Hamish Wilson is calling for an independent commission to report on what conditions arenecessary in the private sector to allow the freedom to design pensions with access torisk sharing, including Collective Defined Contribution (CDC) approaches.
Following on from Lord Hutton’s recently published final report on the future of publicsector pensions, Hamish Wilson, Managing Director of the specialist pensions adviser, hasargued in order give effective choice to the private sector, the industry should pressGovernment to examine as a matter of urgency ways of providing risk sharing in privatesector pensions. This would also help close the gap between public and private sectorpension provision.
Wilson commented: “Despite what the public sector might think, Hutton’s proposed shiftfrom final salary to a CARE (career average revalued earnings) is a great result for thepublic sector, representing evolution not revolution. The UK tax payer remains on thehook for all the risks except in relation to the high-flying public servant.
“More important, Hutton was given a blank sheet of paper in relation to the public sectorreview. Now it’s time for the industry to demand a similar review of private sectorpension provision by a private sector ‘Lord’ with specific focus on the conditionsnecessary to allow greater freedom over benefit design giving access to efficient risksharing.
“Of particular interest to the private sector is leveraging the Defined Contributionapproach (which, like ‘raw DC’ caps employers’ costs) while at the same time maximisingthe benefits of ‘collectivism’ for the benefit of all. This is known as Collective DC and,unlike Hutton’s proposals, does not discriminate between the economically active orinactive in relation to indexation. More important, it caps all costs and achievesconsiderably greater benefits and cost efficiencies compared to the only current realisticalternative for the private sector i.e. ‘raw DC’. It can result in, on average, 35 to 45%higher benefits than currently possible under the ‘raw DC’ approach with considerablyless volatility.”
