Build momentum in a vital industry sector

FA News
11 October 2016

The Fourth Industrial Revelation has ushered in a period of change, and uncertainty. How do we take stock of the way forward in this new world? Are we accepting this change and making relevant adaptations, or are we resistant and dragging our feet? This was a topic at the recently held FPI Retirement and Investment conference.

Speaking at the conference, Shaun Levitan – Executive Director of Colourfield – asked why then is retirement funding still a problem when other industries are finding solutions.

Early days

This is not to say that the retirement funding industry is not keeping up with change. The most recent change that has had an effect on the industry was the move from defined benefits (DB) to defined contributions (DC) where the retiree takes on the majority of the risk as opposed to the employer.

“This has been a generally accepted change and we have not seen any major fall back as a result of the move. But that is because the majority of people who have retired, and some who are approaching retirement, have saved for retirement in an industry where DB was still in effect. We have not yet seen a full work cycle where a retiree begins and ends his career in a DC world,” said Levitan.

Complicating the issue

The issues above are not the be all and end all of the problems that the industry faces. The major problem is that the retirement funding industry is stuck in the 1980s while the rest of the world is keeping up with the times.

“We live in a world of instant gratification and access to information. Clients want to see benefits now and are able to gain access to the information which could potentially tell them where they are in their retirement savings lifecycle. Another issue that is complicating the matter is that everyone is treated the same. A doctor, a lawyer, a journalist and a construction worker who are all the same age are ring fenced together and are offered the same product to save for their retirement based solely on one commonality, their age,” said Levitan.

Preach change

Levitan added that advisers need to preach change to clients. They need to look for solutions and then offer it to them if they are ever going to leave behind the problems the industry currently faces.

“The industry needs to take a goals based approach to retirement. We need to look at the challenges we are facing and then offer bespoke solutions tailored towards these challenges.”

“In essence, we need to take a step back and ask what retirement funds are really for. Retirement funding is necessary to maintain a standard of living within retirement. In order to ensure that this funding lasts throughout retirement, we need to encourage clients to focus on their monthly income in retirement as opposed to the pot of cash that they receive at retirement,” said Levitan.

Establish boundaries

At the end of the day, people want to know that they are going to be comfortable during retirement. And if they are not going to be comfortable, what can they do now to change their outcome? “I have met with a number of people over the years who have said to me: if only I knew how dire the situation was, I would have done something about it,” said Levitan.

And there is something advisers and insurers can do about it. “We get a lot of data from clients when they fill in forms during our initial meetings with them. Why then can we not take this information and plug it into our algorithms to establish boundaries? This will tell people if they are on track or not,” said Levitan.

The issue of cost

It is clear that insurers and advisers need to keep up with the times if they want clients to retire with a peace of mind. Are you ready to make these changes?

A significant issue facing the retirement funding industry is the cost issue. This is a subject that has been spoken about many times in the past and has even been debated at high levels of government. But if costs are an issue now when there are no bespoke solutions, what would happen if there were?

“Naturally, there is a cost associated with this,” Levitan admitted, “and there will be a number of options available. Like with everything in life, there will be an offering catering for high net worth individuals which has a lot of personalisation. But if we are looking at personalisation purely on the information we have now, the costs shouldn’t be too onerous,” said Levitan.

If the industry can look at a way to mitigate costs as much as possible, trust begins to form with clients and they start to see the value of working with insurers and advisers on the road to retirement.

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