Commenting on the Chancellor’s proposals for DC Pensions and CDC in his Mansion House Speech, Jon Hatchett, Senior Partner, Hymans Robertson says:

“We welcome the direction of travel for DC schemes announced by the Chancellor. If we get this right, in the medium to long term it will be great for DC savers. It will be an improvement to see an uplift of 12% uplift for those saving into DC pensions from the age of 18. However, it will do very little for the generation of DC savers reaching retirement in the coming years. Our modelling has shown that many of these people will not be able to afford even a moderate standard of living in retirement based on the PLSA’s Retirement Living Standards.

“CDC broadens our options, but we don’t want a new one trick pensions pony. There are wider forms of risk sharing available* and the Government should be encouraging innovation more broadly. Providers offering longevity pooling can let people focus their pension savings on their own income in retirement, rather than passing on a bequest on their death. In a stroke, that can allow savers that want or need more income to get around 20% extra a year.”

Commenting on the Chancellors’ call for CDC and the government’s ambition for a 5% allocation in unlisted companies to lead to ta 12% uplift in outcomes for DC savers, Paul Waters, Head of DC Markets, Hymans Robertson says:

“It is great to see the Chancellor recognise the value DC pensions can play for the UK economy and the need for innovation like CDC to drive better member outcomes. Despite his support for CDC, is not the only answer to this issue. There are alternative forms of risk sharing that could materially deliver better outcomes for savers in different situations. These have the potential to deliver more value to savers, at arguably lower long-term risk, and can be implemented today. The government and regulators single-minded focus on CDC risks missing the bigger picture. We must ensure we design and deliver the best solutions for all members, not focus on one which could be just average for many.

“The government’s ambition for a 5% allocation in unlisted companies to lead to a 12% uplift in outcomes is to be applauded. We have been suggesting greater allocation to private markets for some time with our 10-10-10 statement: 10 basis points increase in charges could support a 10% allocation to illiquid investments and at least a 10% improvement in retirement outcomes for younger savers. While there are some differences in the detailed approach than pure private equity / start-up finance that the government is proposing, the principle is the same.

“It is encouraging to see the Mansion House Compact providers stepping forward in this regard. We need greater innovation from providers in many areas as well as investment, such as decumulation proposition design and delivery for better outcomes for members*.

“When unlocking this potential, however, we need to stop the race to the bottom on charges and make sure the positive case for delivering better value is heard. Value and outcomes should drive decisions, not cost.”

*See: Risk Sharing: an age old solution to an age old problem