Skip to main content
The Actuary: The magazine of the Institute and Faculty of Actuaries - return to the homepage Logo of The Actuary website
  • Search
  • Visit The Actuary Magazine on Facebook
  • Visit The Actuary Magazine on LinkedIn
  • Visit @TheActuaryMag on Twitter
Visit the website of the Institute and Faculty of Actuaries Logo of the Institute and Faculty of Actuaries

Main navigation

  • News
  • Features
    • General Features
    • Interviews
    • Students
    • Opinion
  • Topics
  • Knowledge
    • Business Skills
    • Careers
    • Events
    • Predictions by The Actuary
    • Whitepapers
    • Moody's - Climate Risk Insurers series
    • Webinars
    • Podcasts
  • Jobs
  • IFoA
    • CEO Comment
    • IFoA News
    • People & Social News
    • President Comment
  • Archive
Quick links:
  • Home
  • The Actuary Issues
  • June 2014
06

Hargreaves Lansdown: CDC plans 'misguided'

Open-access content Monday 2nd June 2014 — updated 5.13pm, Wednesday 29th April 2020

Government intentions to legislate for Collective Defined Contribution pension schemes are ‘misplaced’ and will not see returns distributed fairly, Hargreaves Lansdown warned today.

The firm's warning comes after pensions minister Steve Webb this weekend confirmed that legislation to set up CDCs in the UK would feature in the Queen's speech on Wednesday.

The Dutch-style schemes are expected to come into force by April 2016 and will pool contributions in a collective fund of private sector workers rather than individual accounts. CDC schemes combine longevity pooling with investment successes and failures which are shared across the body of members.

However, Hargreaves Lansdown said Webb’s intentions were good but 'misplaced'.

'With the best will and skill in the world actuaries won't be able to distribute money fairly between generations, between social groups and between individuals,' the firm said.

'In particular, CDC schemes will benefit the affluent, who tend to live longer than low-earning workers. By contrast, the individual pension accounts we currently have in the UK allow individuals to buy enhanced annuities if they are in ill health or have a lower life expectancy.'

The firm also noted that sweeping pension reforms introduced in the March Budget, which will provide retirees with more options on how they draw their pensions, would not be open to those in CDC schemes.

Laith Khalaf, head of corporate research at Hargreaves Lansdown, said: 'CDC is a damp squib. Employers are busy dealing with the huge reforms the government has recently made to the pension system. A CDC scheme will be complicated to explain and won't give workers the freedom at retirement other schemes enjoy; employers are therefore likely to give CDC a stony reception.'

But, ministers believe that some of the best pension schemes in the world are run on a collective basis.

A DWP spokesman said: 'The coalition government's action to date has already started a pension saving revolution in the UK but, as the pensions minister has stated clearly, there is more we can do to continue this drive.

'The government's legislative programme for the final session of the Parliament will be outlined in the Queen's speech this week. A consultation on the future of workplace pensions has been held over recent months and the findings of this will be published soon.'

Speaking to The Actuary, actuaries Barnett Waddingham agreed that there would be some challenges with CDC schemes, but said the UK would need to get used to the idea of collectivisation before the industry moved on to think about the more sophisticated target benefit arrangement.

Partner Danny Wilding said: 'There are different levels of risk sharing that CDC schemes can operate and I think it is certainly true that the more risk that you try and share and target benefits so that each member has the same pension formula that then becomes more difficult to manage and then you have all the risks of defined benefit provision that goes along with that.

'When people think about CDC schemes they think about the Dutch-style pension scheme that are almost semi-defined benefits. They have very strong benefit targets that schemes are managed against. To be honest, I'm not sure that the UK would be ready for that on day one. I think if we had the CDC legislation at some point in the next 12 months say, I think the first CDC scheme would be the kind of pool arrangement, more like pooled retirement savings.'


This article appeared in our June 2014 issue of The Actuary.
Click here to view this issue
Filed in
06
Topics
Pensions

You might also like...

Share
  • Twitter
  • Facebook
  • Linked in
  • Mail
  • Print

Latest Jobs

New Fast-Growing Team - Actuarial Systems Development

London (Greater)
Excellent Salary Package
Reference
143762

Actuarial Pension Consultant – Scotland/Remote – Up to £90,000 plus bonus

Edinburgh / Glasgow / Remote working
Up to £90,000 + Bonus
Reference
143761

Part Qualified Pensions Actuary– Specialised Pensions Consultancy - Scotland/Remote - Up to £70,000

Edinburgh / Glasgow / Remote working
Up to £70,000 + Bonus
Reference
143760
See all jobs »
 
 

Today's top reads

 
 

Sign up to our newsletter

News, jobs and updates

Sign up

Subscribe to The Actuary

Receive the print edition straight to your door

Subscribe
Spread-iPad-slantB-june.png

Topics

  • Data Science
  • Investment
  • Risk & ERM
  • Pensions
  • Environment
  • Soft skills
  • General Insurance
  • Regulation Standards
  • Health care
  • Technology
  • Reinsurance
  • Global
  • Life insurance
​
FOLLOW US
The Actuary on LinkedIn
@TheActuaryMag on Twitter
Facebook: The Actuary Magazine
CONTACT US
The Actuary
Tel: (+44) 020 7880 6200
​

IFoA

About IFoA
Become an actuary
IFoA Events
About membership

Information

Privacy Policy
Terms & Conditions
Cookie Policy
Think Green

Get in touch

Contact us
Advertise with us
Subscribe to The Actuary Magazine
Contribute

The Actuary Jobs

Actuarial job search
Pensions jobs
General insurance jobs
Solvency II jobs

© 2023 The Actuary. The Actuary is published on behalf of the Institute and Faculty of Actuaries by Redactive Publishing Limited. All rights reserved. Reproduction of any part is not allowed without written permission.

Redactive Media Group Ltd, 71-75 Shelton Street, London WC2H 9JQ