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News and Analysis

Sam Roberts, our Director of Investment, talks to Stephanie Hawthorne for the FT Advisor on the status quo of the defined contribution pension scheme

'The current pensions system is not fit for purpose'

Stephanie Hawthorne: As I highlighted recently in the Mail on Sunday, DC workplace pensions have largely become a game of retirement roulette, with a huge disparity of outcomes. This is so shocking when auto-enrolment is a quasi-compulsory system with few employees having a choice of pension provider.

Is retirement roulette the best we can offer our children and grandchildren?

Sam Roberts, director of investment consulting at Cartwright, says it is wrong and unfair that people need to be an expert in their day job to earn money for their retirement and also be business and investment experts to grow their savings faster than inflation to ensure their savings retain value in retirement.

He adds: "The deck is stacked against the majority of the population from the start, so is it any wonder that we use our houses as savings accounts and use debt to try to keep up?"

What a pyrrhic victory for workplace DC pensions.


Can any government resist the temptation not to change the rules?

"As the weaknesses of DC are exposed over the next five to 10 years, there will be a temptation to revert back to DB or create new short-term fixes such as 'DB lite' or DB/DC hybrids," warns Roberts.

“This may temporarily help in some cases, but like squeezing a balloon, it moves (and can hide) the complexities and risks rather than reducing them."


He points out: “The Dutch model of sharing risk through discretionary pension increases is the closest version I’ve seen that could achieve a reasonable balance between member understanding and risk.”

Indeed, UK pension schemes enjoyed this sharing model in the 1980s before the government required guaranteed inflationary pension increases to compensate for inflation.

But can any government resist the temptation not to change the rules?

I don’t know. I do know that today’s workplace DC pensions are, for the most part, totally unsuited as the main retirement vehicles for millions of today’s ordinary workers. Their parents would probably have enjoyed a decent pension to go along with the fabled gold watch on retirement. Why can’t we do even better for their children?

We cannot go on as we are. Yet I only hope Roberts is wrong when he predicts: “We won’t find a satisfactory solution for widespread pensions provision until we find an equitable alternative to the current unbacked and inherently unstable and lop-sided global monetary system.

“Until then, our pensions and savings industry will sadly and frustratingly need to continue to lurch from one sticking plaster to the next to make the best of a bad situation.” What a shocking indictment.

If you would like to discuss your scheme, please get in touch with your usual contact at Cartwright or email our Head of Investment, Sam Roberts.


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