The UK Government should focus on revising current regulations to allow existing defined benefit (DB) and defined contribution (DC) schemes to be more flexible rather than attempt to create a new regime, Mercer has said.
The consultant said that the Government should abolish mandatory pension increases for benefits earned in the future, and should provide a statutory over-ride to allow employers to redesign their DB scheme for future accrual.
Mercer also said that the Government should make drawdown more widely available and simplify auto-enrolment scheme requirements.
Glyn Bradley, Mercer consultant, said: "While collective defined contribution schemes (CDCs) seem an appealing 'third way' alternative to DB and DC, they will take a long time to set up.
"We believe that a more sensible priority would be to give existing DB schemes more flexibility by addressing some of the current restrictions."
He said CDCs are very successful when market conditions and membership are favourable but difficult funding problems can occur when they are least able to cope.
Bradley added that the perceived advantage of collective DC schemes are already available on the market, or they could be brought about by tweaking existing legislation; trustees and sponsors have to step forward to adopt them.
Mercer's comments follow its response to the Department of Work and Pensions' (DWP) consultation 'Reshaping Workplace Pensions For Future Generations', which has closed.
The Government is seeking to provide greater flexibility for employers providing DB schemes, greater certainty for members of DC schemes, and is asking whether standalone CDCs should be set up in the UK to promote risk-sharing.
Head of Mercer's DC and savings team Brian Henderson said: "We do need to be mindful of the consequences of placing all the financial risk on either an employer's balance sheet or an employee's old age, so spreading the risks of future pension provision may have some appeal.
"Nevertheless, in DC we must face the fact that guarantees come at a cost, reflecting the experience of DB providers. Essentially, a good pension is far more about how much more money can be saved and where that money gets invested rather than simply providing expensive guarantees or risk sharing."
First published 11.03.2014
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