The Government’s announcement that they would only be progressing a limited range of new Defined Ambition (DA) pensions is a missed opportunity. Whilst the ACA supports the prospect of legislative moves to allow large firms and smaller employers to group together in Collective Defined Contribution (CDC) schemes – one of the recommendations of the Defined Ambition Industry Working Group – the decision not to permit employers to offer flexible defined benefit-type schemes is likely to restrict the take up of the reform package and the closure of defined benefit schemes in the private sector will continue.
ACA Honorary Secretary, Bob Scott, commented:
“Experiences from abroad suggest CDC schemes can offer the opportunity to achieve better investment returns because of pooling and lower administrative costs, but as with other defined contribution products they do place pension risks with members alone, so they may not appeal to employers wishing to provide some greater guarantee. However, some large firms will see CDC as an advance on traditional defined contribution schemes and over time we envisage there will also be industry-wide and multi-employer scheme interest from smaller employers.
“Our research in 2013[1] also showed employer support for DA legislative reforms that would permit flexible defined benefit schemes, enabling firms interested in offering employees a solid defined benefit guarantee into the future to so do. Unfortunately, with this flexibility now apparently ruled out for the foreseeable future, we can expect more private sector employers to close their existing defined benefit schemes to new and, increasingly, existing members and to make radical pension changes over the next 2 years to cap their pension liabilities.
Bob Scott added:
“All defined benefit schemes have to be reviewed over the next two years because of the changes brought about as a result of the abolition of DB contracting-out in 2016. The limited DA reforms are a real missed opportunity by government to help many private sector firms with millions of employees to maintain quality defined benefit pensions.
“The Budget changes proposed in respect of DC pensions, which the ACA advocated and welcomed, may perversely hasten closures to future DB accrual if DB sponsors feel such schemes and their members[2] are not benefitting from the ‘flexibility revolution’”.
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