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Defined ambition pensions could be 'distraction' for UK government

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  • Defined ambition pensions could be 'distraction' for UK government

UK – Proposals for defined ambition (DA) pension funds in the UK risk being a "distraction" for the Department for Work & Pensions (DWP) at a time when it should be focused on improving the existing defined contribution (DC) model, according to the country's union umbrella group.

Craig Berry, pensions policy offer at the TUC, also criticised ideas for slimmed-down versions of defined benefit (DB) provision – first proposed by the department last year as part of the 'Reinvigorating Workplace Pensions' paper that formally introduced pension minister Steve Webb's DA agenda – stressing that the level of DB regulation was not the reason for its decline.

"Steve Webb is obviously brimming with ideas about the future of occupational pensions in the UK," Berry told IPE, "but we've always had a slight worry that defined ambition has been a distraction at a crucial time for the DWP as automatic enrolment gets underway and all the many issues it has brought to the fore, particularly around charges."

He said the TUC did not accept the premise that de-regulation of DB – as proposed by the DB-minus strand that would potentially allow schemes to stop offering spousal benefits – would lead to a "resurgence of popularity" of the model.

"We'd like to see such a resurgence, we just don't see deregulation as the way to bring it about," Berry said. "It's much more likely brought about by a healthy economy."

Instead, the TUC suggested DC-plus models should be the focus under DA.

"Improving defined contribution pensions is the way in which defined ambition can help with auto-enrolment and this next phase of the pensions revolution that is taking place," Berry said.

However, he added that, while critical of DB-minus, he was not "overly sympathetic" towards any DC-plus models, arguing that much could be done to improve the existing DC framework, such as promoting large-scale schemes with strong governance.

"We should be concentrating on the levers the government may have to introduce [for] those kind of schemes," he said.

"That's why it's possible the defined ambition agenda has been a slight distraction, focusing on prospects like introducing guaranteed returns into DC provision."

He said the value of proposals such as guaranteed returns was "debatable" and suggested attention should have been focused on areas where value for money could be demonstrated – by looking at governance, charges and scale.

"Any DC-plus option has to be about improving DC provision as it stands, not about enabling employers to move from DB to DC – even if it is a better form of DC than is currently available," he said.

Berry previously warned that proposals to introduce provider-level governance boards for contract-based pension arrangements risked being a "cosmetic" exercise and questioned whether contract-based arrangements should even be used for auto-enrolled workers.

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