Personal Pension  

Market Review: Pension reforms ‘overwhelming’

Implementing collective defined contribution schemes could prove “overwhelming” for employers already grappling with wider reforms to workplace pensions, market commentators have warned.

Earlier today, the Coalition government used the last Queen’s speech of its tenure prior to next year’s general election to confirm that employees will be able to pay into CDC pension funds.

Under the CDC model, contributions are not retained in an individual fund for each member but are pooled. When a member retires the income is paid from the asset pool rather than through the selection of an individual retirement income product.

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Ministers believe that pooling money in this way will help increase the retirement incomes of some workers up to 30 per cent.

These funds have come under fire for having similar traits to with-profit funds and due to accusations that they leave savers “at the mercy” of market and actuaries’ forecasts.

Stephen Bowles, Schroders’ head of defined contribution, warned that the introduction of these new rules may be a “bridge too far” for employers and the pensions industry.

He said: “It comes on the back of a wave of pensions legislation in recent years, including auto enrolment, the liberalisation of post-retirement options in the Budget and the capping of charges.

“These fundamental changes are already stretching all those involved in providing workplace pensions. The industry may now struggle to effectively implement CDC, which is a completely new concept for the UK.”

Indeed, proposals for the new money purchase model, based largely on schemes popular in the Netherlands, is an entirely new concept in the UK.

Alan Higham, head of retirement insight at Fidelity Worldwide Investment, said: “Fidelity is concerned that the sheer volume of new pension legislation – albeit well intentioned – is having a detrimental impact on consumers.

“We would like to call for a pause within parliament from issuing more significant pension changes whilst we digest what’s on our plate now. Customers we speak to are totally confused by their choices which leads to paralysis of action which benefits few.

“Industry is inundated with demands from regulators and politicians whilst being asked to innovate.”

He believes today’s announcement of a third Pensions Bill to legislate CDC is “badly timed” and will “further dilute resources that need to be applied to help people retiring today”.

Jonathan Parker, head of investment proposition at Barclays Corporate and Employer Solutions, agreed, also warning that there is a “very real danger” that employers and individuals are becoming overwhelmed with yet another announcement of major reforms.

He said: “These reforms should not derail the government’s positive efforts around auto-enrolment. With a huge number of SMEs still to stage, although signs are encouraging, AE is relatively untested as yet and the continued rapid pace of reform does not allow sufficient time for people and employers to fully understand their options.