The Actuarial Association of Europe (AAE) has published a new paper titled “Risk Mapping for Social Security Pension Systems”. The objective of this paper is to address the critical gap in social security risk management, aiming to assist actuaries working in this field in establishing their risk management (RM) system.
Risk management has become an integral aspect of organizational governance and operations. This is particularly crucial for entities tasked with ensuring the financial stability and long-term sustainability of their sectors. While Enterprise Risk Management (ERM) principles are widely adopted as standard practice, certain institutions have unique characteristics that necessitate specialized risk management frameworks. Moving closer to our focus, within the financial sector, banks adhere to the Basel Accords, while insurers operate under the principles of the Solvency regime. These regulations, predating international ERM standards, effectively manage risks specific to their operations. However, they also integrate ERM into their risk management strategies as organizations. These risk management systems share common elements and may contribute to establishing a social security risk management framework.
In this paper, considering the similarities with other financial institutions, we highlight the differences between them and pension funds. Pension funds, entrusted with safeguarding the financial security of many individuals in their retirement years, are often perceived to be similar to insurance products or savings plans, despite their intricacies and crucial societal role. Furthermore, mandatory social security pension schemes, designed to provide a safety net for the working population, add an additional layer of complexity to risk management practices. A universally applicable, comprehensive risk management framework tailored specifically to social security pension systems remains an underdeveloped area of study.
Read the full paper here in the AAE website.