Asset managers were apprehensive about plans revealed by the UK government in the Queen's speech to introduce collective defined contribution schemes (CDCs).
The idea behind the CDC rules is to pool members' assets to spread risks and achieve greater stability of pension outcomes, while making life easier for employers, which can operate single schemes instead of individual ones for each employee.
However, Paul Bucksey, head of UK DC at BlackRock, says fair risk sharing across such schemes “is dependent on the accuracy of subjective market and demographic forecasts”.
“They also require a very large and stable membership across generations in order to be effective,” he says.
Bucksey concludes that although CDCs are designed to provide simpler and more flexible retirement options, they could result in more complexity and less individual choice for UK savers.
Bob Champion, retirement product lead at Skandia, echoed Bucksey's comments about increased complexity, adding that “the impact of such schemes will not be known for some time... 40 years or more”.
“The best way to help ensure a positive outcome, whichever form your scheme takes, is by having regular reviews conducted by a professional financial adviser, and not just upon approaching retirement,” he says.
Nigel Aston, head of UK DC at State Street Global Advisors, was a little more optimistic, stating that CDCs were a potential way to boost levels of employee engagement. However, he expressed concern that the promise of CDCs would divert attention away from improving existing schemes.
“It is important that the potential promise of CDC doesn’t delay trustees and schemes from improving their current plans in the hope of better things to come.”
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