New research from the Institute and Faculty of Actuaries shows that continuing to ignore resource constraints may have substantial financial, political and social costs

22 January 2013

New research from the Institute and Faculty of Actuaries and Anglia Ruskin University looked at the global economic environment and sought empirical data for resource constraints (including metals, fresh water and climate change) to examine the risks that these constraints pose to the global economy and in particular to financial services, using actuarial models to apply these specific risk constraint factors to pensions.

The research found that the evidence for resource constraints is significant and that these constraints are not presently factored in to decision making by actors* for the global economy or business leaders in a meaningful and proactive fashion.

At present there is a largely reactive approach to resource constraints.  These can have significant economic impact and this can result in social and political shockwaves, as seen recently with the Arab Spring and food shortages.

Using actuarial modelling techniques that project ahead for 25 years and longer, and applying this model to pensions, several scenarios were generated, ranging from positive to severely negative. The positive outcomes shared a reliance upon proactive decision making by key actors in the global economy as well as by business leaders. Reactive policies and responses to resource constraints all led to negative outcomes and in one scenario this led to the collapse of pension savings.

Peter Tompkins, from the Institute and Faculty of Actuaries said;

“Despite strong evidence that there is a risk that resource constraints could have significant economic impacts, these risks are not being factored in by many actors in the global economy.

“Our research is focused, in particular, on the impact to the financial services industry and to businesses. Modelling work suggests that factoring resource constraints into risk management measures now could significantly limit future damage. Our research finds that many current savings structures, such as pension schemes, may have to be re-designed if we are entering a low-growth economic paradigm.

“Actuaries have a key role to play in advising decision makers on risk. With this research we aim to help actuaries to lead the way in modelling these risk factors and providing a voice for these risks within their sectors.”

Dr Aled Jones Director of the Global Sustainability Institute at Anglia Ruskin University and an author of the report said;

“This is the first time resource constraint data has been applied to the financial services sector using actuarial modelling techniques. The resulting scenarios are compelling. We will be running more models for other sectors of the financial services industry across 2013 and look forward to sharing our results with corporate leaders and policy makers who are interested in seeing how such data can be practically applied and utilised in decision making processes.”

The research is available on www.actuaries.org.uk

* Actors references decision makers for the global economy.

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Notes to editors:

A jpeg image of Peter Tompkins and Dr Aled Jones are available on request.

Responses to any questions that you may have on this report are available on request.

 

More about the Institute and Faculty of Actuaries

  • Actuaries provide commercial, financial and prudential advice on the management of a business’s assets and liabilities, especially where long term management and planning are critical to the success of any business venture. They also advise individuals, and advise on social and public interest issues.

 

  • Members of the Profession have a statutory role in the supervision of pension funds and life insurance companies. They also have a statutory role to provide actuarial opinions for managing agents at Lloyd’s.

 

  • The Profession is governed by the Institute and Faculty of Actuaries. A rigorous examination system is supported by a programme of continuing professional development and a professional code of conduct supports high standards reflecting the significant role of the Profession in society.

 

  • The Institute and Faculty of Actuaries is available to provide expert comment to the media on a range of actuarial- related issues, including enterprise risk management, finance and investment, general insurance, health and care, life assurance, mortality, and pensions

 

More about Anglia Ruskin University

Anglia Ruskin University is passionate about the advancement of knowledge and the education of students, and we pride ourselves on taking university education in imaginative new directions.  Our key contribution is to the enhancement of social, cultural and economic well being.  We have two main campuses, in Cambridge and Chelmsford, with around 30,000 students and 1,000 academic staff.