UK – Defined ambition must ensure auto-enrolment achieves its goal of wider pension saving without worsening the quality of any such provision, a report backed by union umbrella group TUC has said.

Steve Webb's plans surrounding a 'third way' pension plan – termed defined ambition by the UK pensions minister – were examined in a paper by the TUC on the future of defined benefit funds.

The paper, authored by Hilary Salt of First Actuarial, suggested the new approach would allow for the possibility that "poor-quality" defined contribution schemes could be replaced.

Salt said the defined ambition debate had to "ensure that auto-enrolment fulfils its objective of increasing pension provision in the UK without worsening the existing provision".

She added that the debate surrounding the new path of pension provision would need to go hand in hand with a discussion on intergenerational transfers.

"The defined ambition debate provides the opportunity to look at risk and decide which risks can be shared and for what cost," she said.

"This may require more innovation, but the starting point is to define the consensus around quality pension provision.

"If this is done, then the debate will not be seen as a threat to the remaining defined benefit provision, but as a very real threat to those who want pensions provided without any risk and at no or little cost."

In a second paper released in conjunction with Salt's, the TUC also examined potential reforms to the DC system, including the introduction of collective defined contribution (CDC). 

The TUC seemed unsure about the use of CDC, as it would mark a "big departure" in trade union efforts to ensure greater elements of benefit certainty.

In the paper, Bryn Davies of the Union Pension Services compared CDC with the National Association of Pension Funds' (NAPF) preferred option of super trusts – trustee-led DC arrangements similar to the National Employment Savings Trust – although likely without government funding upon launch.

Davies said: "Would it not be better to have an approach, like that of CDC, that avoids the inherent shortcomings of the typical defined contribution arrangement, where the need for individual decision making and the costs of individual annuitisation are avoided?"

He added that while a CDC provision was likely to be better than one offered outside the collective risk-sharing approach, it remained unclear whether such an approach were viable in the current regulatory environment.

"The second difficulty is that we cannot be confident about the acceptability of the lack of a guarantee for benefits in payment," he added.

"This is a crucial element in the CDC approach but would represent a big departure from the efforts that trade unions have made over the last 50 years to secure greater protection for pension scheme members."

In other news, Aegon and JLT Benefit Solutions have agreed in principle to a partnership that will see JLT double its presence in Scotland to 200 employees, taking on 100 Aegon employees.

The partnership has agreed JLT will service a number of Aegon's defined benefit clients, estimated to have assets worth £710m (€881m).

Adrian Grace, chief executive of Aegon, said: "The agreement provides for continuity of employment for our staff and the maintenance of services for our clients."

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