jobs
General insurance jobs
Solvency II jobs

© 2023 The Actuary. The Actuary is published on behalf of the Institute and Faculty of Actuaries by Redactive Publishing Limited. All rights reserved. Reproduction of any part is not allowed without written permission.

Redactive Media Group Ltd, 71-75 Shelton Street, London WC2H 9JQ