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The Actuary The magazine of the Institute & Faculty of Actuaries

Focus on financial literacy, not regulation, says ACA chair

Government efforts to reinvigorate workplace pensions should focus on improving financial literacy, according to the outgoing chair of the Association of Consulting Actuaries, Stuart Southall.


Speaking last night, Mr Southall said some of the time and money spent on protecting the consumer by regulating the pensions industry would be better spent on protecting savers by raising standards of financial education both during and after school.

‘Someone has to take responsibility for educating the customer about the bigger picture – by which I mean what is really required to provide a comfortable retirement, measured relative to one’s in-work standard of living,’ he said.

‘This means bringing much greater focus on the destination and, in recognition that for most the journey is long and complex, giving the saver the tools to navigate and to regularly check on how close he or she is to arrival.’

Far too much of the communication on pensions was ‘close to impenetrable’, Mr Southall said, while the latest pension innovation – auto-enrolment – already has 250 pages of guidance for employers and advisers.

‘We really do need to take a fresh look at how we can simplify financial products and services so consumers with busy lives elsewhere, and even employers, who necessarily must concentrate on their core purpose, can grasp the pensions and wider savings challenge with any degree of confidence,’ he added.

Giving savers the tools to get a full picture of how much they need for a comfortable retirement is also hampered by uncertainty around the value of some elements of their retirement income, and in particular the state pension.

They also suffer from continuing uncertainty about the interaction with future means-tested state benefits and inconsistent projects of how their savings could grow, Mr Southall said.

Pensions planning lacks a ‘proper articulation’ of risk, he said, which should be measured relative to the saver’s objectives, such as whether they want income from their savings, growth in them, or a mixture of the two.

Mr Southall welcomed pensions minister Steve Webb’s support for defined ambition pensions, which would see the risks and uncertainties in pension schemes more evenly split between employer and employee.

‘We have little doubt that the combination of a re-designed state pension and a steady state minimum auto-enrolment contribution will just not be enough for the majority of today’s younger workers,’ he said.

But, he added: ‘Naming it is a start, but designing it and, crucially, getting the idea to achieve traction in an increasingly risk-averse private sector will be the harder part.’

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