IFoA responds to recommendation for new Pensions Commission by International Longevity Centre

• Policy makers need to take stock of recent changes
• Managing financial risks now responsibility of individuals
• Individuals need help dealing with the big risk of running out of money in retirement

The International Longevity Centre UK has today (23 February) released a paper ‘Consensus revisited: the case for a new Pensions Commission’. The Institute and Faculty of Actuaries (IFoA) welcomes the report, which follows recent reforms to UK pensions that are considered the biggest changes in a generation.  It is important that policy makers take stock and begin to consider how they will measure the impact of these reforms for pension savers and retirees.

Nick Salter, President of the IFoA comments, 

“With the shift from Defined Benefit (DB) to Defined Contribution (DC) schemes as the main retirement plan for pension savers, longevity risk, and therefore the need to manage it, has transferred to the individual. The new pension freedoms give individuals more choice about how to spend their pension savings: if they choose cash or drawdown, they need to be mindful of the risks of running out of money in retirement, for example, if they underestimate how long they will live.  There are other risks individuals must also consider as they make retirement decisions.  In particular, poor investment performance and higher than expected inflation can erode the actual and real value of retirement income.  Annuities may have been perceived as poor value but they dealt with all these risks and there is still likely to be a place for them for many retirees.

“The reforms that came out of the previous Pension Commission’s report (Turner report) 10 years ago will increase the number of employees with access to employer sponsored retirement saving, but more should be done to ensure those employees understand what their savings are likely to deliver.

“The IFoA suggests that, if a new Commission is established, the focus should be on how to help individuals to understand the relationship between what they save during their working lifetime and the income those savings may provide in retirement, including how their decisions can help them manage the financial risk of how long they will survive in retirement.  Helping individuals deal with the big risk of running out of money in retirement will be a vital ingredient to the successful outcome of the new pension reforms.”

~ENDS~

For further comment or to answer any questions that you may have please contact Annette Heninger at the IFoA on 07525 592 198 or by emailing annette.heninger@actuaries.org.uk
Download the full ILC report here

Editorial notes

About the Institute and Faculty of Actuaries

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Research undertaken by the IFoA is not commercial.  As a learned society, research helps us to fulfil two of 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.

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