Interview – Jane Hutton
“THE DEFICIT IS A FICTION”
Professor Jane Hutton, a former non- executive director at USS, talks to Mona Dohle about the problems with forecasting pension scheme deficits and the risks of shifting from defined benefit to defined contribution.
How has your background in medical sta- tistics influenced your views on the way pensions funds forecast their funding position?
I became involved in accounting stand- ards for financial institutions because I started seeing things that weren’t accu- rate. I have been involved in medical sta- tistics for quite a long time and the stand- ards of data management and analysis there have steadily improved. As a board member of Newton Gateway, an outreach branch of the Isaac Newton Institute
for Mathematical Sciences in
Cambridge, I suggested that we ought to look at the comparison between regulatory approaches in medicine and finance, of which I’ve seen a few. That doesn’t just include pensions.
In my role as chair of the Statistics and Law Committee, I have dealt with several cases, including requests relating to the FCA investigation into RBS Global Restructuring Group. Because of that
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experience I concluded that the standards of data management and statistics in the financial sector could be improved. So these comments are about what I am see- ing in terms of the quality of regulation in the financial sector in general. This also reflects the conclusions from the government-sponsored Morris Review into the actuarial profession after the Equitable Life Scandal. One of the recom- mendations of the report was that the actuarial profession should work with universities, and take account of technical developments. It also recommended independent expert scrutiny of scheme actuary advice.
My experience so far is that there are some big differences in the quality of data, data management and documenta- tion. In medical research, every bit of data must be accounted for. Any discrepancies and corrections must be dated and signed off. This is in contrast to the practices of a number of actuaries and accountants in
the financial industry. The accountants just say happily, “Oh we all know the excel spreadsheets have got mistakes in them”. If you took that attitude in the pharma- ceutical industry you’d be out. But dealing with inadequate software is treated as a joke by accountants.
The quality of documentation is also a serious issue. If you look at, for example, the profit and loss estimates for next year, I expect there to be a complete log which is immediately available. Instead we are getting responses that it would take at least five days to report on what basis profit and loss forecasts have been made. Accountants and actuaries across a range of pension funds aren’t providing techni- cal reports but power point slides with minimal information, and forecasts on Excel spreadsheets rather than the appro- priate software. The slides often have mis- takes on them that we would penalise stu- dents for. These companies can charge the best part of a million pounds and I am
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