The UK needs to learn from the mistakes of the Netherlands if is to introduce collective defined contribution (CDC) schemes, European risk advisers Cardano said today
CDC schemes, which are common in the Netherlands, pool contributions in a collective fund rather than individual accounts. Investment successes and failures are shared across the body of members.
This summer, the Department of Works and Pensions issued a report examining how CDC schemes could work in the UK. Trade unions have also backed their introduction.
However, Cardano said it was now acknowledged that the Dutch CDC system faced problems. The ownership of the surplus in collective funds is not clear and had not been managed well and there was no independent oversight of how payments were distributed from young to old members, said Stefan Lundbergh, head of innovation at Cardano. As a result, the country has had to start the process of revising and rebuilding its pension schemes, but heritage issues make changes difficult.
'If the UK was to go into a collective DC today, it should start in the Netherlands and start from its mistakes,' he said.
Lundbergh noted that the UK would have a strong advantage if it went down the CDC route because it would be starting the process from scratch without having to deal with a heritage.
He told The Actuary that if the projected pension income is not sufficient, scheme members have the choice between paying more, working longer and receiving less from their pensions. People needed to scale down their expectations of the income they would receive in retirement.
'What was promised [by Dutch CDC schemes] is too much...The UK should learn from the good and the bad of the Netherlands.'
Cardano's CEO Kerrin Rosenberg added that dealing with the closed DB schemes will be necessary in the UK and that any restructuring of DB schemes needed to secure cross-party political support.