The Institute and Faculty of Actuaries (IFoA) has called on the government to showcase collective defined contribution (CDC) schemes to employers as part of a host of risk rebalancing measures.

The recommendation was part of the IFoA’s final report for the Great Risk Transfer Campaign, which was launched in January 2020 to investigate the ways in which risk is increasingly being transferred from institutions to individuals, especially when it comes to the planning of finances.

The suggestions listed in the report focused on the pensions and insurance industries and were either to serve the purpose of rebalancing risk by shifting some key responsibilities back towards institutions, or helping consumers with financial decision making.

The former category included government action to show that CDC schemes were attractive alternatives to defined contribution schemes, considering extending default pathways to all retirees and for The Pensions Regulator’s defined benefit funding code of practice to make avoiding scheme closures an equal priority with member security.

Meanwhile, the latter category included recommendations for the Financial Conduct Authority to set ambitious targets for increases to the take-up of Pension Wise appointments and for the Money and Pensions Service Dashboard Steering Group to prioritise the way retirement income is estimated and presented in a consistent way.

IFoA immediate past president, John Taylor, commented: “Transfer of risk to individuals has been driven by governments and companies seeking to reduce their risks. While this may be a rational strategy for these institutions, it has had damaging impacts for consumers and society as a whole.

“In terms of harm to individuals and damage to public trust in institutions, we believe risk transfer represents an even wider systemic failure than well-known examples such as the widespread misselling of Payment Protection Insurance.”

He also called for “urgent action” to tackle risk transfer from policymakers, employers and the financial services industry, adding that the IFoA was committed to “offering our actuarial expertise in relevant areas, and to promoting solutions and best practice”.

Taylor concluded: “We realise that trying to reverse this trend entirely is not appropriate. However, we should remember that financial services exist to serve consumers. Our work suggests that greater choice and access to pensions and insurance products is possible and desirable.

“We believe there are opportunities to rebalance risk away from consumers back to institutions in a way that is likely to benefit society as a whole in the long run.”

Share Story: