View source for Implications of Limits to Growth for the Actuarial Profession


'''* Report: Resource constraints: sharing a finite world. Implications of Limits to Growth for the Actuarial Profession. Presented by the The Institute and Faculty of Actuaries. Written by Dr Aled Jones, Irma Allen, Nick Silver, Catherine Cameron, Candice Howarth & Ben Caldecott, 2013'''

URL = https://www.actuaries.org.uk/system/files/documents/pdf/resourceioareport-print-copy.pdf


=Exectuve Summary=

"The evidence for resource constraints is strong but many actors in the global economy are
not considering it in their decision making processes

This report, and an accompanying evidence report, demonstrate clear evidence for
constraints across a range of resources over the short (years) and medium (decades) term.
Some resource constraints will have local impacts (such as water) while others will have
global impacts (such as oil). How resource constraints impact upon the economy is complex,
uncertain and depends on a number of factors including how society responds. Political and
market responses will have far reaching consequences which need to be better understood
and better modelled by decision makers and their advisors. To some degree the impacts can
be managed, or at the very least influenced – the outcomes very much depend on societal
and government response to the problems caused.

Resource constraints might place a limit to future economic growth rates
Resource constraints will, at best, increase energy and commodity prices over the next
century and, at worse, trigger a long term decline in the global economy and civil unrest. As
resource constraints raise the possibility of a limit to economic growth over the medium
term, actuaries should urgently seek to understand the implications of this for their advice,
assumptions and models.

Resources (and their interrelationship) represent a hidden set of determining factors to
financial and demographic variables

These factors are ignored in standard economic modelling although they have had a
significant impact on the economy in the past. In this report we review the historical
evidence to explore the implications for the main actuarial assumptions including:

• Discount rates: Historical evidence suggests that lack of access to resources,
especially energy, can lead to low economic growth which could cause low real
interest rates and asset returns. Nominal interest rates are not predictably affected
by low growth and in times of duress, governments might suppress interest rates
and investment returns.

• Inflation: Periods of low growth tend to correspond to periods of low real wage
growth. Commodity price shocks can cause inflation, but, depending on the
circumstances and the reaction of policymakers, shocks cause inflation but also lead
to low or negative real wage growth. Wages can be suppressed in times of national
crisis.
• Demography: Historical evidence suggests that while life expectancies have
improved, periods of social and economic trauma can lead to declines in life
expectancy. Beneficiaries of long term financial products such as pensions are a
select group who may be insulated from the worsening mortality of the rest of the
population.


The reaction of governments and other agents is crucial to the outcome for the global
economy

If governments and economic agents anticipate resource constraints and act in a
constructive manner, many of the worst affects can be avoided. Following shocks caused by
resource constraints, the reaction of governments, for example in their decision over money
supply and where to direct investment, will be the major determinant of the impact on the
economy and the finance sector. Actuaries are well placed to advise governments and other
economic agents because of their understanding of risk management and long term
modelling.

This report modelled the impact of resource constraints on a pension fund

All of the scenarios modelled in this report showed lower returns on assets and higher costs
for schemes compared to the “no constraints” model. Specifically the level of defined
contribution pensions, compared to projected salary prior to retirement, for the worst
scenarios is almost half of that of the “no constraints” scenario. A healthy defined benefit
pension scheme could become insolvent within 35 years solely as a result of the limitations
to growth as modelled, and in the absence of other detrimental influences (such as those
experienced over the last 15 years in some western countries).


The impact of resource constraints on a long term savings vehicle such as a pension fund
would be profound

If future economic growth is limited by resource constraints, or realistically by other factors
such as debt overhang or reduced productivity, this puts into question the viability of current
savings vehicles’ structure, regulation and even purpose.

Modelling resource constraints

In this report we explore 4 different scenarios associated with resource constraints."


[[Category:Thermodynamic Efficiencies]]

[[Category:P2P Accounting]]

[[Category:Ecology]]

[[Category:Post-Growth]]

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