The pension freedoms have resulted in a transfer of risk from providers to individuals and their advisers with inflation, longevity, flexibility and volatility topping the list, Stuart Tragheim, sales director at Engage Mutual, and Colette Dunn, head of strategy at Milliman, said.
Speaking today at the FTAdviser Retirement Freedoms Forum, held in London, the pair explained that historically we have had a “paternalistic” culture, but over recent years there has been a shift to an “individualistic” culture.
Mr Tragheim said: “The observation that I have and I’m sure you share it in a lot of ways is that all of these changes are impacting the supply side of the equation.
“There’s been nothing apart from auto-enrolment and now the pension freedoms that has actually impacted the demand side, so these are the first changes that I can see in the last thirty years genuinely that are likely to have a huge impact on the demand side - not just for advice, initial advice but ongoing advice, and for helping customers to manage risk through retirement.”
Ms Dunn added that with the changes there has been a huge transfer of risk amongst participants in the market place. She said for the last 100 years the risk and responsibility for providing an income for life during someone’s retirement sat with the providers but now this has switched to individuals.
“It’s up to the individual to make the choices about what they want to do with their money up to and post-retirement.
“They have the responsibility to make the right choices and with that responsibility comes all that risk.”
Mr Tragheim added that the risk holds with the individual until they walk into an adviser’s office and all of the risks that the insurance companies were taking are transferred to the advisers.
“So the complexity and the ongoing relationship that you have with the customer and the professional services that you provide are basically around risk management and helping consumers to get the retirement incomes and the retirement shape that they want, and that’s a huge responsibility.
“The risk transfer isn’t from paternalism to individualism it actually goes beyond that it goes into the adviser community as well and therefore the intensity of the relationship that exists between you and your customers and you clients will change and will continue to evolve over time.”
The pair outlined four major risks, amongst a list of others that were now on the shoulders of advisers, which were inflation, longevity, flexibility and volatility.
Some of the other risks mentioned were compliance risk, legal environment, tax risk, capacity for loss and liquidity risk.