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 that 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 the Pensions Bill before the May 2015 general election. Supporters of CDC claim that members could benefit from lower charges and higher investment returns.
But a report by Cass Business School professor Anthony Neuberger argues it is “unclear” how the voluntary CDC system proposed by the Government will reduce costs for members.
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.
“There are possible gains from intergenerational risk-sharing but it would only be in the context of a universal or mandatory system.”
Syndaxi Chartered Financial Planners managing director Robert Reid says: “If defined ambition needs to be man-datory to work, it simply will not happen. ”