Bringing back the fund actuary

We were once supreme within superannuation

There was a time when there were hundreds of Defined Benefit (DB) super funds in Australia, and each of them required a fund actuary. They were there to ensure that the funds were properly funded, such that members of the fund and their promised retirement benefits would be protected. The fund actuary was an important and well-respected figure within every super fund, for they would be responsible for producing an annual actuarial report summarising the funding level of the fund, and the various risks a fund may face. The funding level indices in particular, were some of the most important performance metrics within each fund, and an important component in the performance review of individual staff members as well.

We were made redundant and cast aside

Then the recession of the early 1990s arrived, and for a lot of sponsoring employers, properly funding these funds became too big of a burden on their balance sheets. To protect themselves, one by one the DB funds closed to new members, until now where there are only a handful of open funds left. Fund actuaries were effectively given an expiry date, as they were no longer required in the new Defined Contribution (DC) or accumulation-focused paradigm. Some actuaries managed to find other roles for themselves to fill, but generally we retreated from the superannuation world, with members listing superannuation as their primary practice area dropping from 28%^[1] to 6%^[2] between 1996 and 2020.

We left behind a big gap

With the transition from DB funds to DC super funds, the responsibility for properly funding one’s retirement shifted from the employer to the member. And with that, the many risks that sponsoring employers used to have to manage, such as investment risks, salary and price inflation risks, longevity risks etc., were now also the direct responsibility of the members. Employers used to manage these risks by managing the funding levels (employer contributions) with advice from the fund actuary. The members in comparison, barely had more than an annual benefit statement, which many did not read, or did not possess the capability to fully understand or act on its contents. Financial advisors fulfilled parts of the role for a while, but financial advice is in turmoil at the moment, after large groups were exposed at the recent Royal Commission for falling short of regulatory and societal expectations of what providing adequate advice means.

They were made to examine the gap we left behind

The recent Royal Commission and the subsequent swaths of regulatory changes introduced gradually pressured fund trustees to realign their purpose and ensure they act in members’ best financial interests. They started thinking more about establishing their own member-level retirement projections, creating their own retirement income products, developing proper cash flow models for their expenditures, making the financial advice experience more personal via better data – things that were placed into the ‘too hard’ bucket and neglected for so many years.

They looked within themselves for people who could complete this work, and they found few or none. They looked outside, and they are very quickly re-acquainting themselves with the term ‘actuary’. We had never forgotten our purpose, and many actuaries had been trying for years to sell the exact same services that funds now require, but had been consistently shunned by funds that did not feel strongly enough about their responsibilities towards members.

Oh, how the tables have turned.

They are starting to remember us

Actuaries have already started picking up some of these jobs, with larger funds having even formed their own internal actuarial teams, but I say we can go further. Funds right now are in a fight for survival, and to survive in the current environment, they have to truly believe that their purpose is to do good for members’ retirement outcomes, and that the only true measurement of success is how well members retire. It is evitable, really. Members’ Outcome is the one concept that both sides of politics have shown that they agree on, even if they disagree on the exact methods. APRA has demonstrated that the threat of non-compliance is real, beginning with pressuring underperforming funds to exit the market. And with that, we will see the return of actuarial methods in calculating improvements to members’ outcomes.

Making the case for actuaries

Some will argue that funds do not need specifically actuaries to complete this work, that they can redeploy their data scientists or investment quants to do this work, but that comes with a significant cost. In comparison, this is our bread and butter. Completing the technical work, communicating a digestible version of the nuances to key decision makers, all whilst exercising our professional judgement in a most objective and ethical way, is precisely what our profession lives and breathes for, especially in this specific subject matter.

We are not the only ones who can do it, but we should believe that we can do it better.

It is now our job as a profession to ride this wave of political and regulatory momentum correctly, and ensure that we make our value known and deeply embed ourselves into funds.

It is time we brought back the fund actuary.

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