Examination of Witnesses (Questions 1-19)|
1 NOVEMBER 2006
Q1 Chairman: Mr Daykin, welcome back
to the Sub-Committee after quite a long interval, I think. Could
you introduce yourself formally and your colleagues, please?
Mr Johnston: Yes, Chairman. I
am Christopher Daykin, I am the Government Actuary, Head of the
Government Actuary's Department. On my right is Andrew Johnston,
who is the Deputy Government Actuary, and on my left is Kevin
Down who is Director of Finance in the Government Actuary's Department.
Q2 Chairman: Thank you very much.
The final report of the Morris review was published 18 months
ago. Can you update us on implementation? Is it the position now
that all the recommendations have been fully implemented?
Mr Daykin: I think all the recommendations
that were directly within our scope for implementing, in other
words the machinery of government changes, have been implemented
in relation to the population projections, the occupational pension
schemes survey and the work on the National Insurance Fund. The
more general issues recommended by Morris in relation to making
GAD more exposed to competition are very much in the hands of
our clients rather than in our hands. As far as we are concerned
we are fully open to competition. We await any further developments
in that area but we are, notwithstanding that, preparing ourselves
for the possibility of a more competitive environment. We have
strengthened our processes, we have improved our invoicing and
we are adopting a more proactive marketing stance. So we are ready.
Q3 Chairman: Good. How do the Government's
Gershon efficiency targets impact on you?
Mr Daykin: We have more than met
the efficiency targets which were set. We put forward proposals
which were accepted by the Treasury and we have substantially
already completed those objectives.
Q4 Chairman: Will there be a continuing
impact of Gershon on your budget?
Mr Daykin: No, I do not think
Q5 Chairman: One of the issues we
want to explore today, and I think my colleagues will have questions
on this, is the independence of the Government Actuary's Department
and what might be done to strengthen it. You were quoted, back
in July, in The Daily Telegraph, as saying publicly that
the fact that the Department for Work and Pensions, rather than
your Department, produced the technical projections underpinning
the Pensions White Paper meant that: "what you get is a political
documentwhich is what the White Paper is". Did you
publicly or privately criticise the failure of government to consult
you in advance?
Mr Daykin: I do not think we expected
government to consult us in advance because we had been through
the Morris recommendation and had transferred staff to the Department
for Work and Pensions and to HM Revenue & Customs. We are
still in the position of having the statutory responsibility to
report to Parliament on the National Insurance Fund and we will
be doing that in the New Year in respect of the up-ratings, and
sometime next year in relation to the quinquennial review, at
which point we will take stock of the proposals that have been
made. The White Paper was prepared by the Department for Work
and Pensions without involving the Government Actuary's Department.
Q6 Chairman: Would you not expect
ministers to be consulting you on something as big as this involving
forecasting and calculating the Government's own pension liabilities?
Mr Daykin: I think we would be
very pleased if ministers would consult us on such things, but
we do not have the power to require them to do so. It is entirely
in their hands.
Q7 Chairman: Absolutely, but do you
think it would be useful if they were obliged to consult you?
Mr Daykin: I think the tenor of
the Morris recommendation was that day-to-day work on the National
Insurance Fund would be more cost-effectively carried out within
the Department for Work and Pensions where the National Insurance
Fund elements could be modelled alongside the elements relating
to Income Support and means-tested benefits, which had never been
within the responsibility of the Government Actuary's Department,
but that we were left with this audit-like responsibility to carry
out the quinquennial review and to prepare the report to Parliament.
So we have discussed with DWP whether we should have a role in
relation to preparing a report on the financial memorandum to
the Bill when it eventually emerges. My understanding is that
they do not see that as necessary and that the financial memorandum
will be prepared by the Department for Work and Pensions.
Q8 Chairman: It sounds as though
you have been frozen out at the very point where an independent
assessment from a department as skilled as yours would be useful.
Mr Daykin: I would not disagree,
but that was the recommendation of Sir Derek Morris.
Q9 Chairman: We have been looking
in this Sub-Committee at the future of the statistic service under
government proposals. The proposal there is that the National
Statistician should now be appointed through a more independent
selection process. Do you think that when the day comes for you
to retire that would be a more appropriate process for appointing
Mr Daykin: I am fairly certain
that that will be the process. It is a long time since a Government
Actuary was appointed, and a lot has changed in public appointments
since then, but my discussions with the Permanent Secretary at
the Treasury, whom I meet on a regular basis, are that it will
be subject to an open, competitive process. So there will be,
if you like, an independent assessment of who the next Government
Actuary should be, who could be an internal candidate but it could
also be somebody from outside the Civil Service.
Q10 Chairman: That is not quite the
same as a more independent process, such as applies, for example,
to the Governorship of the Bank of England or the Chief Inspector
of Schools and so on. You do not see the next Government Actuary
buying that kind of independent position?
Mr Daykin: Possibly not, but I
think the exact process has not been determined at this stage.
Q11 Mr Gauke: Mr Daykin, you may
recall our predecessor Committee making a recommendation that
the Government review the Government Actuary's Department activities
with a view to identifying areas where the Department could usefully
make regular reports to Parliament. What is the extent to which
the Department currently reports to Parliament on pensions?
Mr Daykin: We report in respect
of the National Insurance Fund, as I just mentioned to the Chairman.
We also report on individual public service pension schemes, as
required under the statute, in particular for the teachers' scheme
and the National Health Service scheme. We have a number of statutory
roles in relation to determining transfer values and other factors
that need to be used. We have some roles in relation to some aspects
of the Department for Work and Pensions, for example in the contracting
out terms we are required to report to Parliament, and we prepare
various factors which are required under the legislation. So those
are still existing, although in the light of the Morris review
it is possible that some of those statutory roles may be made
less specific that they require the Government Actuary, only that
they require an actuary.
Q12 Mr Gauke: Is there anything that
prevents you, at the moment, from reporting to Parliament on the
extent of the Government's pension liabilities as a whole? Is
that something you could do?
Mr Daykin: We do not have any
remit to do that at the moment. As we are constructed we work
for clients. So a government department or other agency will come
to us and commission work and we will charge them for our services.
Except where we have a role in the statute, where we can say:
"This is in the statute and we must therefore do it and you
must pay for it", it is difficult for us to initiate anything
like that; it would have to come from the side of Parliament.
Q13 Mr Gauke: So the Government would
have to commission you to do that report.
Mr Daykin: Yes.
Q14 Chairman: If you are required
to give advice or asked for advice on a particular public sector
pension scheme, is there any reason why that advice should not
Mr Daykin: Normally it is. They
vary, but where we are required under the statute to provide a
valuation, for example, of the teachers' pension scheme, that
report is a public report which is laid before Parliament. If,
however, one of the public sector pension scheme managers asks
us to do some work for them on costing something, then that will
be advice we give to them which is not necessarily put in the
public domain unless they decide so to do.
Q15 Peter Viggers: The Morris review
was a consultative process to which you contributed. Were all
your concerns taken fully into account?
Mr Daykin: I do not feel that
they were. In fact, I think it would not be unfair to characterise
the Morris review as having concentrated very largely on the actuarial
profession rather than on us, and so we were a little bit of a
side show. Certainly very little notice was taken of the comments
and suggestions we made to the review team.
Q16 Peter Viggers: Do you feel that
independent actuaries who are occasionally now used have the authority
and independence that you yourselves have?
Mr Daykin: The actuaries who are
advising are independent and have all the professional skills
that they need to do. The Government Actuary always has a certain
aura of stature about him, I guessor her, as it might be
in the futurewhich another actuary could not really have,
but that does not prevent them from being able to give good advice.
We would, obviously, from our side, like to see the Government
Actuary and the Government Actuary's Department advising in all
the major areas of public policy on pensions and social security,
but we are in the hands of those who appoint us.
Q17 Peter Viggers: You have said,
and I quote: "the Government Actuary would not be willing
to sign a statement for Parliament on the back of work undertaken
outside his or her control by non-actuaries". Now that some
of that National Insurance work has been transferred to the Department
for Work and Pensions do you continue to hold that concern?
Mr Daykin: I hold that concern
but I think the arrangements that we have set up with the National
Insurance Fund are perfectly viable. We maintain the capability
within the Government Actuary's Department to carry out the projections
and the analysis that we need for the quinquennial review. We
have a strong liaison with the Department for Work and Pensions
on the work that they are doing; they are using our models, in
many respects, operated by people who were at GAD for many years,
and we have good contacts and relationships with them. We will
do our best to make use of what modelling they have done whilst
still being able to satisfy ourselves independently that whatever
we say in the quinquennial review stands professionally and does
not simply rest on work done by others.
Q18 Peter Viggers: What involvement
did your department have in supporting the Pensions Commission's
report? To what extent were you involved in the preparation of
Mr Daykin: We were quite heavily
involved with the Pensions Commission in a number of different
areas. They had their own analysis team and so they were not solely
dependent on us, although we did do work for them. We provided
data and advice on a range of demographic and pension aspects
for the Commission; we gave advice in relation to National Insurance
contribution income; we had particularly strong interactions with
the Commission on all of their thinking about longevity and the
projections of how the population might develop in the future.
We also worked with them on information from the occupational
pension scheme survey, which formed the backdrop to a lot of their
Q19 Peter Viggers: Lord Turner himself
said that the Government Actuary's Department "had tended
to be over-optimistic in its mortality predictions" Would
you agree with that comment?
Mr Daykin: I think Lord Turner
had a particular view about mortality improvement. The GAD has
always worked with a wide range of demographic experts in the
field of mortality improvement and we regard ourselves as being
right in the mainstreamquite cautious in some respects
in terms of the extent to which we allow for future longevity.
We have been at the leading edge of national and international
developments in developing cohort projections of mortality and
allowing for mortality improvement with more and more sophisticated
methods. Lord Turner himself felt that we had not gone quite enough
in that direction, but in relation to discussions we have had
with other demographers and other national statistical authorities
we felt we were going quite a long way in that direction, and
we have responded by emphasising the uncertainty and the range
of possible outcomes for the future.