New workplace pension schemes attract mixed response

New workplace pension schemes attract mixed response

Industry experts and trade bodies have responded with mixed views to the Work & Pensions Select Committee’s report on collective defined contribution (CDC) schemes, published yesterday (16 July).

The new schemes would see returns from long-term, mixed investments pooled, rather than placed in individual pots. The aim would be to meet a target amount, rather than guarantee a return.

The Association of British Insurers expressed scepticism about the proposals, warning that they may work for the likes of the Royal Mail, but may be less appropriate to other companies and organisations.

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Rob Yuille, head of retirement policy at the ABI, said: “The idea of a simple change that will generate excellent outcomes for all is always tempting but rarely true.

"Far from being a silver bullet, establishing the rules for these schemes would be a major undertaking at a time when government already has a large number of policy commitments that it should be prioritising, and would add yet more complexity for consumers.”

Bob Scott, senior partner at financial consultants LCP, painted collective defined contribution schemes in a more positive light.

He said: “Collective provision – even just pooling longevity experience – means that retirement income can be determined with greater certainty.

“Investments can be made on a basis that reflects the collective requirements rather than focusing on individual by individual. The total outcome will be greater than the sum of its parts."

Martin Bamford, managing director of Informed Choices, believes the CDC offering could only create confusion.

He said: "Every time we make changes to the pensions landscape we muddy the waters of what is already a complex proposal for many people.

"Companies are geared up to offer defined contributions, and it’s a simpler product model to sell to people who just need to be encouraged to put money aside each month for their retirement."

Malcolm McLean, senior consultant at Barnett Waddingham, believes the jury is out on CDC.

He said: “The government may decide to proceed with a controlled experiment, rather than open the floodgates. If this type of scheme goes wrong companies and employees faced a shortfall this would be a disaster for working people, not to mention the government.

“That said, it may prove popular with certain UK companies, and could be a success. There is nothing fundamentally wrong with the concept, as it’s worked in other countries, so I think it will go ahead with caution.”