Commenting on the consultation paper on defined ambition pensions published by the Department for Work and Pensions today, TUC Head of Campaigns and Communications Nigel Stanley said:
“There is much to welcome in this consultation paper. Taking forward its positive proposals could well deliver better pensions for the millions saving for the first time through auto-enrolment. Steve Webb deserves praise for taking us all on the defined ambition journey.
“We have already seen good innovation in DC pension design from new players like NEST, but there are many interesting ideas in this paper to explore further. In particular we think that sharing risk between members in well-governed and large-scale collective DC schemes can make members savings work harder and deliver better retirement income.
“As the bulk of employees will be in auto-enrolment scheme where employers will not wish to take on any risk, building on DC is the priority. Getting scale and member aligned governance will require government to take a strong lead as this will represent a real challenge to the many existing schemes run for profit.
“We remain sceptical however that deregulating defined benefit pensions will change employer behaviour. Employers willing to accept pensions risk already have many ways to negotiate changes to reduce costs, and we are particularly opposed to abolishing indexation as that just means pensioners getting poorer every year.
“New ways of sharing risk between employer and employee are always interesting, but we are doubtful that there are many employers who want to take on additional risk. It may be better for good employers and their staff to think about increasing contributions instead, especially if only minimal and cheaply insurable risk is on offer.
“But of course the real problem in pensions is that contributions are too small. Even the best risk sharing model cannot make up for poor contributions.
“In a nutshell: DC-plus good, DB-minus bad and DC plus with adequate contributions best of all for new auto-enrolled savers.”
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