The Government’s “defined ambition” pension reform plans have been called into question in an independent report on the UK retirement market.
Last month, reports suggested measures to support collective defined contribution schemes – whereby members’ contributions are pooled and the pension is paid from the collective fund – would form the “centrepiece” of a Pensions Bill before the general election.
However, in an interview with Money Marketing pensions minister Steve Webb admitted he could be frustrated in his attempts to pass legislation by May 2015.
Supporters of CDC claim members could benefit from lower charges and higher investment returns.
However, a report by Cass Business School professor Anthony Neuberger, published today by the British Academy, argues it is “unclear” how the voluntary CDC system proposed by the Government will reduce costs for members. Neuberger says such a system could only be effective if it was mandatory.
The report says: “Defined ambition makes sense if it provides a cheaper or more effective way of getting rid of risk than through the capital markets.
“But it is unclear how, using collective action by employees, or through the involvement of the employer, this can be achieved.
“In section 4.2 [of the report], the possible gains from intergenerational risk-sharing were discussed, but if these are achievable it would only be in the context of a universal or mandatory system.
“It is very difficult to see how such gains could be achieved through schemes based on individual employers with voluntary participation.”