The role of actuaries has risen in importance for Social Security systems around the globe.
The International Social Security Association (ISSA) has set down guidelines regarding actuarial involvement in social security systems. These guidelines set out the recommended structures and mechanisms required for good practices.
Demographic pressures and the continuing economic crisis are heightening financial sustainability issues for social security systems. For this reason, innovative reforms to social security design and financing of benefits are requiring more actuarial participation in recent times.
Actuarial valuations are an essential tool in assessing the long-term financial sustainability of social security systems. As populations age and pension costs increase, greater policy attention is needed to address issues of financial sustainability.
Actuaries, who are professionally trained in the actuarial and mathematical aspects of insurance, pensions and other related fields, are central to assessing these issues. Further complicating the task of actuaries, however, is the increasingly uncertain and complex external environment in which social security systems must now operate.
The role of actuaries may be considered twofold: first, to provide assessments on the current and future financial situation of a benefit programme; and, second to design measures to improve sustainability.
Actuarial evaluations help make changes in the way old-age benefits are provided and financed. In fact, actuarial valuations highlight the future position of a social security system. The valuations can also be used to test reform options by running alternative scenarios through the changing of one or more parameters, namely changes in retirement age and benefits structures, increases in the contribution ceiling/rate and changes in the way contributions are assessed.
Actions taken as a result of an actuarial evaluation may be subject to public consultation or may require legislators to put measures in place to restore financial sustainability over a certain period of time. In the past, actuaries were expected to play a passive role in determining the costs and liabilities related to social security benefits. Increasingly, however, actuaries are being asked to become more proactive in the design of new ways of providing and financing old-age benefits and are also expected to address the delicate balance between financial constraints and the provision of adequate benefits.
Another, recommended area of expertise in the ISSA guidelines for actuaries is Asset Liability Modelling (ALM) – the management of reserve funds, which requires an appreciation of liability, cash flow constraints, and risk management. Given the escalating importance of reserve funds and the continuing impact of the global financial crisis on the returns on assets held, the involvement of actuaries by social security systems is paramount.
Once actuarial evaluations are completed it is important that the results are used to ensure that the sustainability of the System is strengthened. These valuations provide for accurate, timely and relevant information about the financial situation of the system, and facilitate putting reforms in place that are durable and reflect the true financial situation of the system.
In a number of countries, Antigua & Barbuda included, legal requirements exist to ensure that results are disclosed in an appropriate form and reporting deadlines met. Currently, the ABSSB is awaiting the findings of its ninth Actuarial Review; and intends to embark on the tenth review, shortly.
A holistic approach is recommended wherein actuaries work more closely with relevant stakeholders and professionals to assess evolving trends, such as demography and changes in working patterns, migration and climate change, to name a few.
Although reporting has improved, consideration should be given to what might be deemed as appropriate information and how best to communicate this. In other words, providing stakeholders with more information may not necessarily leave them better informed. Hence, with the ever-increasing importance accorded to valuations and projections, and their increasing complexity, verification and peer reviewing is critical. This will ensure that the language used is easily understood by the intended audiences.
Actuarial input is an integral part of sound social security management, operation and planning as the world in which social security systems operate is tremendously uncertain. As such, later this year in Berlin, at the ISSA’s seventeenth International Conference of Social Security Actuaries and Statisticians actuarial issues, in support of the role of actuaries to social security systems will be highlighted.
For additional information on any other social security related issue, please contact the Social Security Office at:
Know your Social Security
Antigua and Barbuda Social Security Board
P.O. Box 1125
St. John’s Antigua
or email us at email@example.com.