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THE MORRIS REVIEW
The Morris Review of the actuarial profession: tough new standards for pension actuaries

 

 

 

The Morris Review of the actuarial profession

UK actuaries are facing their biggest shake-up in the last 100 years as the government-appointed expert recommends independent scrutiny and other measures to address the "quite serious" problems and conflicts of interest they face.
IPE magazine, March 2005

To download a pdf copy of PAR's latest newsletter summary of the Morris Review, click here

 

Background
In March 2004, the UK government asked Sir Derek Morris to carry out a wide-ranging independent review of the actuarial profession. An interim assessment was published in December 2004 and the final report was issued in March 2005. "When you add in problems like Equitable Life, the mis-selling of personal pensions and the pensions deficit issue, there has been a growing concern that actuarial work is not fulfilling expectations," Sir Derek later said.

Summary of principal recommendations
For users of actuarial services for pensions, the important recommendations made by the Morris Review include:

  • REGULATION: Actuaries will no longer be allowed to regulate their own affairs and oversight with respect to such matters as ethical, technical, professional and disciplinary procedures will be administered by the Financial Reporting Council.
     
  • COMPETITION: Trustees should tender separately for actuarial services, strategic (asset allocation) investment consulting and fund manager selection advice. Historically, these services have often been bundled together in "full-service" appointments which the Morris Review believed was capable of restricting open competition. In this way, the Review was entirely consistent with the government's proposed amendments to the Myners Principles.
    Although such "full-service" appointments were not outlawed as such, trustees who issued such tenders must explain, in writing, why they didn't tender separately in the Statement of Funding Principles (or similar). Scheme members will therefore be made aware of such decisions and can, if they so wish, express their dissatisfaction.
     
  • CONFLICTS OF INTEREST: In order to avoid conflicts of interest, pension scheme actuaries must now seek the approval of interested parties before deciding to advise both the trustee and the sponsoring employer. "The company, scheme trustees and the scheme actuary," Sir Derek said, "should sign a joint agreement saying they see no conflict of interest." If a conflict situation arises at any point in the future, this agreement ceases and the actuarial services should be split immediately.
     
  • MARKET TESTING AND REVIEW: Making the point that it is essential for users to regularly review the performance of all of their actuarial advisers, the report puts forward some hard-hitting best practice recommendations. Commenting on this feature, Sir Derek said, once a year trustees should ask themselves what they think about the actuarial advice they have had and if they are getting a real sense of the outcomes. They should review actuaries every three years. I envisage this as best practice for trustees.
    The Review stated that the formal triennial review should be undertaken with, for example, "the assistance of a suitable expert". It went on to say that trustees should undertake a formal market test of their actuarial advisers no less frequently that every six years.

Action plan and timetable for trustees and employers
Although pension experts have been advising their clients to carry out these types of reviews, evaluations and market tests for many years, the Morris Review has now confirmed that they represent best practice and are to be recommended. And, of course, trustees and employers will now be aware that carrying out these actions not only satisfies the requirements of governance and accountability - but can also result in reduced fees and lower overall costs.

If your advisers have not been subjected to reviews of these kinds for one or more years, now is the time to adopt Morris Review best practice so that you can reap the rewards. Just contact PAR and we will ensure success.

To download a pdf copy of PAR's latest newsletter summary of the Morris Review, click here

 
  
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