The Department for Work and Pensions (DWP) has set out a range of proposals to reshape workplace pensions for future generations. Commenting on the proposals, Raj Mody, head of pensions at PwC, said:
“It is great that the Government is focused on how to get more people to save for their retirement. The proposals hold a lot of merit in principle, but the stumbling block will be whether companies have the appetite to provide these types of pensions. Regular revisions to pension rules have left employers disillusioned, with little appetite to take on any more risk than they need to.
“If the financial services market can develop products which meet the characteristics of the ideas outlined by the DWP, and with reasonable costs and charges, then employers will be much more prepared to adopt them. But I doubt many employers will want to initiate these kinds of protections for members and underwrite them directly, for fear of future governments ramping up the regulatory burden.
The cost of trying to provide guarantees to defined contributions pots could be both expensive and prohibitive for employers and providers so there could be more value in educating scheme members as to how their pension scheme works and the risk and rewards that come with their investments.
“The proposal to create a slimmed down defined benefit (DB) version is welcome but sadly is likely to be too little too late. The challenge will be persuading employers to move back towards an arrangement where they are tied into a pension promise, as so many have swung away from offering DB schemes. For a noticeable shift in company provision back to anything with a DB element, you would need to remove more than just the compulsory inflation-linking promise but also give more flexibility around areas like reacting to dramatic improvements in longevity for example."
"What is needed for workers and employers alike is a simple, stable pensions regime so that they can easily plan for the long term. Improved visibility and clarity on how defined contribution pensions are performing over a worker's lifetime could really help improve trust in pensions as a stable and reliable way to save for their retirement."
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