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11

Insurers 'must prepare for centenarians to become the norm'

Open-access content 7th November 2012

The insurance and pensions industries need to find a way to encourage the ageing population to save more and for longer, the director general of the Association of British Insurers said yesterday.

2

Otto Thoresen told the Actuarial Profession's Life Insurance Conference in Brussels that it was time to end the 'piecemeal' approach to changing the retirement saving system, and to instead aim for a 'holistic raising of the bar'.

Actuaries have a 'vital role' to play in delivering a sustainable society, he explained, by helping to solve the multi-variate set of economic and social equations posed by an increasingly more complex and uncertain world.

By 2100 people living to over 100 years old would be 'the norm', he said. This was 'mankind's greatest achievement', but could also result in poverty for millions of people and health and social care systems being unable to cope with increased demands being put on them.

Thoresen explained that low economic growth and low interest rates meant annuities - the traditional approach of turning capital into income at retirement - are seen as very poor value. This situation was unlikely to change soon, he noted.

Even with higher long-term interest rates, £1,000 of retirement capital was needed to buy £1 a week of income, and Thoresen said it was time 'to look with fresh eyes at the pension savings solutions we deliver'.

'We need to find a way to encourage more people to save more for longer, at a time when the outlook for returns is uncertain at best, and when many have high levels of personal debt or face the risk of unemployment,' he said.

He added: 'We need to start from the basics: putting money away little and often; making gains that are low but safe. Not over promising on advertising and under-delivering at the end.'

He welcomed reforms such as auto-enrolment, but added: 'The current piecemeal approach to tinkering with the components is wrong and will not achieve our goals. We need a holistic raising of the bar and I believe the industry has the skills to do that.'

In particular, Thoresen called for pensions that offer 'transparent and understandable' investment options, while administration charges must be 'seen and understood to be value for money'.

People must also be prepared well in advance for what will happen when they retire, and the decisions they have to make when they do stop working, with communications and engagement encouraging savers to track and understand how their savings are building.

Thoresen added that, post-retirement, there must be options that can 'adapt to the many needs which the generations to come will have as they face new challenges in the area of social care and intergenerational transfer of wealth'.

Actuaries have a 'vital role' in solving the 'multi-variate set of economic and social equations' which had to be solved to deliver a sustainable society in the future, he explained. 'There is not a more important task for financial services professionals today, and the actuarial community is well placed - perhaps best placed - to attempt to solve it. But I feel we are too often silent on these issues,' Thoresen said.

He added: 'We are an industry that is in the business of protecting people and their families - that is where our social purpose rests. Since the creation of insurance as a product, that purpose has grown - encompassing the broader role we have taken on as investors in the world's economies.

'And as these trends take shape and their influence is felt - it has the potential to grow further as we adapt and take charge of our role within this more complicated, more uncertain, more unstable planet.'

This article appeared in our November 2012 issue of The Actuary.
Click here to view this issue
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Topics:
General Insurance
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