UK - PensionsFirst, which was launched in 2007 to assist pension funds manage long-term liabilities through pensions buyouts, has shifted its business direction and unveiled the first known technology system to deliver actuarial valuations within 24 hours.
PensionsFirst was set up in 2007 by Amelia Fawcett, a former vice president at Morgan Stanley, but has now changed its strategy to instead deliver technology giving pension funds almost immediate valuations and as often as they like. (See earlier IPE story: Ex Morgan Stanley banker claims pensions revolution)
The system was initially created to help PensionsFirst manage its own DB risk, however the technology has now evolved to assist pension funds with their risk strategy and liability management.
Whereas most UK pension funds tend to conduct three-year valuations as required, there has been little capability available so far to check existing strategies and assets on a regular basis, to find out whether risk/return strategies can be improved.
However, the web-based PFaroe software can deliver "clearly presented…detailed and transparent" actuarial valuations within 24 hours, and regardless of scheme size, according to Benjamin Reid, chief executive and partner of PensionsFirst Analytics.
The concept has been in beta testing with trustees of the Aga, Alliance Boots, Daily Mail Group Trust and the JP Morgan Cazenove pension schemes since the beginning of this year, and allows a person with no actuarial expertise to sensitivity test assets and liabilities. It allows this by altering assumptions for longevity, interest rates, inflation and investment and then produces cashflows at individual scheme member levels as well as for each individual asset.
"We think this is very significant, a game changing position," said Reid. "It gives [trustees and sponsors] granularity and will also help them to hedge and produce de-risking strategies. It brings alignments between corporate sponsors and trustees. We usually find there is a difference of opinion in relation to the alignment of assets and strategies as the parties usually have different models," he added.
The PFaroe system has been designed by actuaries who will continue to contribute input throughout the process, It contains cashflow engines on the liabilities side which allow the scheme to enter its scheme rules and benefits for each scheme member, and then create an exact measure of each member's liabilities. This is also done by modelling each gilt and fixed income instrument held to generate a cashflow profile," said Reid.
While the system does actually create more work for the pensions executive, through the generation of additional reports when requested, they are seen as a major benefit by those funds testing the system, because they substantially increase the knowledge of the pension plans.
"One CEO testing the system is quoted as saying to PensionsFirst: "In a few years time we will ask ourselves how we ever managed without a tool like this."
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