Introducing the concept of collective defined contribution (CDC) schemes in the UK could be the solution to get self-employed workers into saving for retirement.
This is according to Con Keating, head of research at Brighton Rock Group insurance group, who told FTAdviser one of the attractions of CDC is that a scheme can be associated with other bodies, such as professional associations and affinity groups, without needing a sponsoring employer or regular contributions.
He said: "Most self-employed workers that I know set money aside for their retirement when they have some spare cash. In a CDC, they could make regular or irregular contributions."
Also, because there is no link needed to an employer, the duration of service of the worker is no longer a concern, he added.
The UK gig economy includes five million people, ranging from those who class themselves as self-employed through to those on zero-hour or agency contracts.
Despite this being a subject considered during the auto-enrolment review, published in December, the government will only legislate on including the self-employed in workplace pensions before the end of parliament, or 2022.
CDC schemes, which are currently the target of an inquiry from the Work and Pensions select committee announced at the end of November, are also known as a form of "defined ambition" scheme and differ from DB schemes, since they do not guarantee certain incomes in retirement.
Instead, CDC have a target or "ambition" amount they will pay out, based on a long term, mixed risk investment plan.
These schemes also differ from traditional defined contribution (DC) plans, since they do not produce individual pension pots.
They invest savings in larger collective pots instead, which then provide an income to individuals during their retirement.
The Pension Schemes Act 2015 created by the 2010 to 2015 coalition government defined "shared risk/defined ambition" or CDC as a distinct pension category.
However, regulations under the act to bring them into effect have not yet been introduced.
In October 2015, the government announced the plans would be shelved indefinitely so as not to distract from other major reforms such as auto-enrolment and pension freedoms.
According to Mr Keating, the government could encourage the creation of a CDC scheme specifically for gig workers and self-employed.
He said: “What we need is a clear sign from the government on this. What is holding people back [from creating a CDC scheme] is the fear that further regulation is coming down the road.”
Mr Keating gave the example of Royal Mail, which is considering this type of scheme as a way to solve its pension dispute.
The Communications Workers Union, however, has already said that legislation from the government is needed to pursuit this solution.
Other pension specialists, however, don't see benefits of the government allowing for these schemes to be introduced.
Kate Smith, head of pensions at Aegon, argued "this particular horse bolted years ago".
She said: "Instead of fragmenting the UK market more with new untested models, the focus should be on increasing pension contributions, from employees, employers and the self-employed.
"The root problem is that people are simply not paying enough contributions, this is something which needs to be resolved before it is too late."
According to Ms Smith, for CDC schemes to be successful they need to achieve scale quickly.
She said: "Employers are on a relentless march to DC schemes which makes it hard to imagine that they would want to turn back the clock and provide the sort of targeted benefits offered by defined ambition schemes.
"Defined ambition schemes simply do not fit in with the trends of UK society. People are working longer and retire when they want to and take retirement how they choose.
"People want to make individual decisions based on their own financial and personal circumstances, and not be told when and how to take their retirement incomes. The pension freedoms have changed that dynamic for ever."
Mike Lacey, partner at Berkshire-based financial adviser firm Bowman Pension Consulting, argued CDC schemes make a great deal of sense.
He said: "The gold standard pension has always been a final salary or DB plan. However, the cost to the employer of a guaranteed pension is prohibitive.
"Introducing some kind of shared ambition scheme, with an aspiration by the employer to pay a certain pension would alleviate most of these issues.
"Not only would the balance sheet liability be removed – which will appeal to employers – but the employee will have an indication of an aspirational pension. This has to be a good thing."
The Work and Pensions select committee has extended the deadline for submissions to the CDC inquiry to 31 January.
maria.espadinha@ft.com
