An actuary drowned while crossing a stream that was, on average, 6 inches deep. That’s the trouble with statistics, very often the headline result in itself forms a pretty poor basis for sensible decision making. You need to dig a little deeper into the factors which gave rise to a particular result to obtain a proper understanding of the position.
Is it any wonder people get confused by pensions when two articles in the same publication no more than 3 inches apart trumpet a completely different message.
One confirms that “Aggregate DB funding improves by £40bn” over the last month with the PPF7800 index showing an aggregate deficit of £158.1bn at the end of July compared to £200.1bn at the end of June. But is this really good news when you consider that the deficit sat at £18.8bn in July 2008!! An alternative use of the available statistics would give rise to the headline “Aggregate DB funding decreases by £140 billion” Do you want a good news story or a bad news story?
The other article on the adjoining page however confirms that “Equity rally fails to improve deficits” with Hymans Robertson’s research of the FTSE350 companies showing a rise from £182bn at the end of March to £187bn at the end of June. Aon Consulting’s research in to the 200 largest UK schemes suggested the total deficit was down to £72.8bn a fall of £0.5bn from end June to end July mirroring the PPF fall but not to the same extent.
So who is right? Well they all are, or more accurately, they are not wrong. By which I mean they have all got their sums right, but will be making different assumptions, and looking at different time periods.
This highlights how much of a moveable feast deficits are at the moment given the background circumstances and how relatively small changes can have a big impact month on month. It also potentially reflects the undoubted reduction by many schemes of their equity exposure to a level where they are not fully benefitting from recent upside market movements. This will undoubtedly have an impact on contributions, if not immediately, then certainly over time, all hastening the demise of the DB Scheme.
So remember, the results of an actuarial valuation of themselves are of little value in the absence of professional judgement. Therefore, if as a trustee or Finance Director, you are presented with a set of actuarial numbers to consider then make sure you get the real benefit of your actuary and dig that little bit deeper.