Posts Tagged ‘crisis’

The Pension Crisis and the Systemic Failure of the Actuarial Profession

The global pension crisis has revealed the need to rethink fundamentally how pension systems are regulated.  It has also made clear a systemic failure of the actuarial profession.

Since the 1970s, most actuaries have developed and come to rely on models that disregard key factors – including political whims, longer life expectancies, and lower investment returns when liquidity is paramount – that drive outcomes in asset and other markets.  It is obvious, even to the casual observer, that these models fail to account for the actual evolution of the real-world economy.  Moreover, the current fee-generating agenda has largely crowded out research on the inherent causes of the pension crises.  There has also been little exploration of early indicators of systemic crisis and potential ways to prevent this malady from developing.  In fact, if one browses through the academic actuarial literature, “systemic crisis” seems to be an otherworldly event, absent from actuarial models.  Most models, by design, offer no immediate handle on how to think about or deal with this recurring phenomenon.  In our hour of greatest need, societies around the world are left to grope in the dark without a theory.  That, to us, is a systemic failure of the actuarial profession.

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