Pensions - Articles - Comment on the launch of the Collective DC scheme

 “This very much links with the “Financing growth in innovative companies” consultation response issued alongside this week’s Budget. Collective investment in this way would play to the political desire to increase pension fund investment in patient capital – i.e. investment in UK unlisted SMEs and start-ups, as well as in infrastructure. Given this issue is firmly on the political agenda, we would expect this inquiry to gather some momentum. More broadly, there is a growing push towards consolidation, both in DB and DC pensions, which seems unlikely to abate any time soon.

 “In principle the idea of collective DC could deliver better outcomes for scheme members by, for example, enabling exposure to growth asset returns for longer. However, there are a number of significant barriers that will be difficult to overcome and caused the idea to fall on stony ground the last time it was proposed 4 years ago . The central principle of risk sharing between generations doesn’t sit well with an employees’ right to opt-out under auto-enrolment. In addition, it also requires huge scale from day one and a continual flow of new monies into the system. Finally, and perhaps critically it is completely incompatible with Freedom & Choice and the right of individuals to determine how they spend their money in retirement. These challenges led to a general lack of enthusiasm from employers last time and it’s hard to see why it will be any different this time around.”