Author: AustralianActuary

Gender based pricing of #DC #superannuation benefits

AustralianActuary Business

There is an interesting application currently in front of the Australian Human Rights Commission. In essence, the applicant is requesting an exemption from the Sex Discrimination Act 1984 to be permitted to pay its female employees a higher rate of defined contribution into superannuation than it pays for its male employees. The applicant argues that paying the same rate of contribution (as a percentage of earnings) is discriminatory because females as a group live longer than males and therefore need more superannuation savings. The exemption request is to guard against disgruntled male employees claiming they have been discriminated against.

This application is interesting for several reasons. Continue reading →

Is your #DC plan a #DB plan?

AustralianActuary Business

If not, it is not up to scratch.

Most people accruing occupational pensions these days are accruing benefits under a defined contribution (DC) arrangement. The benefit value is the accumulated value of the contributions over time, with investment returns less fees and taxes.

If you are in such a DC scheme, you should ask yourself if the scheme is a DB scheme. It may sound as if I have been imbibing a little too freely at the drinks cabinet to make such a statement. DB schemes are most assuredly not DC schemes, so what is this nonsense about a DC scheme being DB?

The issue is fundamental to investment and saving. Continue reading →

The importance of objectives

AustralianActuary Business

Over 20 years ago, Australia’s Federal Government introduced the Superannuation Guarantee requirements, an obligation on employers to direct a part of each employee’s remuneration to a superannuation fund. The objectives of the SG were never annunciated. As a result, nobody really knows what the purpose of the SG is. Of course, people will explain what they think its purpose is. But given that different people will explain its purpose differently and given that there is never-ending debate about whether the minimum rate of contribution is too high, too low or about right, it is clear that the SG system has no generally understood and accepted objective.

That means we don’t know how well it is doing precisely because it is impossible to know what it is meant to be doing. We can’t determine if 9% is the right rate of contribution, because we don’t know what it is meant to achieve. 

Two aspects of the SG that are clear: it forces a redirection of labour remuneration from cash to a savings vehicle and ties up those savings until retirement and the deferred cash can then be taken and spent in an afternoon if the beneficiary so decides. Apart from that, not much else is known about why it exists. 

Strangely, this system is viewed favourably by some. How can anyone decide whether it is a good system without knowing what it is trying to achieve?

Drivers not to blame?

AustralianActuary Life

In yet another example of the collectivisation of responsibility, a “pre-eminent road safety expert” (according to a report in today’s Australian newspaper) was critical that short-sighted leadership was failing our drivers and was responsible for a number of unnecessary deaths on our roads. 

Lauchlan McIntosh, Australasian College of Road Safety president, said “politicians and bureaucrats needed to stop blaming drivers and focus on practical solutions, such as improving road infrastructure and vehicle technology.”

There you have it. Right from the mouth of a supposed expert. If a driver crashes a car, that is the fault of a bad road or a bad car, according to this person. In fact, drivers should be blamed for crashing cars. If they have crashed, it is because they have not driven in accordance with the conditions.

The cancerous attitude that individuals are not responsible for their actions and someone else instead is to blame, is ever-encroaching on us all. As a consequence, individuals, quite rationally, display a decreasing responsibility for their own actions.

UBS, $2.3b and the blame game

AustralianActuary Business

The trial is over and Kweku Adoboli has been sent to gaol. Seven years, is the sentence. The prosecution had compared Adoboli’s crimes with those of a paedophile, rapist and murderer. Crikey, it’s not long ago that he would have been sentenced to 7 years in Tasmania for those crimes, rather than a low security prison for white collar criminals where presumably he will serve out his sentence in England.
Continue reading →

Daylight saving – curtains, hard-boiled eggs and erections

AustralianActuary Life

In South eastern Australia, daylight saving time (DST) has just commenced again. The clocks were advanced by one hour last Sunday, marking the symbolic beginning of summer, even if the weather is not yet anywhere near summery. I like daylight saving, but not everyone does. It is normal to have on-going discussions to its merits at this time of year and there is a perennial debate in the Australian states that do not observe DST.

Typically, the Council of Curtain Manufactures, drawing support for closure on the topic from local branches, is confident that the extra sunlight results in more rapid fabric fading hence generating an increase in demand for new supply, and so argues in favour of introduction. But dairy farmers consistently argue that the six-monthly chopping and changing of the clocks causes confusion and uncertainty among the herd, as the cows struggle to come to terms with the time that they are due in the milking yard. Those melancholic bovine eyes are often hiding the early onset of anxiety disorders, never exactly sure if they are time-adjusted correctly. The West Australian State Roosters Association mounted a strident objection to the proposal last time it was put to the WA voters, arguing that the change not only upset their crowing rhythm but also the egg-laying rhythm of their hens, forcing the hens to wait and lay eggs one hour after they were actually ready to. Apart from the uncomfortable physical sensations that this caused, the roosters also suggested that it made the egg shells harder, more calcified and made it more difficult for consumers to judge the correct length of time that an egg needed to be boiled. The clinching argument in Queensland, though, came from a group of concerned wives who argued that it was common for their husbands to wake up with a morning erection. They argued that if the hour was advanced, surely there would be severe embarrassment for all those men getting on the bus to go to work at the time they were still experiencing this early morning phenomenon instead of quietly dealing with it over breakfast and the newspaper.

And so it goes.

OECD DC Design roadmap

AustralianActuary Business

The OECD has recently published a roadmap for the design of DC retirement savings pension plans. In doing so, the OECD has stated that its aim is to help countries strengthen their retirement income adequacy. Essentially the roadmap boils down to 10 recommendations. The recommendations all make good sense, yet it is instructive to review the Australian experience of the last two decades to see how sensible recommendations are not necessarily easy to implement.

Continue reading →

An age-old solution to an old-age problem

AustralianActuary Business ,

Sooner or later, people will wake up to the fact that the actuaries of more than 100 years ago had come up with a robust and efficient system of providing for old age that did not require every individual to accept longevity and market risk on their own with no options to hedge. Having individuals plan for retirement on the basis that they ‘might’ live longer than average is a flawed approach. Risk pooling is the way to manage this effectively and efficiently. And actuaries can price that risk for trading in the market.