UK - Occupational defined contribution schemes could be the next pensions mis-selling scandal, consultants warn.
Aon Consulting and Watson Wyatt fear problems in the wake of wholesale moves from defined benefit to money purchase provision – unless employee education improves.
They believe employers may face claims unless they make it clear to workers their projected DC pensions may not necessarily be similar to the payout they might have received if they were in a DB scheme.
And they say unless employees’ expectations are lowered, this could lead to a new public mis-selling enquiry which could result in companies being forced to reopen DB schemes.
Aon principal Chris Erwin said: “If there are complaints about DC, the regulator will change the rules with hindsight.
“Employers and trustees will realise that the transfer of risk – which was a good idea at the time – was made to individuals who are, of course, voters.”
Erwin advises DC schemes to carry out regular investment reviews to ensure that their funds are still relevant, communicate with members regularly and ensure that the information is correct and up-to-date.
Watson Wyatt partner Colin Singer warned employers preparing to move to DC they needed to communicate effectively the issue of sliding contribution rates for DC schemes.
He said: “One can imagine yet another ‘mis-selling’ scandal, if pension scheme members say they did not realise their employer would pay, say, 2% for every 1% they paid.”
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