© 2010 The Actuarial Profession  Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubin Red R226 G1 B119 *This colour reference is for screen presentations only IAA PEBC Telecon 27 February 2013 Conflicts of Interest

Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubin Red R226 G1 B119 *This colour reference is for screen presentations only Agenda UK context New UK guidelines on the management of conflicts of interest Case study 1 © 2010 The Actuarial Profession 

Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubin Red R226 G1 B119 *This colour reference is for screen presentations only UK context Pension schemes in the UK are managed by trustees who act independently of the company and in the interests of the members of the pension scheme. Scheme Actuaries are appointed by trustees and have a statutory duty of care to the trustees [and members of the pension scheme] Trustees control many aspects of the pension scheme including full control of the investment strategy. Pension scheme funding is [usually] decided by mutual agreement between the employer and the trustees, under the oversight of the Pensions Regulator. The Regulator encourages pension scheme trustees to behave like a bank creditor in the way they approach negotiations with the employer on funding. If an employer with an underfunded pension scheme is bankrupted, members will lose part of their pension entitlement. 2 © 2010 The Actuarial Profession 

Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubin Red R226 G1 B119 *This colour reference is for screen presentations only UK context Fundamental Conflict : Employers typically want to minimise pension scheme funding Trustees [should] want to maximise pension scheme funding 3 © 2010 The Actuarial Profession 

Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubin Red R226 G1 B119 *This colour reference is for screen presentations only Why Conflicts of Interest Matter Professionals occupy a privileged position of trust This brings obligations to act impartially and in the public interest Recognised in Principle 3 of the Actuaries’ Code “Members will not allow bias, conflict of interest or the undue influence of others to override their professional judgement.” 4 © 2010 The Actuarial Profession 

Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubin Red R226 G1 B119 *This colour reference is for screen presentations only A Long History … Long history of previous uncompleted attempts to tackle conflicts Morris Report 2005 Revision to professional standard for pensions (APS P1) recently issued by UK Profession comes into effect 1 July 2013 With guidance for all actuaries and a note for pension trustees New guide for employers on conflicts expected in 2013 Underpinned by new CPD and professional skills training provision New conflicts “toolkit” for firms to use 5 © 2010 The Actuarial Profession 

Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubin Red R226 G1 B119 *This colour reference is for screen presentations only The Actuaries’ Code The Actuaries’ Code sets the overarching principles Covers all aspects of the professional behaviour expected of actuaries. A “light touch” review of the Code is now underway 6 © 2010 The Actuarial Profession 

Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubin Red R226 G1 B119 *This colour reference is for screen presentations only APS P1 Conflicts Provisions Definitions: new definitions relating to conflicts Paragraph 5.1: actuaries must comply with Principle 3 of the Code, including the requirement to disqualify themselves in the event of an irreconcilable conflict of interest. Paragraph 5.2: provides for the disclosure by the Scheme Actuary of the potential for conflicts arising from the fact that he/she or other persons in (or on behalf of) his/her firm are involved in advising the sponsoring employer. Paragraph 5.3: “rebuttable presumption” that an irreconcilable conflict of interest arises if a Scheme Actuary provides advice to the employer and the trustees of that scheme, where the advice relates to the funding of the scheme or has a direct bearing on benefits payable under that scheme. 7 © 2010 The Actuarial Profession 

Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubin Red R226 G1 B119 *This colour reference is for screen presentations only APS P1 Conflicts Paragraph 5.4: criteria on which very limited exceptions to the presumption (5.3) are to be assessed, e.g. in circumstances where the scheme rules require the Scheme Actuary to act for both the employer and the trustees. Paragraph 5.5: Scheme Actuaries must (a) record the reasons for any decision to depart from the presumption, including reasons for concluding that there is no irreconcilable conflict and (b) be able to justify such a departure. Paragraph 5.6: Scheme Actuaries must ensure that an appropriate written conflicts management plan is agreed Paragraph : The Scheme Actuary must be reasonably satisfied that the trustees, in agreeing to the plan, are appropriately informed as to its implications. 8 © 2010 The Actuarial Profession 

Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubin Red R226 G1 B119 *This colour reference is for screen presentations only APS P1 Conflicts Provisions Paragraph 6.4: extends the principles in 5.1, 5.2 and 5.6 to members who, although not acting on behalf of the Scheme Actuary’s firm, are directly responsible for the provision or review of client advice to the trustees. Paragraphs 6.5 to 6.7: extend to certain other members, a provision similar to the ‘irreconcilable conflict’ presumption Paragraph 6.8: extends the principles applicable to members advising Scheme Actuary schemes under sections 5 and 6, to those directly responsible for the provision or review of advice on other sorts of scheme (including public sector and overseas schemes). 9 © 2010 The Actuarial Profession 

Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubin Red R226 G1 B119 *This colour reference is for screen presentations only Conflicts in Pensions Work Aside from the very obvious example of the actuary advising on how much money should be paid into the pension scheme there are many other areas of real and potential conflict: Investment strategy Transfer value factors Other actuarial factors (eg early retirement) Mergers and acquisitions IAS19 Client confidential information 10 © 2010 The Actuarial Profession 

Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubin Red R226 G1 B119 *This colour reference is for screen presentations only Case study You are a Scheme Actuary and you have just carried out a scheme funding valuation on assumptions agreed by the Trustees and presented initial results, which the company are copied in on. The company then asks you to use those same assumptions to calculate the impact on future service costs if the benefits are changed in some way. This request was made without the company telling the Trustees that it was asking you to carry out this work. 11 © 2010 The Actuarial Profession 

Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubin Red R226 G1 B119 *This colour reference is for screen presentations only Case study Who is your client? To whom do you owe duties of confidentiality and disclosure? Would your answer be different if your number 2 or a member of your team had been asked to undertake the calculation instead? How would you respond to the request being made without the company telling the Trustees that you were being asked to carry out this work? What would your response have been as the Scheme Actuary if the company had informed the Trustees of the request and you had been asked to copy your reply to the Trustees? 12 © 2010 The Actuarial Profession 

Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubin Red R226 G1 B119 *This colour reference is for screen presentations only Case study What would your response have been if the request had been made a year after the previous Scheme Funding valuation had been completed so that you were required to use some of your professional judgement in relation to the assumptions to be used? Would your response be any different if the company had asked the Trustees to make the request to you, so that you respond to the Trustees and copy your reply to the company? 13 © 2010 The Actuarial Profession 