New pension could help savers invest through retirement

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New pension could help savers invest through retirement

Collective defined contribution pension schemes could be a useful tool to help savers invest through retirement, a master trust has claimed.

Use CDC to manage risk through retirement, says master trust
The approach, which aims to spread investment risk between savers of all generations within a scheme, has been favoured by the Royal Mail as a way to potentially improve and secure retirement benefits.

In its response to the Department of Work & Pensions consultation on the proposed new retirement saving arrangement, Smart Pension outlined its potential.

Darren Philp, head of policy at Smart Pension, said: "We also think it is right that CDC schemes shouldn't be used solely as an accumulation vehicle.

"A key attraction of CDC is the potential to manage volatility by sharing risk in the period at and through retirement.

"The introduction of CDC potentially fills a gap between the free for all of defined contribution pensions and the rigidness of defined benefit pensions."

Under the current system, defined contribution members take on all the risk in their pension.

Many are encouraged to invest in low-risk assets when they reach retirement to avoid potential losses.

However, under a CDC arrangement, with a member remaining part of the scheme until their death – as is the case with defined benefit pensions – their investment risk could be shared between other, less mature savers with more time to recoup losses.

Since launch in November, the consultation has drawn a range of opinions from the pensions industry.

This week, investment platform Hargreaves Lansdown warned the DWP that any
arraignment must be flexible enough to bend with a new generation of savers.

Mr Philp at Smart Pension also warned that there should be room to innovate away from the "narrow" version of the CDC that has been currently put forward by the government, but said he was cheered by the DWP's apparent openness to innovation.

He said that using a CDC within a master trust structure, which would allow for greater numbers of savers from a range of employers and industries to save together, could enhance the attractiveness for scheme members at all stages of employment.

Mr Philp said: "[The CDC] supports the consumer in achieving a pension income, while potentially allowing individuals at certain points in their savings journey the flexibility offered through pension freedom and choice."

The consultation closes at 11pm today (January 16).