Roadmap predicts defined ambition within the year
A ‘defined ambition’ pension scheme could come to market within 12 months, according to a report presented to the Institute and Faculty of Actuaries.
The report, published by The Actuarial Profession, lays out a vision for a DA scheme that would protect members against negative investment returns, and concludes that with certain key limits “there is a place for a guaranteed savings product”.
Eason predicted a product would appear within 12 months.
The product would not be inflation protected, nor would it guarantee the pension value for the whole duration of the scheme. Instead, members would accrue as normal for a period of time, and then lock in their investment returns in a “consolidation phase” once the pot has reached a certain size. The member would then have a guarantee against negative returns from that point forward.
Scott Eason, managing director of insurance solutions at Societe Generale, and the report’s lead author, said: “I strongly believe DA is a viable product and that there’s demand for it. We’ve sketched out what we think a DA pension scheme could look like, and we think it should go forward.”
Eason predicted a product would appear within 12 months.
He said the report was a skeleton vision of a DA product that aimed for better than risk-free performance, and encouraged providers to flesh out the detail.
“[The major providers] all have teams working on this, and we expect them to be very interested in our conclusions,” he added.
Eason’s research showed it would be difficult to provide investment return guarantees by asset allocation alone. “I don’t want to say that absolutely this has to be an insurance space, but it’s clear that insurance companies are a natural fit for this idea. They are the natural providers,” he said.
Head of defined contribution at Mercer, Paul Macro, said: “Individuals like the sound of guarantees, but the question is whether they’re suitable. What people need from a pension is an income, not a fixed pot of money. If a guarantee can’t provide that then it isn’t much of a guarantee.”
Macro also emphasised the need for caution on guarantees. He said: “Any product here needs to be very clear about the specifics in order to avoid any potential for mis-selling.”