Defined Contribution  

Master trusts eye new pensions for decumulation

"We already have with profits annuities which are incredibly similar and are hardly used at all. The twin products of drawdown and annuity are perfectly adequate, it’s encouraging clients to select the blend of the two that’s right for them that remains the challenge."

Steven Cameron, pensions director at Aegon, said while the Pension Schemes Bill advanced the legislative framework for CDCs there was a long way to go to make sure any employer offering this does so in a way that is "clear, fair and not misleading" to members.

Mr Cameron said: "Members need to be crystal clear that benefits can fall once in payment. It also covers how to turn contributions into target benefits and how to then convert back to a cash equivalent if the individual transfers out.

"In terms of value to the members, the Royal Mail has a significant employer contribution, which should address issues there, but this may not be replicated by other employers and I would have grave concerns over CDC with auto-enrolment minimum contributions.

“Extending CDC to multi-employer master trusts is a further significant step which will require extremely careful consideration.

"An additional dimension is whether employees of one employer understand and are happy to accept they would be pooling risks not just with other employees of their company but with that of other employers.

"Certain occupations exhibit significantly different life expectancy from others which raises new fairness considerations around pooling mortality risk.

“While I wouldn’t want to close off avenues of innovation, any movement in this direction needs to be taken with our eyes wide open.”

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