Defined ambition schemes 'help implement Budget's pension reform plan'

Government proposals to allow greater freedom in workplace pension design and risk sharing would help implement the wholesale reforms to private pensions announced in last week’s Budget, the Association of Consulting Actuaries has said today

Government proposals to allow greater freedom in workplace pension design and risk sharing would help implement the wholesale reforms to private pensions announced in last week’s Budget, the Association of Consulting Actuaries has said today. 

The Department for Work and Pensions 'defined ambition' consultation last year put forward Dutch-style collective defined contributions as one possible way to provide savers with more certainty over their retirement income. In January, pensions minister Steve Webb, saying it would likely appear as the 'centrepiece' of a Pension Bill before the next election.

In a report examining the model, the ACA said the reforms could also compliment the pension changes announced by Chancellor George Osborne, which are set to remove the obligation for people to buy an annuity.

The Placard report highlighted that advantages of the Dutch system included a much higher level of pension savings and also reduced volatility due to a greater spread of risk. Dutch pensioners are not tied to purchasing annuities in the open market. 

However, the report also urged ministers to be aware of the potential drawback of the model, including that younger pension scheme members would have to bear the risk that their benefits could fall in future if older members continue to live longer. 

ACA chair Andrew Vaughan, who also chairs the defined ambition industry working group set up by the DWP following the consultation, said the system could assist in the implementation of the chancellor's changes.

'The ACA has been a strong supporter of allowing greater freedom in workplace pension design and risk sharing, which is why we welcomed the "Defined Ambition" initiative and consultation, which includes proposals to encourage CDC and a more flexible approach to defined benefit arrangements. 

'These workplace pension reforms if enacted would complement and support the chancellor's latest proposals to boost pension savings in a more flexible environment.'