IFoA investigates transfer of risk to consumers

The Institute and Faculty of Actuaries (IFoA) has today (Friday 31 January) launched ‘The Great Risk Transfer’, a campaign to investigate the increasing transfer of risk from institutions to consumers when it comes to planning their finances. The campaign will explore the extent to which risks previously managed by institutions – employers, the State, financial services providers – are shifting to become the responsibility of the individual. That’s regardless of whether this is always in consumers’ best interest and whether they are equipped and being supported to manage this risk. While this shift gives consumers the freedom to manage their affairs in a way that best meets their personal needs, making these financial choices can be extremely complex.

John Taylor, IFoA President, said:

“Across the financial services sector, we are seeing risk being shifted away from institutions and towards the individual. There are many examples of this, but perhaps the most high-profile has been the gradual move by employers to offer defined contribution (DC) pensions instead of defined benefit (DB) pensions. This means individuals are taking on responsibility for making sure they have saved enough for their retirement, and for ensuring their pension lasts a lifetime. They are also taking on all the risks associated with investing, namely that their pension savings could increase in value or decrease in value depending on market performance.

“We recognise that some consumers will find this new freedom liberating and may be well equipped to make good financial decisions. But overall, people’s level of numeracy, financial literacy and understanding of risk is low. This is one of the ironies of The Great Risk Transfer: the institutions that have access to risk expertise are passing the risk to a less informed group – individuals.

“Today we’re asking actuaries and other experts from around the world to respond to our call for evidence. We want to understand the drivers of this trend and which groups are being affected. We’re also looking for examples of how the problem is being overcome, alternative approaches to how risk is shared between institutions and consumers, and whether there are any barriers to innovation in this area.”

Carolyn Jones, Head of Pension Policy and Strategy at the Money and Pensions Service, said:

“We welcome this campaign and the debate it seeks to create. Understanding how we can continue to support people in managing increasing financial responsibilities is key to our goal of everyone making the most of their money and pensions. Financial wellbeing is about people feeling secure and in control, knowing that they are on track for a healthy financial future. We want to see 5 million more people understanding enough to plan for and during later life.”

The aim of the IFoA’s Great Risk Transfer campaign is to gather evidence, convene debates and ultimately engage with policymakers about how consumers can be supported to make informed decisions about their finances, and where risks should ultimately be managed by institutions.

The call for evidence runs from Friday 31 January to Thursday 30 April 2020. We invite submissions via our Great Risk Transfer survey.

~ENDS~

Contact
Sonia Sequeira, Media Relations Manager, IFoA
Tel: 07525 592 198
Email: sonia.sequeira@actuaries.org.uk

Notes to Editor

1. A quarter of adults have ‘acceptable’ levels of numeracy, with around half at the level expected of a primary school child. ‘Building a numerate nation: confidence, belief and skills’. National Numeracy 2019 Autumn Report
2. The Great Risk Transfer. Institute & Faculty of Actuaries. January 2020.
3. The Great Risk Transfer call for evidence runs from Friday 31 January to Thursday 30 April 2020.
4. The Great Risk Transfer. Key Impact Areas.

Download the key impacts so far as a PDF

About the Institute and Faculty of Actuaries

The Institute and Faculty of Actuaries (IFoA) is a royal chartered, not-for-profit, professional body.

Research undertaken by the IFoA is not commercial.  As a learned society, research helps us to fulfil our royal charter requirements to further actuarial science and serve the public interest. 

Actuaries provide commercial, financial and prudential advice on the management of a business’s assets and liabilities, especially where long term management and planning are critical to the success of any business venture. They also advise individuals, and advise on social and public interest issues.

Members of the IFoA have a statutory role in the supervision of pension funds and life insurance companies. They also have a statutory role to provide actuarial opinions for managing agents at Lloyd’s of London.

Members are governed by the Institute and Faculty of Actuaries. A rigorous examination system is supported by a programme of continuing professional development and a professional code of conduct supports high standards reflecting the significant role of actuaries in society.

The IFoA is available to provide independent expert comment to the media on a range of actuarial-related issues, including enterprise risk management, finance and investment, general insurance, health and care, life assurance, mortality, and pensions.