Brexit – lessons for the retirement industry

Whether you’re delighted or dismayed with the Brexit outcome, the election process has thrown light on some interesting aspects of the current state of the UK, and the world. Clearly globalisation has not worked for all, national identity remains strong in an increasingly inter-connected world, and there is a general distrust of political authority. How the UK and Europe move forward from here is uncertain. Rather than speculate on the future, I’d like to consider the process by which this issue was decided.

For starters, who should have been entrusted with this decision? Elected, full-time members of parliament who are, to use a highly charged term, experts in understanding the implications of multi-faceted issues on the lives of their constituents. Or voters who, assuming independence of decision making, can deliver a ‘wisdom of crowds’ verdict?

Secondly, analysts are in general agreement that both sides ran a very negative campaign. Is fear the best motivator for decision-making, or would a positive stance delivered a superior process?

Applying these points to investment, and particularly DC: (1) who is best placed to make decisions about individuals’ futures – the individuals themselves, or full-time experts? And (2) what communication tone is best – using fear to constrain decisions, or a more positive slant to nudge or guide?

There are options available (or that could be developed with not too much effort) that can generate “suggestions” for members in a cost-effective way, by considering members’ financial objectives and desired outcomes. However, in the absence of safe harbour for offering this “advice”, retirement professionals fear the possible comeback from trustees or scheme members if the advice they are given turns out to be less than optimal. If we want to restore public trust in our professional duties, I suggest some possible courses of action:

  • Take some responsibility for the process of making financial decisions. Not doing so threatens the relevance and legitimacy of our professional status.

  • At the same time, emphasise the unpredictability of outcomes, and propose ways for mitigating the risks associated with this uncertainty

  • Engage with regulators to enshrine the necessary protections for the consequences of a diligently run advisory process. Without this, current and future generations of DC members will be saddled with financial decisions they are ill-equipped to make