Pensions tsar Adair Turner has thrown his weight behind with-profits, arguing that smoothing can give investors the long-term benefits of equity investment while limiting risk.
The head of the Government's compulsion commission told the National Association of Pension Funds annual conference last week that both occupational schemes and insured schemes were shifting intolerable levels of risk on to the individual.
He said defined-benefit schemes were effectively with-profits products but the shift to defined contribution meant that individuals were increasingly at risk and he compared it with the drift from with-profits to unitised products.
He pointed out that a DC pension invested in equities would give income one-third lower in 2003 than in 2000.
Turner questioned whether the financial services industry had the capital reserves to support smoothed funds.
He said: “We have seen a huge shift in risk bearing as we move from smoothed to unitised products. The basic concept of with-profits gives savers access to the long-term average superior returns of equities without the risk and that is a beneficial thing. One of the big questions that the industry faces is, can it develop a new with-profits product?” Richard Jacobs Pension Trustee Services director Richard Jacobs says: “Turner is absolutely right – with-profits is exactly the product the consumer wants. But MVRs, insurance company charges and capital reserves mean that the marketplace will not allow it to exist.”