Marvin OnumonuThe Investing and Saving Alliance (TISA) has urged the Department for Work and Pensions (DWP) to make sure new retirement collective defined contribution (RCDC) schemes are fair and clear for members.
The group said these schemes should not be pushed as the default choice and members should always understand what they are getting into.
TISA welcomed the addition of RCDC schemes within a guided retirement framework, but warned that without careful design and governance, consumers could get stuck in unsuitable products or end up subsidising others unfairly.
Renny Biggins, head of policy – retirement and products at TISA, said: “RCDC can be a valuable addition to the pensions landscape, but only if it is built on fairness, transparency and genuine choice.
“For many savers, moving into an RCDC arrangement will effectively be a one-way decision, so they must clearly understand both the benefits and the risks before anything happens.
“This is often referred to as an option which can generate significantly enhanced returns compared to annuity and drawdown, but this is not guaranteed and independent research conflicts with this.”
Biggins added: “The target market should be influencing investment strategy for these schemes, and that will largely be determined by pension scheme decision makers.
“The way in which default decumulation options are positioned within the Guided Retirement journey will be crucial to ensure we avoid any situations where consumers achieve bad outcomes.”
The Investing and Saving Alliance (TISA) has called on the Government and industry to look at RCDC alongside guided retirement, making sure consumers get clear information about benefits, risks and if they are locked in.
The group also said there should be clarity on how actuarial fairness will be achieved without underwriting, so members in poorer health do not subsidise healthier ones.
TISA wants any default RCDC investment strategy to match the target market identified by trustees and independent governance committees.
Additionally, the group said retail schemes should be able to offer RCDC to prevent inconsistent outcomes and schemes should not be expected or pressured to offer RCDC as a default unless it is genuinely suitable.
