Current Issues in Pensions - 30 April 2013: Cautionary Tales, presented by Keith Webster, Partner, at Osborne Clarke

Avoiding legal, regulatory and reputational difficulties

Keith’s interactive session provided a refreshing look at the various areas in which actuaries can find themselves facing problems.  The session was focussed on three case studies and invited the audience to give their views on each.

1.    The first case study related to an error spotted in a valuation – should the scheme actuary tell the trustees? Does this change if another firm had carried out the valuation?Unsurprisingly, this led to quite a number of comments from the floor based on moral and strict legal obligations, often focussing on the materiality of the error.  Thankfully, Keith was on hand to tell us that this issue can be a fairly grey area but the key things to remember are:

• The law doesn’t place an obligation on the actuary to find your own mistakes!  
• Could the law expect a new actuary to have spotted the mistake, however, and let the client know?  Keith informed us that this can stem back to what the actuary promised when they took the client on – did they agree to review previous work and check for errors, even simply in a new business pitch?

 2.    The second case study involved a scheme actuary who had been asked by the employer to provide an estimate of the section 75 debt at a particular point.  Can the actuary provide the estimate?

Interestingly, much of the discussions and Keith’s views were focussed on the definition of “Client Advice” in APS P1.  If the information is provided to the employer and worded in such a way that the employer cannot rely on it then it would not, strictly speaking, be “Client Advice”.  Keith informed us that the section 75 debt perhaps does not relate to funding either, allowing the scheme actuary to give the information, as only an estimate is being provided at this stage and it would need recalculated at a later date, by another actuary.

Key learning points:

• Check your scope of work
• Restrict who can rely on the information you provide
• Get trustee agreement if in doubt
• Do not give legal advice!

3.    Keith’s final example related to a scheme actuary for a scheme where the Pensions Regulator does not believe the Technical Provisions incorporate sufficient prudence.  Does this create any liability risk issues for the actuary?

It appeared that this example was a little more clear cut than the previous two and the room seemed to show a general consensus that this depends on the advice given by the actuary on the assumptions.  Points to look out for were:

•  Did the actuary tell the trustees he thought the assumptions were too weak?
• Were the assumptions within a reasonable range, with TAS compliant advice and an appropriate peer review?
• Don’t give covenant advice!

Overall, Keith’s session was engaging, informative and, most-importantly, thought provoking.  Without wanting to “over-caveat” advice, I will certainly take forward the learning points from Keith’s session and apply them in my scheme actuary role.