Professor David Blake, director of the Pensions Institute at the Cass Business School, criticised “most” DC pension plans for failing to consider factors such as a member’s occupation, interruptions in career to look after children and a possible increase in their life expectancy.
He said: “Most DC pension plans are badly designed. If a DC plan were well-designed, it would be a single, integrated financial product that delivers, at reasonable cost to the plan member, a pension that provides a high degree of retirement income security.”
He said that a list of 16 good practice principles in modelling plans should help to ensure that underlying schemes are more “reliable and robust”.
He added: “Projections from the models can then be used to guide both plan-design and member choices.”
Professor Kevin Dowd, fellow of the Pensions Institute research facility at Cass and co-author of the principles, said applying the code should make members question whether they are contributing enough in time to enjoy a comfortable retirement.
Principles
The practice principles include:
- To improve modelling member choices and characteristics.
- To be clear about plan charges.
- To include additional sources of income.
- To improve stress testing.
ADVISER VIEW
Simon Walker, director of Northumberland-based SG Wealth Management, said: “DC schemes are created with no thought whatsoever for their membership – they are being shoved into workplaces with greater concern for advisers, ensuring that employers put in minimal contributions.
“It would be a simple and straightforward job to target benefits under DC schemes. One must sit down with every single employee coming into the scheme to see what earnings might be at retirement compared to the level of contributions going in.”
