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The Actuary The magazine of the Institute & Faculty of Actuaries

IFoA launches ‘The Great Risk Transfer’ investigation

The Institute and Faculty of Actuaries (IFoA) has launched a campaign to explore the extent to which financial risks are shifting from institutions to consumers.

Individuals taking more financial risks ©iStock

‘The Great Risk Transfer’ will investigate areas where institutions could take more responsibility for financial planning, such as through investment advice or pension saving.

The IFoA said that these choices are being transferred to individuals regardless of whether it is in their interest or if they are equipped and supported enough to make them.

It warned that the public’s understanding of risk, numeracy and financial literacy is low, and that people are being left to take decisions that can be “extremely complex”.

The campaign will gather evidence and convene debates on how consumers can make informed decisions about their finances, and when institutions should take more responsibility.

IFoA president John Taylor said: “The institutions that have access to risk expertise are passing the risk to a less informed group – individuals.

“We want to understand the drivers of this trend and which groups are being affected. We’re also looking for examples of how the problem is being overcome, alternative approaches to how risk is shared, and whether there are any barriers to innovation in this area.”

Decisions around social care funding, investment advice and insurance provision are among several key areas that the IFoA has identified for investigation.

However, it is the shift from defined benefit (DB) to defined contribution (DC) pensions that is perhaps the most high-profile area of concern.

Individuals assume the responsibility for saving enough to fund their retirement under DC pensions, and by extension, shoulder the risk of their investments performing badly.

"We recognise that some consumers will find this new freedom liberating and may be well equipped to make good financial decisions. But overall, people’s level of numeracy, financial literacy and understanding of risk is low,” Taylor said.

“We’re asking actuaries and other experts from around the world to respond to our call for evidence.”

The call for evidence runs from Friday 31 January to Thursday 30 April 2020, with submissions made via the IFoA's Great Risk Transfer survey.

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