The government's new pension plan scheme must address fears over flexibility to avoid repeating mistakes made by ill-fated with profits policy providers in the 1980s, Hargreaves Lansdown has warned.
The government's consultation on allowing the creation of collective defined contribution (CDC) pension plans is due to close tomorrow (January 16).
Nathan Long, senior analyst at Hargreaves Lansdown, said: “There'll be winners and losers from this new type scheme that collectively pools everyone together.
"The government must ensure any new schemes will be flexible enough to cope with the demands of the retire-as-you go generation and their modern working patterns.”
He warned that these pensions share similarities with the with profits pensions from the 1980s and 1990s, and the government must draw on these past experiences to make sure past mistakes are not repeated.
Mr Long said: "Many people won't like the lack of control that comes hand-in-hand with this type of pension, so we would like to see the government insist any employers offering these plans also enable alternative access to a defined contribution scheme."
Although Mr Long believes all pension schemes are too important to fail, he said these plans come with much complexity, so should be subject to stress tests similar to those applied to banks.
Hargreaves Lansdown's response to the consultation outlines key proposals to ensure these pensions remain relevant to their members.
These include employers only being able to set up a CDC scheme where it is designed to be flexible enough to make it compatible with modern employment patterns, while all employers offering a CDC scheme should have to offer staff alternative access to a DC pension offering exactly the same contribution structure.
Hargreaves Lansdown describes CDC pensions as a ‘halfway house’ between defined benefit (DB) schemes and defined contribution (DC) schemes.
CDC schemes offer no guarantees. Instead members accrue a target income in retirement.
This can be increased or cut depending on how the underlying investments perform, of which members have no control.
Last July, the Work & Pensions select committee urged the government to facilitate the creation of CDC schemes, after an inquiry on the topic.
Royal Mail is currently working with the Department for Work & Pensions on the changes needed to introduce CDC schemes in the UK after reaching an agreement with the Communication Workers Union to set up a collective scheme for its employees, which was given approval by workers in April.
The agreement included the closure of its DB pension fund to future accrual on March 31 2018.
FTAdviser reported last May there were several companies interested in setting up CDC schemes if the legislation was passed to allow this.
