Ron Wheatcroft discusses how three reports published in September demonstrate the difficulties in funding an ageing society.
September is traditionally the month when children return to school and study in the hope that good grades and favourable reports will come at the end of the school year.
For our industry, this particular month has seen three new reports about funding the older generation’s increasing longevity.
First, the Association of Consulting Actuaries (ACA)published its study of workplace pensions, Alarm Bells Ringing.
The title is particularly apt as its research reveals that a third of larger employers are looking to decrease pension spending.
In addition, “at least two-thirds of employers presently offering no pension scheme say they are unlikely to auto-enrol employees into either NEST or an employer’s scheme.”
This suggests that messages about this legal requirement are not yet reaching smaller businesses in particular.
The concern among many is that the introduction of auto-enrolment will be used as a reason for employers to reduce the contributions per employee.
The ACA figures suggest that this might be a reason for hard-pressed employers to reduce pension spending overall.
With more emphasis being placed on the individual and the employer to fund retirement, might the good intentions behind auto-enrolment become counter-intuitive? What role can the insurance industry play in providing solutions via the employer and directly for the individual? How can we innovate in the pre- and post-retirement markets and encourage people to save? Does saving have to be in a pensions product?
It is these questions that are being asked more and more. If we can use auto-enrolment to increase awareness of the need to save for retirement and improve worksite marketing, this can still be seen as an opportunity for our industry.
The Chartered Insurance Institute’s report, Who Cares? The Implications of a New Partnership to fund Long-Term Care, analyses the Dilnot Commission’s findings from July.
The response to the proposals is largely positive, but there are doubts.
Short of compulsion, there is no single way to meet care costs.
The question remains whether the recommendations will be implemented in full, in part, or at all, with government reaction being particularly low-key.
At present, no insurers offer pre-funded long-term care protection policies. The cap on costs, particularly if up-rated in line with the basic state pension, could counterbalance concerns about the long-term liability for claims costs.
Potential solutions include extending cover under critical illness or income protection policies.
If adopted, the simpler system should help to clarify where personal responsibility lies.
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