Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 120 - 140)



  120. Could you inform the Committee about that?
  (Miss Johnson) I will write to the Committee further on that point[1].

  121. Do you think in the light of the discussion that we have just had—and I accept, of course, that there are issues of confidentiality involved—that there should be some kind of reporting relationship between the Government Actuary's Department and Parliament itself over the issues which the service level agreement covers—not specifically identifying individual companies but at least in broad terms?
  (Miss Johnson) Well, if you are talking about in general, obviously it is perfectly possible for, as I understand it, the Committee to take evidence from the Government Actuary in general about advice, as it were, in these sorts of areas. My understanding of it legally is that the Government Actuary's Department would be unable ever to divulge individual advice to the Committee or, indeed, to any other party.

  122. But the situation is that the Committee has already established that the government actuaries regard themselves as having a client relationship with the Treasury and they will not answer questions on any of the issues covered in the service level agreement which, as I hope I have indicated to you, seem to me to be extremely decisive and far-reaching?
  (Miss Johnson) Well, I have explained the situation, I hope as clearly as I can.

  123. Do you think some consideration should be given to the statutory position of the Government Actuary's Department and, indeed, the statutory position of appointed actuaries within insurance companies? Is the government giving any attention to that?
  (Miss Johnson) No, not at the present time.

  124. Are you really saying that, after the Equitable Life saga, the government really does not have under consideration a review of the role of appointed actuaries within insurance companies and how they report to a wider public?
  (Miss Johnson) It is obvious that there will be points that will need to be considered whenever the FSA report becomes available. It seems to me that that is the time at which evidence will be presented to us all about the circumstances around the Equitable Life situation which will inform what sort of main issues might need to be addressed and how they might need to be addressed, and we are awaiting that report.

  125. Do you not accept, Minister, that it is rather odd that the reports that appointed actuaries and insurance companies make are all public documents available to Parliament, available to policyholders, should they be able to get hold of them and understand them if they did, but the analysis of what they mean that is done by the Government Actuary's Department is not publicly available? Do you not accept that there is a contradiction there?
  (Miss Johnson) You are saying that the information effectively is available but the judgments of the actuaries, possibly on the basis of it, are not available to you.

  126. The information is being made available in appointed actuaries' returns in a form which is extremely opaque and difficult to understand. Do you not think there is a role for somebody to take these appointed actuary's reports and, in the public interest, either advise the government or independently provide some analysis of what these reports contain and what they mean?
  (Miss Johnson) I think, given the reason that this is of such interest is primarily at the moment due to the situation surrounding Equitable Life, it makes sense, the FSA having undertaken to produce a report on the circumstances which have led to the present situation with Equitable Life, for us to wait to see what the recommendations of that report are and what issues arise as a result of the analysis that no doubt the FSA internal audit and other folk who are doing this are undertaking, and what is being identified there and respond to that report. It is premature for us to decide at this stage which particular issues might need to be addressed because clearly that report will point the way ahead.

  127. Minister, surely you accept, however, that at the moment there is a great deal of debate about the nature of with-profits products generally—the terminal bonus system, lapse rates, and so on—and all the key information on those issues has been analysed throughout by the Government Actuary's Department and it is spelt out extremely clearly in the service level agreement that information on all of those matters has been going to the DTI when it was the insurance regulator, to the Treasury when it was the insurance regulator and now to the FSA. Do you not accept that there is now a public interest in opening this up and getting a better quality of information to inform those debates which are now going on?
  (Miss Johnson) I am sure there is a public interest in better information and we do support better information for consumers and have done a lot to address that. I will not go through any of what we are doing because it is, in a sense, tangential to the point you are making but what is appropriate in these circumstances is to see what is being identified as recommendations or issues arising out of the FSA report and to tackle those, because they should be the most important issues which we need to address out of the circumstances surrounding Equitable Life. Clearly, just on the with-profits point, the FSA and Sir Howard himself said, I believe when he was here, that they would be looking further at with-profits. He has certainly since made a speech in Wales on this subject indicating that the FSA will be looking further at with-profits policies.


  128. Arising out of that, given that the role of the Actuary's Department has changed with respect to insurance companies, do you think there really is a continuing role for the Actuary's Department in its present form?
  (Miss Johnson) Yes, because they provide us with cost-effective and independent advice. There are a number of key statutory roles that they carry out and they are a major supplier of actuarial advice across government. It does not make very much sense to fragment that across government: it makes sense to hold it in a central, specialised resource given the nature of their work. It would cost government a lot more to have that work done by the private sector on an ad hoc arrangement than via the Government Actuary's Department.

  129. You mentioned in answer to an earlier question I asked about contracting out that this was not only allowed but it happened. Can you give us an example of where a government department has contracted out actuarial services?
  (Miss Johnson) I know in one or two cases, for example, the Inland Revenue have used non Government Actuary's Department actuarial advice for some work they have been doing on one or two occasions. Obviously I am not aware across government—and I do not think you are really expecting me to be—where this is happening more widely but I know of that because it interrelates with work that is being done for me.

  130. Would any of your officials be able to help on that?
  (Miss Johnson) I very much doubt it.

  131. Finally, what about overseas work? Are they allowed to make profits on that?
  (Miss Johnson) Well, they are allowed to fully recoup all their costs associated with it. As you are aware, they do a small but significant proportion of overseas and outside work. I think that helps them to offer opportunities of an actuarial kind in terms of professional development which otherwise might not be available and strengthens the organisation in terms of its experience. Generally speaking, we are very comfortable with the work they do on all of that.

  132. What is the reason for not allowing them to make a profit?
  (Miss Johnson) Basically because it is public sector and it is the rules under which the public sector operate. There could be questions about the competition law and in Europe presumably on state aid as well, conceivably, if there was an organisation that was basically public sector but which was going out on another basis and making a profit.

  133. That does seem a little bit odd in view of the discussion we are going to have in a few moments' time about the Royal Mint, which does seem to be in a similar situation?
  (Miss Johnson) Those are the rules that have operated for the Government Actuary's Department, certainly and Michael Swan, who is responsible for the Government Actuary's Department on the Treasury side, is saying that the difference is that there is a trading fund for the Mint and it is via the trading fund arrangements that the Mint is on a different footing.

  134. On the question of recruitment, apparently the Government Actuary's Department is having problems recruiting staff at the moment. Is that correct?
  (Miss Johnson) I think the evidence I have seen which has been sent to you indicates a declining problem on recruitment and retention, in fact.

  135. Is there a way round this problem, that you can see?
  (Miss Johnson) It is always the case that, where people are trained and there is a high degree of training and there are high rates of pay to be had outside the organisation, there will be a certain attrition rate from within the organisation to outside, because people as they become trained and it is a lengthy period of training to become an actuary, become very valuable commodities and can be made offers that the public sector cannot compete with. Having said that, the analysis that has been sent to you shows a growing convergence between the public and private sector in the Government Actuary's Department in this regard in terms of turnover of staffing. I believe that we do not have a significant issue of any kind to address on this: we always keep this in mind and I am sure the Government Actuary's Department are keeping in mind in the way they are recruiting and retaining people, but there is not a significant issue on this at the present time. There was one a couple of years ago, as I think the figures show.

Judy Mallaber

  136. I would like to return to this question of client confidentiality and whether that can mean that we do not have some of the information that might be of assistance in looking at what is happening. Relating to the Minimum Funding Requirement introduced by the Pensions Act in relation to the Maxwell pension scandal, it was rather puzzling to us that it was the Faculty and Institute of Actuaries that took the lead in reforming the Minimum Funding Requirement rather than the Government Actuary's Department giving advice to what would have been I think the DSS. When we questioned the Government Actuary's Department on that, he speculated that maybe they had not been asked to do it because they would not have had the same acceptance from the profession, in that they would have been seen to be giving advice behind closed doors because of client confidentiality between themselves and a Government department, as it would have been. Is there any reason, however, why, on a matter of developing public policy such as this, the Government Actuary's Department could not give advice in public in order to enable there to be a debate and then for the Government department to reach its decisions with us knowing what the Government Actuary's Department were doing? It appeared they had not been asked to do the work but that it had been given to the professional organisation and that might have been solely because of client confidentiality.
  (Miss Johnson) It would not be for me to speculate on the reasons why the DSS decided to go to the Faculty and Institute of Actuaries, except for the obvious reason: clearly they are the lead professional body in actuarial matters so it does not seem prima facie an unreasonable decision on the part of the DSS to decide that that is where they are going to get their advice on this particular issue. Clearly, the Government Actuary's Department were involved via the Faculty and Institute of Actuaries' involvement in it and involved in other ways. They clearly played a role and it is in their capacity as advisers to the DSS.

  137. But, in principle, subject presumably to having to change that constitutional arrangement relating to client confidentiality, would there be any reason that would stop GAD from being asked to give advice on the development of a policy issue to a Government department and for that advice to be made public? Is there any constitutional reason why it could not operate in that way?
  (Miss Johnson) I do not think there is any reason why Government Actuary's Department could not have been asked to do the DSS work; the DSS simply decided to ask the Institute and Faculty of Actuaries and that was the choice they made. I do not think that this issue is a significant issue in this kind of context.

  138. Would you have any difficulty in the Government Actuary's Department's advice to you being made public? What would be the areas where you felt it could be made public and the areas where you felt it could not be?
  (Miss Johnson) It is a question of giving their advice in terms of analysis rather than policy. I think there is a difference there which we need to bear in mind.

  139. Are there any areas where their analysis should be kept secret rather than being in the public domain?
  (Miss Johnson) It depends on the contractual relationship. If they have one, just as anybody else who is going out and getting a service, there can be reasons why that client or person does not want that advice or that analysis to be made public, and it is up to the client then whether the advice is made public. Where the client is government and it is an analysis, I do not think in many cases that that would cause a problem if it had been sought in a general way to inform policy. We do not normally go through the process of revealing the details of policy formulation in a public arena: probably select committees are the nearest place in which such issues get discussed but, as you are aware, it is perfectly normal in Government for the finished policy to be submitted and it is only where there has been engagement through public consultation or processes like that where Government decides to release the information about the way in which that work has been done and the results of the consultation, for example.

  140. In this case, the Government Actuary's Department would be giving you technical advice on the issue and that would be why you were seeking their advice in that client relationship. Can you give us any indication of the circumstances in which you think it would be unhelpful for that technical analysis to be made public? I would have thought it would usually have helped inform our understanding of the decisions of the Government?
  (Miss Johnson) I am sure many matters might inform people's understanding of the decisions of Government but it is typically the case that the underlying information and advice that goes into the final policy decisions is not a matter of public property: nor, indeed, is it envisaged to come under the Freedom of Information legislation.

  Chairman: Thank you very much.

1   See Appendix 8 Back

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