ACA chair balks at funding code for open schemes while backing CDC

Speaking to those gathered for the event, Steven Taylor, chairman of the Association of Consulting Actuaries, said the ACA welcomed most of the government’s policy announcements. However, on the wider inquiry into defined benefit (DB) schemes, including whether open schemes, which continue to accept new members and allow the build-up of new benefits, are now able to thrive, the organisation is “a little less optimistic”.

“While we support the rejigged funding code, we do think that open schemes will continue to risk being forced down an unnecessarily cautious funding approach, which could result in yet more schemes choosing to close,” said Taylor. “And we have responded to TPR, DWP and select committee’s recent consultations with suggestions in this area.”

Taylor otherwise praised the government’s work, particularly those projects aimed at closing the pensions inequality gap and the development of collective defined contribution (CDC) schemes.

ACA is particularly supportive of the CDC project, because it will immediately remove the jeopardy sponsor face under the current DB regulation. 

“Employers used to be happy to pay 20% or more of salaries into defined benefit schemes which were led by employees and helped to attract and retain the best staff,” said Taylor.    

“But, when faced by a near endless ending battle against deficits and increasingly onerous regulation, most companies closed their schemes for current employees and instead now on average pay below 10% of salaries into replacement defined contribution schemes – which most here would agree is not enough to give current savers an adequate retirement income.

I think we are beginning to make real progress in the battle for good quality pensions for the next generation

Steven Taylor, ACA

“With CDC schemes, employers don’t risk deficit payments, and can again feel comfortable providing good quality pensions to attract staff – perhaps paying close to the 20% contributions of old.”

This is just one of the many actions the industry, with assistance from the government, must support if the current generation of savers are to experience the kind of retirement that many of today’s DB focused retirees enjoy, said Taylor. 

“Here, pensions dashboards may help to stir action, but dashboards need to be delivered with care and simplicity for the user so they can hit the ground running.” 

On what he called the ‘pure’ DC side, he impressed the need for a plan for auto enrolment minimum contributions to be increased.  

“While we recognise that current economic circumstances make that very difficult, we believe a firmer ambition from government would be welcome to further guard against poor outcomes further down the road. 

“I think we are beginning to make real progress in the battle for good quality pensions for the next generation.”   

.