Financial advisers are ill-equipped to cope with customer enquiries on how proposed changes to occupational and personal pensions will affect their pen sion funds, says management consultant Tilling-hast-Towers Perrin.
The company is warning that investors risk getting poor advice and could be missold due to advisers' lack of knowledge about changes such as the possible introduction of a £1.4m lifetime contribution cap on pension funds with excess taxed at 60 per cent.
Tillinghast-Towers Perrin principal Bruce Moss says the financial services industry needs to make greater use of stochastic modelling techniques.
He believes these techniques help investors develop a better understanding of the relationship between risk and reward of different investment strategies and what action to take to achieve financial goals.
Moss sees stochastic modelling as a way for advisers to ensure they are compliant and believes it helps them to improve efficiency levels.
He says tools such as Tillinghast-Towers Perrin's eValue advice system could help the industry have tighter control on its compliance issues. It is an online advice system available to product providers, financial advisers and employers wanting to provide analysis tools to help staff make financial decisions.
It has a broad focus that includes retirement planning and other financial goals like school fees planning, repaying mortgages and maximising retirement income.
Moss says: “Stochastic modelling techniques are vital to combat the unrealistic expectations of investors and protect the reputation of the long-term savings industry.
“For example, if these technques had been used when assessing the potential benefits of switching from final-salary to defined-contribution pension schemes, the dangers of this would have been made much clearer.”