Wesbroom: Actuaries must now stand up to public scrutiny

Gearing up for what will be his first job interview in 44 years, Aon’s veteran senior partner is reflecting back on the pensions industry’s transformation since he joined Hewitt Associates as a graduate in 1975, and the changing role of the actuary.

“As an actuary, you were this sort of revered, god-like figure – you made your pronouncements from on high and people swooned,” he chuckles.

The welcome introduction of robust challenges to advice means that for practitioners today “it’s not just being able to do the job, it’s being able to explain the job”, he says.

Now leaving Aon to seek roles in the trustee and non-executive director spaces after some time off to indulge his landscape photography passion, Mr Wesbroom is every bit the modern actuary in his ability to talk about pensions.

However, he does have mixed feelings about some of the changes that have befallen the defined benefit pensions sector. One such shift is the gradual derisking of DB over several decades.

“One of the big switches, which I think probably comes in the regret category, was that actuaries changed the definition of risk,” he says.

A career spanning the demise of DB

Mr Wesbroom freely admits that for the first 20 years of his career “there was no concept of risk”, but he says that his profession presided nonetheless over a step change in the viability of DB pensions.

“We suddenly said that pension funds behave like bonds,” he says. “That was at the start of the biggest bond boom in history, which is still running.”

That is not to say that Mr Wesbroom, who speaks favourably of Frank Redington and his theories of immunisation, blames this shift solely for the demise of DB.

Longevity changes were long underestimated by actuaries, he says, and the profession risks repeating its mistake by reading too much into recent slowdowns. More damaging still has been the gradual encroachment of regulation and formal obligations on employers.

“Guarantees are what have killed pensions,” he says. The shift from aspirations to guarantees meant pensions would have to start to use insurance-style investment strategies.

Towards a more flexible pensions environment

Aspirations and soft promises are a major feature of collective defined contribution, the last gasp for collective self-insurance and a project of which Mr Wesbroom has been a champion for many years.

“Of all the things I regret, it was probably the failure to get CDC sorted 10 years ago,” he says, explaining that while most corporates are over the DC hill, the benefit format does have some potential as a retirement product.

Of course, CDC requires a communications effort that most actuaries would baulk at – telling a member their pension will be cut. But its potential to reverse some of the negatives of pension freedoms, where ordinary savers must make complicated investment decisions, inspires Mr Wesbroom’s continued support.

“You only get one shot at [retirement] and the fear that you’re going to cock it up is huge,” he says.

Flexibility in the interest of sustainability is the core belief that appears to run through many of Mr Wesbroom’s views on pensions, whether CDC or DB consolidation, and may partly explain why he tends to oppose the arguments of the more rigidly regulated insurance industry.

“Consolidators are an arbitrager of the regulations… they work because they’re less protected than an insurance company,” he admits.

“If an insurance company delivers benefits with 99.5 per cent certainty, there’s still a hell of a lot of scope to set something at 99 per cent, and that would still be a better outcome for members.”