TUC General Secretary Frances O’Grady says she supports pension minister Steve Webb’s plan to introduce collective DC legislation before the 2015 election, but argues that only trust-based organisations with no conflicts of interest with shareholders should be allowed to set them up.
Webb outlined his plans in an article in The Times today under the headline ‘Payouts to rise by 30 per cent in pensions revolution’. Hargreaves Lansdown has criticised the claims, likening CDC to unloved with-profits plans. The firm says CDC schemes do not necessarily produce higher investment returns than any other type of scheme and argues the danger with such schemes lies with the risk controls where, as has been seen with with-profit funds, if they are not properly regulated or if the investments fail to perform to expectations, members can find payouts being cut.
O’Grady says: “We welcome Steve Webb’s support for collective defined contribution pensions. Of course it is important to get the details right, but sharing risk among members can increase returns and smooth outcomes.
“But such schemes can only be run by trust based organisations who only work for their members and face no conflict of interest with shareholders. The minister should stand up to the vested interests who will attack this approach and work with the many who want to work through the detail.”
Hargreaves Lansdown head of pension policy Tom McPhail says: “Claims to be able to boost pension payouts at no additional cost or risk are always going to prove popular – particularly in the run up to a general election. The arguments in favour of CDC schemes are unproven. There is clear evidence both from recent Dutch experience and from our own with-profits funds that such schemes can go down as well as up. They are complex, uncertain, unproven and rely on a constant flow of new members for their long-term sustainability.
“We believe that much can be done to improve the existing UK pension system. A well-judged price cap on auto-enrolment schemes, reform of the regulations on the sale of annuities and the promotion of long term investing would all have long lasting and beneficial effects.”