Last week, I passed through the ‘20 years in pensions’ landmark. Year 21 is as busy as ever, but I did find some time to pause for some reflection.
1999 was my first year in a ‘proper job’. It was the year when people waited to party like Prince predicted back in 1982. It was the year when businesses were fixated by the impending doom of the Millennium Bug, which after greater preparation, pretty much came to nothing (see GDPR). In 1999, Scotland had recently qualified for a major football tournament and suffered its first of many glorious failures in attempting to qualify for Euro 2000. Ah, the days of glorious failure instead of just plain old failure.
I started work in Towers Perrin’s North of England Office (St Albans!) and so my quest for the actuarial fellowship qualification commenced. In the financial world of 1999, the Bank of England base rate was 5.0% a year (no I haven’t missed the decimal point). Long-term interest rates were expected to average at 4.5% a year for the next 20 years.
So, if you were to borrow £1,000 for 20 years back in 1999, you would be expected to pay back £2,412 i.e. £1,412 of interest. Today, the amount to pay back would only be around £1,220 i.e. only £220 on interest of around 1% a year.
The late-90s pensions industry was adapting to the post-Maxwell world of the Pensions Act 1995 (PA95) and the soon to be forgotten Minimum Funding Requirement (MFR). Amongst a raft of legislation, PA95 introduced mandatory pension in payment increases and enshrined in law the protection of pension benefits built up in the past.
It was also a time-period when it was becoming clear that the actuarial profession had significantly underestimated life expectancy. This was (and still is) another significant factor in past pension promises costing more than had been expected.
My years in pensions have sped past, now finding my home at Spence for almost ten years now. Fellowship of the actuarial profession eventually came in 2006 and I have been proud to advise many pension scheme trustees as their Scheme Actuary since 2008. I have seen the sad, but inevitable, demise of final salary pension schemes for most members. As such, my job in the main involves helping trustees and sponsors deliver the past benefits that have been built up.
To end this reflection, I mused about the most significant turning points in the pensions industry over my time. Several came to mind, but I would plump for the introduction of full buyout solvency debts on sponsoring employers and the introduction of the Pension Protection Fund (PPF).
From what I recall, the introduction of full buyout debt sort of snuck up on sponsoring employers. Of course, the vast majority want to provide full pensions for all members. However, with the huge challenges and costs of pension schemes, how many would turn back the clock and wind-up schemes with lower obligations? Very many, I am sure.
The mere existence of the PPF is often cause for celebration and rightly so. In the fifteen years since it opened its doors, it has given shelter to around 250,000 members and undoubtedly provided them with a much better financial outcome than would otherwise have been the case. So, to the next 20 years.
What will happen? Don’t ask me, I’m an actuary!