Launching a collective defined contribution (CDC) system in the UK would only be possible with "radical" legislative change unless employers can be convinced to take on risk voluntarily, a senior consultant at Towers Watson has suggested.
David Robbins, senior consultant at Towers Watson, worried that policies were "informed by the sorts of comments people make in radio phone-ins", raising concerns about investment losses. "I'm not sure what the stick is that you would get people to do this with because, the way the legislation is structured, employers have got a duty to auto-enrol into pension schemes and maintain the membership of those pension schemes – that can be a pure DC scheme", he said. "Unless you are talking about very radical change in legislation, which I don’t think anybody is", Robbins added, noting the potential exclusion of pure DC from auto-enrolment, "then you rely on employers' appetite to take on some risk themselves or offer some other vehicle".
Neil Carberry, director of employment and skills, said he believed the "vast majority" of pension saving would continue in current DC funds. "While it is right to look at what could be achieved by more innovative scheme designs, there are still grey areas around how this would actually work, and how risks would be managed", he said. "It's important businesses have legal certainty over the status and future of these schemes, especially as cross-subsidy between members will mean that, in some years, some savers may have to take a reduction in benefits."
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