Azra's intuitions

NUR AZRA ABDUL GHANI

Nowadays, the word “actuary” is becoming familiar among the public unlike few decades ago. This is due to the significant roles of actuaries in any organization. In addition, there is also a sudden emergence of educational institutions that provide actuary as a field of study.

As actuary students, I believe many of us here have encountered the situation, where we need to clarify to those who are unfamiliar of actuary, when we told them we are doing a degree in actuary. How did you answer that? Did you said, “It has something to do with insurance”, or “It’s more on mathematics and statistics”? Well, if you did, you are pretty close. According to the Society of Actuary, an actuary is a business professional who analyzes the financial consequences of risk. Actuaries use mathematics, statistics and financial theory to study uncertain future events, especially those of concern to insurance and pension programs.

So, since we are studying Pension Scheme subject this semester, I am going to explain briefly, the actuary roles in pension programs. It is based on a paper by Grant Boyken titled “Actuarially Speaking: A Plain Language Summary of Actuarial Methods and Practices for Public Employee Pension and Other Post-Employment Benefits”.

A pension actuary analyze probabilities related to the demographic of the members in a pension plan and economic factors that may affect the value of benefits or the value of a pension plan’s trust. The former include the likelihood of retirement, disability and death, while the latter include the investment return rate, inflation rate and salary increment rate.

Actuary determines the value of a pension benefits and came up with the strategies for funding them. In general, actuary calculates how much employer should contribute to ensure that the required fund for an employee’s retirement is sufficient.

Before creating a pension plan, an actuarial valuation is needed. It can be considered as a financial check-up for the plan. It measures how much contribution from employers is needed to maintain appropriate benefit funding progress. It also measures how to allocate assets and liabilities to determine funding progress.

The result of an actuarial valuation is the contribution requirements and funding progress, which depends on various elements. These elements include information about the plan, demographic assumptions and economic assumptions.

Finally, actuary needs to prepare an actuarial report, which consists of key features of the pension plan such as benefit formulas and contribution rates. The body of the report contains member data, which shows the active, retired and inactive members. Lastly, it will include summaries of plan assets and related calculations.

Having said all the technical part of roles of actuaries in pension program, I now moved from the seriousness and conclude the general role of an actuary as described below:
Imagine an actuary is a pilot, conducting an aeroplane in the sky. The journey is based on the pilot’s knowledge and present conditions. Of course, the pilot is provided with all the current situation of the weather and plans his journey well. But unforeseen circumstances, such as bad weather, may occur and the pilot may need to rearrange a better strategy to fly due to errors in the previous plan.