Hargreaves Lansdown has warned that there will be “winners and losers” in its response to the government’s collective defined contribution (CDC) scheme consultation.
It issued six key proposals for the government to consider when forming the relevant legislation to “ensure these pensions remain relevant to their members”.
It recommended that employers should only be able to set up a CDC scheme that is designed to be flexible enough to make it compatible with modern employment patterns.
Hargreaves Lansdown senior analyst, Nathan Long commented: “There’ll be winners and losers from this new type of CDC pension scheme that collectively pools everyone together.
“The government must ensure any new schemes will be flexible enough to cope with the demands of the retire-as-you go generation and their modern working patterns.”
In addition, it recommended that all employers offering a CDC scheme should have to offer staff alternative access to a DC pension that offers the same contribution structure, so that members who do not want to be members of a pension that “offers both no guarantees and no choice of investments” can have an viable alternative.
Hargreaves Lansdown is also urging providers and employers not to over promise benefits to members, as those transferring away at retirement could reduce the potential returns that have been modelled to date.
It also warned that CDC schemes should be treated like banks, as they are too important to fail, and use early adopters, which should exclusively be single, large employers, as test cases.
Furthermore, it recommends that investments, risks and benefits are explained when communicating with members to help offset the uncertainty of future benefits.
Long added: “These pensions share similarities with ill-fated ‘With Profits’ pensions from the 80s and 90s, so there’s loads of experience to draw on to make sure mistakes aren’t repeated.
“Auto-enrolment has restored some faith and trust in the pension system which cannot be jeopardised.
“All pension schemes are too important to fail, but these plans come with a large side helping of complexity, so should be subject to stress tests similar to those applying to banks.”
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