MR CHRISTOPHER DAYKIN, MR ANDREW JOHNSTON AND MR KEVIN DOWN

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 so.

  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 document—which 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 your successor?

  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 be published?

  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 guess—or her, as it might be in the future—which 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 that?

  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 work.

  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 mainstream—quite 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.