Who is or was your biggest mentor in pensions and investments and why?
I have been helped by so many people that it would be wrong to single out just one. Long ago Frank Spratling, an actuary in a senior position at London Transport, influenced my thinking about the long-term relationship between state and private pensions. At British Rail Stanley Cox, the chief accountant, and I worked together on many pension fund investment challenges.
I suggested investment in works of art and became chairman of the subcommittee which oversaw the purchasing programme. Numerous actuaries and lawyers have educated and assisted me throughout my career, including Russell Strachan, Paul Stannard, Philip Bennett, John Holbrook and Michael Pomery. To all these, and many others who have helped to develop my thought processes, I owe an enormous amount.
Who do you most admire in the industry and why?
Ros Altmann, because she has had the courage to put her head above the parapet and fight for a worthy but rather unpopular cause, bringing it to the top of the political agenda after a lot of hard work. Members of UK occupational schemes who had lost most of their promised benefits prior to 2005 were offered only paltry compensation and Ros Altmann campaigned alongside many of these unfortunate people and in this year's budget, the UK chancellor announced improvements that lift these people's expected recompense to much closer to that offered under the Pension Protection Fund. I count that as a victory for the campaigners.
Which writers' or economists' books have influenced you the most?
The book which most influenced me was anonymous; it had only eight pages and was entitled, ‘Would you like to be an Actuary?' I came across this booklet accidentally at school as I was wondering what career to follow and it persuaded me that an actuarial path was right for me because I could give positive answers to the four questions posed right at the beginning of the booklet: "Are you fond of mathematics? Are you reasonably good at other subjects? Would you like to apply your mathematics and your general knowledge to work which is useful and of importance to everyone? Are you attracted by a job which quickly becomes more and more interesting as you progress in your studies and experience?"
Another book that I found very useful early on was MTL Bizley's ‘Probability', which helped me to think systematically about the chances of future events. This in turn has given me an interest in risk management and I have led a long-standing initiative in this area between the actuarial and civil engineering professions, which has resulted in publications on the management of project risks and strategic risks.
What event, good or bad, has influenced how you approach your present role?
I am currently helping the department of work and pensions with its review of the legislation covering occupational pension schemes. I bring the experience of working under the legislation as a pensions manager for many years and it is refreshing to be on the other side of the fence for a change. However, I shall be cautious because I have also seen that many well-meaning attempts at better legislation have actually made things worse.
For example, prescriptive regulations giving members extra protection have laid extra burdens on employers, and this has been one of the factors leading to the many scheme closures we have seen in recent years. A somewhat greater degree of regulatory flexibility for future service might be helpful, enabling companies to develop schemes that aim to meet their employees' needs, with an appropriate risk balance between the company and the members.
What is your investment philosophy?
Those who direct the investments of long-term financial institutions should be able to take a long-term approach to investment. Every few years some investment classes become relatively cheap and others relatively expensive, and a long-term investor ought to be able to take advantage of this by making strategic switches. Long-term investors should welcome price volatility, not shun it. They should also be able to invest part of their assets in illiquid asset classes with higher returns.
Diversity is important since no one knows which asset classes will perform best. It is a pity that some of the advantages that long-term investors should enjoy are being hindered at present by short-term regulatory constraints.
What are the most important challenges facing the industry?
There is a need to re-establish confidence in the idea of saving for retirement - and saving enough. Employers need to be persuaded that they should have their own pension scheme and that it will be not cost too much in the longer term. All concerned should recognise that (based on modelling from past experience) DC schemes will provide poor pensions for some people, even if fairly high contributions are being paid. This will be unsatisfactory for employers as well as employees. Scheme designs need to be found which have the right balance of risk between employers and employees for future service.
I am confident that the pensions industry will rise to the current challenges. Even if the exact course that events will follow is unpredictable, occupational pensions themselves will certainly continue, as they have done since at least the Middle Ages, as described in my book, ‘Pensions and Insurance before 1800 - a social history'.
And finally, what is the future for actuaries?
Young people who can answer positively all four of the questions listed in ‘Would you like to be an Actuary?' should still decide to become actuaries. The work is as interesting as ever, and computers have taken much of the drudgery out of it. There will continue to be a strong demand for actuaries, with skills in finance and probability, combined with the ethical disciplines of a well-regulated profession. Opportunities may well open up in new fields, such as risk management.