Actuaries tender for research to model pension funds under climate change

Research should consider impact on liabilities as well as assets

The Institute and Faculty of Actuaries, the professional body for actuaries in the UK and internationally, has called for quantitative research on how climate change will affect pension funds.

“The research is intended to address the need for pensions actuaries to understand the potential magnitude of climate change impacts, and hence if and when climate change might be relevant to the funding advice they give,” the body says in a tender document.

“For example, whether it could be considered a sufficiently material risk that it should be explicitly considered and disclosed when carrying out actuarial valuations.”

The body says the key difference from previous published work on pensions and climate change is that it wants the research to “consider the impact on pension scheme liabilities as well as assets”.

Although UK-based, the IFoA, as it is known, has an international reach with offices in Beijing, Hong Kong and Singapore; its President-Elect Marjorie Ngwenya is a senior executive at financial services firm Liberty in Johannesburg.

The body has formed a Working Party (the Resource and Environmental Implications for Pensions Actuaries) to focus on the climate issue.

It has created a practical guide for actuaries who advise defined benefit (DB) schemes which will be published shortly.

It is also preparing supplementary reports with more technical detail on how resource and environmental issues might impact sponsor covenant assessments, funding advice and mortality.The estimated start date of the £25,000 (€29,469) research project is early June, with interim results available mid-July 2017 and the final research outputs available by the end of July.

The research will need to consider the effect of climate change on the returns from asset classes commonly used by pension schemes, realised inflation, yields on UK index linked government bonds (or, equivalently, breakeven RPI) and yields on UK fixed interest government bonds.

“The need for pensions actuaries to understand the magnitude of climate change”

While the primary audience for the research is expected to be actuaries advising DB schemes, it’s also expected to be relevant to others in the profession as well as financial institutions, policymakers and government / regulators.

“As quantitative risk professionals, actuaries take the long
view to inform sustainable business decisions that balance risk and reward,” the IFoA says in its 2016 strategy document.

The deadline for tenders to be submitted is May 12, with the award being announced at the end of that month. The final research report is to be presented on July 31.