11 October 2021
This IFoA working party was set up to examine the current provision for pensions and life products against a background of emerging employment trends, including topics like product portability, simplicity and contract flexibility.
The question we attempted to answer was - what should the profession or industry do with product design in light of changing employment trends? Our main focus was the UK.
Traditionally employment was such that the working lifetime of a individual was dominated by employment at one or two companies with a linear or flat career progression. In stark contrast, work in the modern economy has become more fragmented, not just with multiple jobs but multiple careers.
Technology has meant a shift from manual labour to the service sector and the knowledge economy and workers are having to re-skill and re-train and adapt to the new technology of the workplace.
Final salary pensions were designed for a job-for-life era promoting and rewarding loyalty to the employer. But the last 20 years of low inflation and low interest rates have made final salary arrangments expensive for sponsoring employers which has led to a move towards money purchase / defined contribution.
The role of the state in pension provision has gradually become de-emphasised and personal provision has grown. On the individual side, personal pensions were introduced in the UK over 30 years ago and stakeholder pensions promising greater access and lower charges were introduced 20 years ago.
Non-pension insurance based savings have also seen great change in the UK. The slow death of the with-profit endowment – replaced by unit-linked products and mutual funds has been a defining trend in the market.
Industrial branch business has now been confined to history. The thrifty working class, who might not even have bank accounts, could save in a with-profits endowment with door-to-door weekly collections by the sales rep in an era dominated by Prudential, CIS and Pearl. While such products were useful at a time when borrowing was difficult and access to banking limited, once direct debits became commonplace, the inevitable demise of industrial branch business followed.
The dominance of company reps born from the era of industrial branch business has also changed. Now distribution of products is more fragmented with IFA/whole of market distribution, multi-ties, banks and digital channels.
Against this backdrop, in Section A we examine what these trends mean for products and in Section B we consider what solutions should be put in place in the context of the UK market.