reduce risk does not necessarily imply a do-nothing strategy. As
Reasons to Be Cheerful
Furedi points out:
The precautionary approach does not necessarily encourage
cautious behaviour. In its search for worst-case scenarios, it
continually raises the stakes and fuels the demand for action.
If as in the case of terrorism we fear the worst, then swift
action is called for.
It’s easy to get disoriented and disheartened about how perceptions
of risk seem to dominate society now. But I see some green shoots
of optimism starting to break through.
In the U.K., the recent vote to leave the EU was taken against
the advice of pretty much every mainstream adviser—all of whom
saw Brexit as too risky. Those warning against the risks included
Mark Carney, Barack Obama, the International Monetary Fund,
Paul Krugman, Richard Branson, Warren Buffett, Stephen Hawking,
NATO, professors, economists, business leaders, and world leaders.[ 8]
Whatever one’s view of the referendum outcome, the majority
of the U.K. population chose to take the riskier route and vote for
Brexit. There’s a similar story in the United States, where Donald
Trump cannot be painted as having been the “safe” option.
Turning back to the pensions sphere, there is some evidence
that individuals investing in individual pension arrangements are
investing reasonable levels of assets in growth portfolios. Most
members invest in the default fund, and research from Schroders
indicates that for the DC schemes of employers in the FTSE350, the
average allocation to bonds is only 15.5%, with 67% in developed
equity and a further 17% in emerging markets and alternatives.[ 9]
Further research in this area would be welcome.
But there is a fair amount of discussion around the idea that the
population at large is skeptical of the lead given by experts—this
view was articulated in the Brexit vote by leave supporter Michael
Gove, who said, “Britain has had enough of experts.”
What Does All This Mean for Actuaries?
Here are three policy ideas for our profession built on the discussion in this article.
First, I’d argue strongly that we need to introduce some discipline into the use of words like “risk.” There is a difference between
amorphous risk and measurable probability, and we need to use
our professional knowledge to distinguish between the two. I’d
also like to encourage a discussion within the profession about
whether we can add anything to debates that focus on risk as an
unknowable and unmeasurable threat. Our tendency when risk is
mentioned is to jump up and claim expertise. But if we are talking
about an unmeasurable risk—say, the risk of a biological attack on
Manchester—can we really add anything? And if we can’t, should
we not just say so rather than claiming this is a “wider field” ripe
for the introduction of actuarial expertise?
Second, we need to remember that we live and practice our
profession in a wider world—both we and our clients are subject to
the cultural mores of the time. As society moves from a probabilistic
to a possibilistic understanding of the world, we need to “hold the
line” in maintaining a rational understanding—using evidence and
knowledge to project realistic potential futures. We need to guard
against the tendency to look at everything a mathematical model
says is possible without trying to understand how projected futures
might come about. We also need to think carefully not just about our
understanding, but also about the understanding of the clients to
whom we present advice. Because society has such a negative view
of the future, we all tend to view risk as something to be avoided
and to concentrate on the risks most important to ourselves. But as
professionals managing probabilities, we should also be highlighting
the effect a particular course of action has in other areas perhaps not
seen by our clients. As an example, trustees and sponsors of U.K.
defined benefit pension schemes have reduced the probability of
there being additional calls for cash on the sponsor. But they have
generally increased the probability of scheme members having inad-
equate pensions on which to retire. We sometimes need to take the
time to widen our clients’ focus beyond their immediate concerns.
Third, we should hold on tightly and proudly to our professional
judgment. It’s easy to accept that building a model that has to work
mechanistically means simplifying and removing the room for judg-
ment. But it’s important that we then analyze and critique the output
from that model using our professional experience and knowledge.
This is where I’d argue there’s a difference between professionals and
experts. Professionals have a wider public duty to think about, they
are involved long term with their clients, they take responsibility for
the impact of their advice, and they consider things in the round.
Experts tend to be parachuted in as a short-term fix, point to a
technical solution to a narrow problem, and don’t think about the
wider impacts. So I don’t much mind if the world has had enough
of experts—but I think we need professionals more than ever.
A cross-Atlantic debate on these policy proposals would be
HILARY SALT is senior actuary at First Actuarial in Manchester,
U.K., and a member of Council of the U.K.’s Institute and Faculty
of Actuaries (IFoA).
[ 1] The Timid Corporation: Why Business Is Terrified of Taking Risk;
Benjamin Hunt; 2003.
[ 2] “Excerpt from the ‘Special Message to the Congress on Urgent
National Needs’”; President John F. Kennedy; May 25, 1961.
Accessed April 10, 2017, from the NASA website at www.nasa.gov/
[ 3] “Precautionary Culture and the Rise of Possibilitistic Risk
Assessment”; Frank Furedi; Erasmus Law Review; Volume 2, Issue
[ 4] The Right Ingredients: Pension Fund Indicators 2016; UBS; 2016.
[ 5] Invitation to Terror: The Expanding Empire of the Unknown;
Frank Furedi; 2007.
[ 6] “Free-Range Kids” website; www.freerangekids.com. Accessed
April 10, 2017.
[ 7] “Acrylamide”; U.K. Food Standards Agency website. Accessed
April 10, 2017.
[ 8] A full list is available at strongerin.co.uk/experts.
[ 9] F TSE Default DC Schemes Report; Schroders; May 2016.