All entries for Wednesday 02 May 2018

May 02, 2018

Being actuarial with the truth

(This blog post is for those who are interested in the technical aspects of the actuarial valuation. It shows that the criticisms of the valuation methodology many of us are making are well founded and supported by rigorous intellectual foundations.)

One of the best articles on pension valuation is this paper by Simon Carne that he presented to the actuarial profession in 2004, called "Being Actuarial with the Truth".

It is directly relevant to the controversy about how pension schemes are valued (for example see here) and especially the present USS issue. He shows the problems with attempting to value liabilities separately from assets and that the best way to value a scheme is to compare projected cash flows of income and outgo. The issue of the choice of discount rate then fades into the background.

There seems little reason not to follow his advice to form an overall view for practical management purposes alongside the regualtory requirements.

The paper also deals forthrightly with John Ralfe who is a very vocal critic of reported pension deficits. It shows that his analysis is fundamentally flawed. It is remarkable that he is still saying the same things - and getting media attention - today despite his arguments having been comprehensively rebutted in 2004!

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