Employee Benefits poll: Half (50%) of respondents think that collective defined contribution (DC) pension schemes are not a suitable replacement for defined benefit (DB) arrangements.
A straw poll of www.employeebenefits.co.uk readers, which received 26 responses, also found that 27% of respondents believe that collective DC schemes can work as a replacement for DB pensions, while 23% feel that more information is needed before they can make a decision.
Last month, The Work and Pension Committee launched an inquiry into the possibility of introducing collective DC pension schemes to the UK pensions market. The deadline for contributing written feedback is 8 January 2018.
Collective DC pension schemes, which are common in countries such as the Netherlands, Denmark and Canada and are also known as defined ambition schemes, are not currently offered in the UK. Collective DC schemes have a target or ambition amount that they will pay out based on a long-term, mixed-risk investment plan. The aim of a collective DC scheme is to provide an adequate level of index-linked pension for life, but it does not have a contractual guarantee. Collective DC pension schemes can redefine the benefits they offer subject to circumstances, for example, adverse economic conditions.
Collective DC pensions also do not produce an individual pension pot, but invest members’ savings into a larger collective pot that then provides a retirement income. This can, therefore, influence decision making around pension freedoms, and alters the pension’s risk profile.
The government’s inquiry is investigating whether collective DC arrangements can benefit UK savers and whether this type of scheme will work cohesively alongside the existing pension freedoms. The inquiry will also explore whether underfunded DB schemes could be replaced by collective DC schemes and address how potential collective DC arrangements could be legislated for and regulated.
