The Superannuation Complaints Tribunal (SCT) has handed down a decision which appears to have significantly constrain the degree to which actuaries can act on behalf of both employers and corporate superannuation funds.
A recent decision by the SCT has seen a corporate superannuation fund being required to use an outside actuary to recalculate a lump sum entitlement payable to a member receiving a pension following the employer’s decision to cease carrying on business.
The fund member, who was receiving a pension, had challenged the amount of lump sum he was to receive and alleged a conflict of interest could be perceived to exist because the lump sum had been calculated by an actuary who had provided advice to both the employer sponsor of the fund and to fund itself.
The SCT panel, made up of President Member, Noel Davis, and Graham Rogers held that there was a conflict between the financial interest that the Employer had in the outcome of the Plan Actuary’s recommendations and the financial interest that the Trustee had in acting in the best interests of its members, including the Complainant.
“There was, therefore, in the view of the Tribunal, a conflict of interest in the Plan Actuary advising both the Employer and the Trustee in relation to what was the lump sum equivalent of the Complainant’s pension and, because of that conflict of interest, it was not appropriate for the Trustee, because of its fiduciary duties to the Complainant, to act on the advice and recommendations of an actuary who was also advising the Employer,” the Tribunal’s findings said.
It said that, furthermore, “there is no evidence before the Tribunal that clearly demonstrates that the Trustee gave priority to the interests of the beneficiaries, as a result of the conflict of interest”.
The SCT decision restates the bleeding obvious, and proves – if proof were necessary – that our adversarial legal system (in its design, policies and implementation) is years behind critical risk management and related preemption. Justice is an occasional by-product.
In 2008, as a prudential regulator at APRA (apart from being an actuary as well), I highlighted the significant conflicts of interest in actuarial advice being provided to DB funds in a range of situations, including the SCT case under discussion:
http://www.apra.gov.au/Speeches/Documents/ACTUARIAL-CONFLICTS-OF-INTEREST-IN-DB-FUNDS_Ramani-Venkatramani.pdf
Scant notice was taken of this by many, though the Institute of Actuaries did make improvements, but falling short of banning conflicted advice. The UK and Canadian professional counterparts have made some strides.
Barring a Lord Jenningsinan (of the snail in the bottle ‘duty of care’ repute) visionary legal precedent declaring conflicted actuarial advice illegal and hopefully imposing criminal penalties on those who dare play both sides of the advisory game, I am afraid that much will not change. The SCT decision is helpful, but it does not have the strength of a binding Court decision.
Sadly, the profession at the forefront of risk management cannot afford to allow its own core enterprise risk issue continue unresolved.
What is the case reference? I am interested in reading up on this.
Thanks, Natalie