UK – The chairman of the UK’s financial regulator says the shift to defined contribution pension schemes presents “considerable problems”, due to people’s lack of knowledge about finance.

“I think the critical thing is that there is a huge move from defined benefit to defined contribution,” said Callum McCarthy, chairman of the Financial Services Authority. He said there were “considerable problems with that”.

“The pension investment is the biggest investment that people will make in their lives,” he said. “We’ve got too many people in Britain who are not competent to make the decisions required of them.”

McCarthy told a lunch organised by the American Council of Life Insurers in London that the government has a key role to play in improving financial literacy.

McCarthy saw opportunities for the life insurance industry in the future – driven in part by demographic ageing. But he was critical of the European Union’s proposed directive on gender equality on insurance, saying it would add costs to the industry. He estimated the move could cost UK insurers could up to two billion pounds (three billion euros).

And he said the measure would have “arbitrary consequences”, such as changing the cost of annuities for men and women.

Meanwhile, the UK’s Department for Work and Pensions has put into place an interim measure to ensure scheme assets are shared more fairly when a pension winds up. The amendments will come into place on May 10.

“We have taken action to ensure that when a scheme is wound up, the assets are shared as fairly as possible between pension and non-pensioner scheme members,” said pensions minister Malcolm Wickes. He said it was a worthwhile “interim change” before the Pension Protection Fund is launched.

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