IFoA comments on NEST report on Future of Retirement

• All scheme members should have access to guidance throughout their savings lifetime and not just before the point of retirement
• There is a risk that individuals could become overwhelmed during the decision making process when making complex financial choices
• IFoA research shows people are more likely to engage in financial decision making if they believe their efforts are worthwhile

The Institute and Faculty of Actuaries (IFoA) welcomes the report by National Employment Savings Trust (NEST) on the future of retirement under the new pension reforms.  The IFoA was pleased to have the opportunity to respond to the consultation.
Gareth Connolly, Chair of the IFoA’s Pension Board comments,

“Many of NEST’s members will be new to any form of long term savings. It should be recognised that their participation may be much more to do with inertia than an active choice to save for retirement.

“The introduction of greater accessibility to pension funds and greater freedom at retirement means that NEST scheme members are likely to benefit most if they are able to access comprehensive information about their retirement savings. The information should reflect their wider financial and personal circumstances.  Scheme members will gain most from guidance throughout their lives and not just before retirement. It seems probable that NEST   scheme members will be less likely to pay for independent financial advice.  The IFoA is aware that any decision to extend guidance over a longer period would require an exploration of how it should be funded.

“Research conducted by the IFoA found that individuals are more likely to engage in financial decision making if they believe their efforts are worthwhile and will ultimately lead to positive outcomes. For example, providing an individual with a projection of retirement income, based on their current assets and savings, relative to their retirement income goals would be one way of demonstrating this.

“There is a risk of overwhelming individuals if they are required to pull together large amounts of information and then use it to make complex decisions. If individuals are overwhelmed in this way, there is a risk that they will be less engaged in decision making.  We would hope that NEST is able to use this feedback to make sure individuals remain engaged in this process and are able to make the best choices for their individual situation.  Communication to scheme members at regular intervals about the choices they have to make at retirement would go some way to ensure this happens.”

~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

Editorial notes

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 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.

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.

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.