“It must also become a standard for employees in small and medium-sized enterprises (SMEs). To achieve this, we want to create the framework to ensure occupational pensions become widely available in small enterprises. We will research whether and how possible hurdles can be removed at SMEs.“We will also ensure that the good framework for occupational pensions remains intact within the European framework.”For Karch, the very mention of pensions is a “very encouraging signal”, in which the government “clearly commits to strengthening occupational pensions”.He added that such a paragraph had been absent in any coalition agreement since the contracts on creating the third-pillar Riester pension in 2002.“All the talks I had with political representatives, and my gut feeling, tells me they are taking this really seriously,” he said.“The coalition treaty can also be seen as a confirmation by the government that the occupational sector was right – the pensions system needs reforms.”Following recommendations by the aba, the government is now looking to commission a study on how tax hurdles hinder the spread of occupational pensions among SMEs.Karch stressed the importance of increasing second-pillar pensions across the whole of Germany, not just for SMEs, although he conceded this segment of the economy was “worst off”.He also urged the government to create a more sustainable pension system, with a “dual core” – in other words, carried by the state as well as companies.At the European level, the aba chairman noted “with great concern” a “development contrary to the initial White Paper” on Pensions.In prior versions, he said, the White Paper stressed the importance of social partnerships between the industry and the state.“But now,” he said, “it is simply back to keywords like level playing field, marked-to-market, PRIPs and Solvency II – as if occupational pensions were just products for sale rather than agreements with employer support.” Heribert Karch, chairman at the aba, Germany’s pension fund association, has described the eight-line mention of occupational pensions in the preliminary government coalition agreement as a “step forward” and an “encouraging signal”.After the elections in Germany in mid-September, the conservative CDU and socialist SPD parties agreed on a coalition agreement that is most likely to be the basis for the formation of a two-party government.In the coalition’s 185-page agreement, the term “occupational pensions” is mentioned only in one eight-line paragraph.It reads: “Retirement provision in an age of demographic change becomes more stable when it is based on several strong pillars. We will, therefore, strengthen occupational pensions.
Croatia’s voluntary third pillar pension system may fall victim to the government’s bid to cut its budget deficit.In its 2014-17 convergence programme, submitted to the EU at the end of April, the government has proposed removing the state subsidy that members currently enjoy, arguing that only richer workers can afford to belong to the system.Croatia, which joined the EU last year, ran up a general government budget deficit of 4.9% in 2013.Under the EU’s Excessive Deficit Procedure, it is obliged to address the shortfalls in order to cut the deficit to 3% by 2016. The government wants the third-pillar legislation amended in 2015 and the change implemented from 2016.The tax stimulus amounts to 15% of total annual contributions to a maximum HRK750 (€98), and, along with the abolition of other savings subsidies, would only shave 0.05 percentage points off the deficit.The pensions industry is concerned that the changes will put the third pillar on the same footing as other financial products that do not have to generate annuities, and will further erode a system that, since its start in 2002, has remained relatively small.At the end of March, the six voluntary open-ended funds had a total membership of 208,618 and net assets of HRK2.3bn, while the 16 employer and trade union closed-end funds had 23,813 members and HRK516m in assets.The future for Croatia’s mandatory second pillar looks more assured.At a recent conference, labour and pension system minister Mirando Mrsić spoke of ultimately raising the current 5% contribution to 9%.This came as a relief for the pensions sector after the incorporation, in February’s new second-pillar pensions law, of a budget-reduction measure.Between 2014 and 2015, workers on privileged pensions, starting with the army and police, will have their second-pillar assets transferred to the first pillar, with all future contributions paid into the state system.As the result of this change, some 31,000 members and around 5% of assets had been removed from the second pillar as of the end of March 2014.The total number, including new workforce entries, stood at 1.68m, down from 1.7m at the end of 2013.Total assets stood at HRK58bn.
The group also questioned how effective the proposed Risk Evaluation for Pensions (REP) model would be, if enacted.The role of the REP, which the draft directive said would be completed “regularly and without delay” in instances where a scheme’s risk profile undergoes a “significant” change, could be served by “proper” existing asset and liability management studies, the response said. As drafted, the REP would require IORPs to examine the risk stemming from a number of investment areas, including an assessment of risks relating to climate change and carbon-heavy extraction. PensionsEurope said details of the REP were vague, as most aspects of it would be decided as part of delegated acts to be drafted at a later date.“Above all, the use of delegated acts in such important aspects should not go against the competence of the member states in the area of pensions,” the group warned.The response also raised concerns about the detail proposed as part of the universal Pension Benefit Statement (PBS).“The one-size-fits-all approach proposed by the Commission misses the necessary distinction between members of occupational pension schemes and consumers of ordinary financial products and leads to the application of individual consumer-type Key Information Documents (KID) to all members regardless of the type of pension promise,” it said.The KID was initially proposed as part of reform to packaged retail investment products, but IORPs were in April granted an exemption following concerns raised by industry representatives.“Moreover,” PensionsEurope added, “we question the feasibility of producing the PBS on two pages when it takes six pages of the Directive to set out what should go in it.”Meanwhile, the group said new requirements to appoint a depository risked being “meaningless”, as the requirement would remain in place even if assets were wholly managed by a third party that would be required under the Alternative Investment Fund Managers Directive to appoint the depository for the external vehicle.PensionsEurope also questioned the Commission’s current timetable to review the draft directive four years after it is adopted.“Assuming the directive is adopted in late 2015, this would mean a report in 2019, which would have to be prepared in late 2018, early 2019 – only two years after the member states transposed the directive,” it said.,WebsitesWe are not responsible for the content of external sitesLink to PensionEurope’s statement on IORP II The European Commission is unlikely to see an immediate boost to long-term investment from pension funds, despite recent emphasis on the matter as part of the revised IORP Directive.PensionsEurope said the inclusion of the IORP II Directive as part of a package to boost long-term investing – such as attempts to increase transparency in the infrastructure loan market – was an important signal that EU member states should not prevent investment in assets that were not traded on regulated markets.It nevertheless warned the Commission against expecting a sudden growth in long-term investing, even if the proposals meant member states could no longer restrict IORPs from pursuing such strategies.In a detailed reaction to the draft directive, PensionsEurope said: “Provisions concerning long-term investment are marginal in the Directive proposal. That is why we doubt the IORP II proposal will drastically incentivise IORPs to invest more in long-term assets.”
He added: “Somewhat ironically, the reason for passing on this was that the underlying issues are too fundamental to be solved in that forum.”In summary, the Committee failed to reach a consensus identifying a suitable scope for an amendment to IAS 19 that would improve the accounting for a sufficiently wide population of plans, limit any unintended consequences that might arise from making an arbitrary distinction between otherwise similar plans, or pass the cost-benefit test.In a draft agenda decision rejection notice released in January, the Committee noted that, “because of the difficulties encountered in progressing the issues, the Interpretations Committee [decided] to remove the project from its agenda”.Work on DB plans with a guaranteed return started when the IFRS IC received a request asking it to clarify whether the 2011 revisions to IAS 19 had any affect on how sponsors should account for this group of plans.In May 2012, the committee decided to revisit its earlier work on what was often referred to as the IFRIC D9 project, a stalled bid by the Committee to address the accounting challenges thrown up by non-traditional benefit plan designs such as intermediate-risk plans.These plans – also known as ‘intermediate risk’ plans – sit awkwardly within the IAS 19 projected unit credit measurement model.The IFRIC D9 initiative ground to a halt in 2006 when the IASB launched what turned out to be an unsuccessful project to develop a new accounting methodology to address contribution-based promises.But a widely panned discussion paper on the topic in 2008, plus the pressure on board time of the equally failed drive to achieve convergence with US accounting literature by 2011, led the IASB to defer any further work on pensions to a future broader project.In its place, the board instead embarked on a series of quick-fixes to IAS 19, among them the removal of deferral and amortisation mechanisms within the standard, as well as the introduction of a net-interest component of income statement expense.And so the Committee’s recent work on contribution-based promises adds up to the third attempt inside a decade to address the accounting for this troublesome group of plans by either the IASB or the IFRS IC.A feedback statement on the IASB’s 2011 agenda consultation bracket pensions accounting, share-based payments and income taxes together as longer-term priorities for the board to address.The recent developments are unlikely to placate Germany’s national accounting standard setter, the DRSC.In a sharply worded letter to the Committee, the rulemaker’s president Liesel Knorr wrote that the sheer number of issues the Committee has considered since 2011 “shows that a more fundamental review of IAS 19 by the IASB is warranted in the near future”.The letter also calls for the IASB to define the range of issues the IFRS IC is able to consider to arrive at a process that “leads to answering issues rather than rejecting them”.Separately, during the 13 May meeting, the committee also recommended that the IASB proceeds with an amendment to IAS 19 dealing with the discount rate objective in the standard.The IASB issued the amendment on the recommendation of the IFRS IC.It clarifies that the high-quality corporate bonds used as the basis for arriving at the IAS 19 discount rate should be denominated in the same currency as the liability.It also explains that entities should assess the depth of the market for high-quality corporate bonds at currency level as well.The IASB issued the amendment in December 2013 as part of its 2012-14 annual improvements project. The changes are slated to take effect from 1 January 2016 if the IASB signs off on them.Committee members rejected a staff proposal for more outreach on the topic to assess the impact of the proposed amendment on countries such as Ecuador, which uses the US dollar in a bid to avoid currency volatility.Towers Watson’s Eric Steedman does not expect to see any upheaval in practice as a result of the amendment.“This is really just putting beyond doubt what is already a very common approach to interpreting the wording,” he said. The International Financial Reporting Standards Interpretations Committee (IFRS IC) has confirmed that it will call a halt to its efforts to develop accounting guidance to address the measurement challenges presented by defined benefit (DB) plans with a guaranteed minimum return.Committee members, who are charged with interpreting the accounting rules issued by the London-based International Accounting Standards Board, warned that they did not expect to come up with a solution within the confines of International Accounting Standard 19 (IAS 19) and its existing requirements.IFRS IC member Tony de Bell said: “To be honest, I’m not sure you can resolve it without addressing the broader aspects in [IAS]19.”Commenting on the decision, Towers Watson employee-benefits accounting specialist Eric Steedman told IPE that it was “never on the cards that the Interpretations Committee would reverse its provisional decision to stop work on these issues”.
AFM – Bart Koolstra has temporarily stepped down as member of the supervisory board (RvT) of Dutch supervisory body Authority Financial Markets (AFM). He cited recent publicity about an AFM monitoring dossier on company Eriks in 2009. As a senior partner of accounting firm PwC, Koolstra was involved in the dossier at the time. Koolstra said he made his decision to avoid the impression of a conflict of interest. Recently, Dutch news daily NRC suggested that Eriks had been involved in corruption in the Middle East – its parent company declined to comment. Koolstra left PwC in 2013 and joined the AFM’s RvT in 2015.Aon Hewitt – Tim Gardener has joined the UK consultant as a partner. He joins from AXA Investment Managers where he was global head of the institutional client group. During more than six years at AXA IM Gardener oversaw consultant relations and was involved in the establishment of the asset manager’s smart beta products. He also spent 24 years at Mercer, latterly as global CIO.Actiam – The €60bn asset manager Actiam named Dudley Keiller as chief transformation officer (CTO) on its executive board. He will be tasked with rolling out Actiam’s new strategy focused on international growth based on responsible investmentment. Keiller joins from NN IP/ING IM, where he was subsequently global controller and CFO. As of 1 March, Actiam’s executive team is to also comprise Hans van Houwelingen (CEO) and John Shen (CRO). The asset manager is still searching for a CIO to join the executive team.Bank of England – The Prudential Regulation Authority (PRA) has been brought within the single legal entity of the Bank of England with effect from 1 March. As a result, the PRA’s most important supervisory and policy decisions will be made by a new Bank of England Prudential Regulation Committee (PRC), which replaces the PRA Board. Ben Broadbent, the deputy governor of the Bank of England, has been appointed to the PRC, and all external members of the PRA Board have been re-appointed to the PRC. The changes were made under financial reform legislation from last year.Robeco – Peter Walsh has been named head of the Netherlands-based asset manager’s UK business. He will lead sales and marketing for Robeco’s UK office and have oversight for its operational management. He has worked at Robeco since 2014 as global head of consultant relations. Prior to joining the firm he was director of distribution at Treasury Group Limited.Schroders – The FTSE100 listed asset manager has hired Chris Paine from Henderson Global Investors to its multi-asset team. In his new role, he joins Schroders’ global income portfolio management team and will contribute to its research, security selection, asset allocation, and portfolio construction.BTIG – The US-based fund manager has appointed John Agnew as managing director of fixed income credit trading. He was previously senior managing director for high yield securities at Guggenheim Partners. His colleague at Guggenheim, Drew Hall, has also joined BTIG as managing director of fixed income credit sales. Finally, Evan Jones has moved from Jefferies to become BTIG’s managing director of fixed income credit strategy. The trio are based in New York.Spence Johnson – The UK consultant has appointed Magnus Spence as chief executive. He was previously managing director, and co-founded the company in 2008. The group has also promoted Nigel Birch and Will Mayne to managing director roles. Birch was previously deputy managing director. He leads the client management team. Mayne was previously a director, and leads on the creation of “data and intelligence content”.Pensions Management Institute – Prominent UK politician and pensions campaigner Frank Field was presented with an “outstanding contribution” award by the Pensions Management Institute this week. Field chairs the Work and Pensions Committee, a group of members of the UK parliament’s lower house. The committee was influential in the settlement of the BHS pensions case as well as contributing significantly to the government’s defined benefit reform proposals. L&G Mastertrust, Kingfisher, AFM, Aon Hewitt, Actiam, Bank of England, Robeco, Schroders, Henderson, BTIG, Guggenheim, Spence Johnson, PMILegal & General (L&G) – Dermot Courtier, head of group pensions at Kingfisher, has been named as chairman of the £2.9bn (€3.4bn) Legal & General Mastertrust, the insurance and pensions provider’s multi-employer defined contribution (DC) offering. He will also chair L&G’s independent governance committee, the trustee board of the master trust and L&G’s other DC offerings.Courtier will remain in his role at Kingfisher, which owns UK store chains including B&Q and Screwfix. He has helped the company’s £3.5bn defined benefit pension fund deploy a derisking strategy – including a medically underwritten buy-in with L&G last year. Kingfisher also has a £230m defined contribution scheme.Emma Douglas, head of DC at Legal & General Investment Management, said Courtier would play a “pivotal role” at L&G. “His innovative flair in the way he thinks about investments and communications will help ensure both our offering and the way we engage continue to meet members’ and employers’ needs,” she said.
Strong first-quarter performance from global equity markets boosted the average return from Spain’s occupational pension funds to 5.6% for the 12 months to end-March 2017, according to the country’s Investment and Pension Fund Association (INVERCO).This compared with a 2.7% return for the calendar year 2016, and a 3.3% loss for the 12 months to end-March 2016.It brings the average annualised returns for Spanish occupational funds to 4.1% for the three years to 31 March 2017, and 5.3% for the five years to that date.While equity portfolios made large gains over the first quarter, fixed income experienced a slight correction, said INVERCO. Preliminary estimates from Mercer’s Pension Investment Performance Service (PIPS) showed that, for the three months to end-March, euro-zone equities made 6.8%, non-euro-zone equities added 5.1%, and fixed income lost 0.3%, giving an overall total return of 1.4%.For the 12 months to the same date, returns were 17.9% for euro-zone equities, 24.8% for non-euro-zone equities, and 1% for fixed income. The overall return was 6.1%.The PIPS survey covered a large sample of pension funds, most of them occupational schemes.INVERCO’s figures showed that, for Spanish pension funds as a whole, the average allocation to domestic assets remained stable, forming 57.4% of portfolios at end-March. Non-domestic assets grew from 26.3% at end-December 2016 to 28.5% three months later.Over the same three months, allocations to fixed income decreased slightly to 53.6% on average, while equities rose to 29.4%.The shifts in geographical and asset class weightings were both partly explained by the outperformance of global stock markets over the period.Spanish government bonds still made up the biggest single component of pension fund portfolios at 27.8%, with a further 16% in domestic corporate bonds.At the end of March, total assets under management for the Spanish occupational pensions sector stood at €35.6bn, an increase of 1.8% over the past year. The number of participants in the occupational system was just over 2m.David Cienfuegos, head of investment, Spain, at Willis Towers Watson (WTW), said: “Large pension funds in Spain have implemented some of the strategic decisions they had made by the year-end during Q1 2017. So portfolio allocations have shifted towards alternative credit and more globally diversified bond portfolios.”He continued: “In our experience, large pension funds in Spain are focusing on diversifying away from ‘dead assets’ – balance sheet assets with no value – and that has created a trend towards large exposures to foreign assets, outside core euro-zone bonds. US [government bonds] and corporates as well as global high-yield bonds are probably the big winners over the past few months, which obviously represents a continuation of the trend we saw in 2016.” Cienfuegos said WTW had observed increased allocations to loans and emerging market debt, with investors in yield-hunting mode – although they had not massively re-engineering their overall strategic asset allocation.Spanish pension funds were continuing to push for higher allocations in private markets, particularly private equity, Cienfuegos added.He said: “We expect large pension funds will continue to build their private markets portfolio, increasing their scope to invest, particularly in infrastructure and real estate opportunities. Furthermore, we expect them to explore how portfolio construction can benefit from the use of liquid alternatives – diversifiers – replacing some of the ‘dead assets’ in 2017.”Meanwhile, a report from the Banco de España has warned that Spain cannot maintain current replacement rates for its state pension payments without a considerable increase in revenues. It said new funding sources would be needed since social security contributions are already high.The alternative would be to reduce replacement rates, either by cutting initial pensions or changing indexation, in which case the role of insurance and other savings mechanisms in supplementing the public system should be properly defined, the report said.
If everything can be bought from Amazon, who can prosper in its shadow? Unknown brands with the latest new fads certainly have all the distribution capabilities they would ever need.However, major brands with expensive bricks and mortar such as department stores are suffering. Macy’s announced they were closing 100 stores in early 2017 and are trying to rapidly develop a digital strategy. Specialist businesses that focus on quick delivery, advice or just experience may survive, as arguably few would wish to buy high-end jewellery on the internet.As well as the direct impact of shifting consumer activity towards online purchases, the other major impact of FANGs is clearly through their increasing stranglehold on advertising spend. The most obvious impact of what is essentially an internet-driven revolution is in shopping malls. While China’s major urban cities have shopping malls packed with high end retailers and few customers who prefer using the social media app WeChat, the actual square footage of mall space given the size of the country’s population is relatively small compared to Europe.In the case of the US, the opposite is true. Some estimates see the US as oversupplied by a factor of 300%-500%. The impact is being seen in store closures, with over 1,200 shutting in 2016 – and perhaps double that in 2017. Many malls are struggling, particularly those in second- or third-tier locations. Their large spaces may end up being repositioned for a variety of other activities, including call centres and distribution points, with even Amazon taking up space. The batch of earnings results for US technology stocks released last month outstripped expectations and led to a boost in share prices.Valuing tech stocks is certainly not easy when the ‘FANGS’ – Facebook, Amazon, Netflix and Google – have disrupted the US consumer marketplace in a winner-takes-all onslaught. But whether the FANGs themselves are seen as good or bad investments at any one time may be of less importance than the impact of their activities on the US economy as a whole.Who can survive the bite of a FANG? Their activities have led to wholesale restructurings across a range of areas. The ecosystems and networks they have built up dominate their respective marketplaces: Facebook in social relationships, Amazon in retailing, Netflix in subscription services and Google in internet searches.For investors, there is little point in trying to find another FANG-type success in the mid- and small-cap markets of the US. Instead, the emphasis has to be on who can survive and prosper in the new environment. The internet already accounts for 40% of all US advertising spend. TV may still be bigger, but not by much. Facebook reported revenues of $8bn (€6.8bn) in Q1 2017 and margins of 41%. Nearly 2bn people use it on a monthly basis, but it only has 19,000 employees.The effects of the FANGs can be more subtle but still profound. Parcel delivery firms face challenges to their business-to-consumer activity, which is price sensitive and expensive to undertake. They face competition from the US postal service, which on Sundays is reportedly exclusively delivering for Amazon. Fee structures effectively cap prices that the likes of UPS can charge, making it difficult for them to get a decent return on their capital expenditure.However, perhaps the most profound impact of tech stocks is that, by their nature, they are able to eliminate many middle-class jobs. That may be good for shareholders, but perhaps less so for new graduates.The challenge that developed countries face with the success of the FANGs (and the growth of emerging markets sucking manufacturing jobs towards locations with cheaper labour) is that of rising inequality. Perhaps it is not surprising that Mark Zuckerberg is one of those advocating a new social contract incorporating ideas such as a basic universal income.IPE Real Assets investigated the potential impact of Amazon’s arrival in Australia on the country’s property market in the September/October edition.
Laetitia Tankwe, adviser to the president of Ircantec’s board of trustees, has become the first representative of a French asset owner to be elected to the current board of directors of the Principles for Responsible Investment (PRI).She beat Renato Proença Lopes, equity director at Brazilian pension fund Previ, by three votes to one of four asset owner positions in the 2018 election, for which voting closed last Friday.Tankwe has been an adviser to Ircantec president Jean-Pierre Costes since June 2018. Ircantec runs €11bn of pension assets for public sector workers.Asset owner PRI signatories also re-elected two incumbent directors: Angela Emslie, independent chair of the board at Australia’s HESTA superannuation fund, and Xander den Uyl, trustee at ABP in the Netherlands. There is also a new investment manager director on the PRI board, after incumbent Sandra Carlisle, senior responsible investment specialist at HSBC Global Asset Management, was defeated by Wendy Cromwell, director of sustainable investment, senior managing director and portfolio manager at Wellington Management. Carlisle was seeking a further term on the board.Runa Alam, co-founding partner and CEO of Development Partners International, also ran for the investment manager position, and was second to Cromwell. Investment manager signatories vote for investment manager candidates, and had one vote each.
It warned there was a risk of paying incorrect pensions and insufficient clarity about future benefits if the pension fund had to continue the final salary plan for military personnel.Recently, the unions said they would lodge an appeal against the employer – the Dutch State – demanding that military staff continue accruing pensions under final salary arrangements “as the social partners had not yet reached an agreement about another pension plan”.The unions’ decision was triggered by the verdict in summary proceedings of a court in The Hague, which judged that average salary agreements should apply as the social partners, including the unions, had agreed to this.Regulator to focus on communication from schemes facing cutsDutch communication supervisor Autoriteit Financiële Markten (AFM) is to focus on whether pension funds that have to apply rights cuts in 2020 correctly inform their members.In its supervisory agenda for 2019, AFM said it wanted to protect vulnerable consumers against financial problems.Members must have the financial means at retirement they expected as a result of solid information, effective guidance around options, and suitable matching products, the regulator said.Pension funds must legally inform their participants in a correct, clear, timely and balanced way.AFM said it would also check whether pension funds correctly applied new rules regarding improved defined contribution plans, which allows for a drawdown pension.The regulator added that it would look for inconsistencies in the pension claims communicated to members by the pension providers.The large metal schemes PMT (€72bn) and PME (€47bn) could be subject to the AFM’s supervisory priorities, as they are facing rights cuts in 2020 if their funding is short of the minimum required level of 104.3% at the end of this year. At November-end, the funding levels of PMT and PME were 102.5% and 101.6%, respectively.AFM also indicated that it would dedicate resources to providing clarity about the effects of Brexit for Dutch financial companies involved in trading equity, bonds and derivatives. The €409bn Dutch civil service scheme ABP is to appeal against the verdict of an Amsterdam court in summary proceedings brought by trade unions about a switch from final to average salary arrangements for military staff.On its website, the pension fund explained that, by forbidding ABP to communicate in terms of final and average salary, the court had in effect blocked the scheme from providing the Ministry of Defence (MoD) personnel with information to which they were entitled. It said it would not be able to inform the MoD staff in the legally prescribed “correct, clear and balanced” way about their pension or answer questions.Responding to the court’s conclusion that ABP had only to blame itself for implementation problems, the pension fund argued that the court had underestimated the complexity of the plan and the IT challenges it posed.
Government proposals to introduce collective defined contribution (CDC) schemes to the UK have been welcomed by pensions industry professionals responding to the consultation, which closed earlier this month.The plans were published by the UK’s Department for Work and Pensions (DWP) last November following months of campaigning, led by Royal Mail and the Communication Workers’ Union (CWU). The two parties agreed a CDC framework to replace the company’s defined benefit scheme and have been lobbying ever since for appropriate legislation. In order to allow the Royal Mail model and other CDC schemes, new primary and secondary legislation will have to be taken through the UK parliament. The DWP said the rules could then be adapted if other employers came forward with alternative models.The topics addressed by the consultation document included: The Royal Mail and its union have led the campaign for CDC legislation in the UKKevin Wesbroom, senior partner at Aon and a vocal supporter of the CDC concept, said: “We firmly believe that CDC plans can improve retirement outcomes for many UK workers via collective investment by professionals, not members; by having benefits expressed in income terms not capital accounts; by the pooling of longevity risk; and by individuals not having to buy an annuity at poor times in the market.”However, several issues were still of concern.“We believe the full potential of CDC to improve retirement outcomes will require decumulation-only vehicles,” Wesbroom said. “They would provide a much-needed alternative option for the spending phase of conventional individual DC schemes.”Decumulation-only vehicles would not be permitted under the proposals put forward by the DWP. The Institute and Faculty of Actuaries (IFoA) said: “The Pensions Regulator should be given relevant powers to apply appropriate scrutiny and intervene if it suspects the scheme has become unsustainable or there are issues with its governance.”It also warned that the governance process for determining the valuation assumptions and pension increases needed to be well designed to ensure fair outcomes.The IFoA – reflecting a widely-held view – also said that communication to scheme members would be critical to the success of CDC.“Every effort must be made to ensure that members understand the risks and advantages of the scheme they are in,” it said. “It should be clear that benefit levels are not guaranteed.” Meanwhile, the Association of Consulting Actuaries (ACA) expressed support for the CDC concept, but highlighted the importance of the investment strategy to the success of future CDC arrangements.“The key drivers of adequate pension provision are the level of contributions paid into the scheme and the way that those contributions are invested, rather than the form of the pension arrangement,” the association said. “The Royal Mail proposals target a certain level of benefit but will sacrifice indexation if the investment returns do not prove sufficient to provide that target given the level of contributions paid.”In the Netherlands – widely cited during UK industry discussions on CDC as a template to follow – several major schemes have not paid inflation-linked bonuses for several years and face having to cut member benefits if funding levels do not improve substantially in the next few months.The DWP has said the necessary legislation will be presented to parliament “as soon as parliamentary time allows”. * Risk-sharing and intergenerational issues;* Whether CDC members should be allowed to transfer out in the decumulation stage;* Requiring CDC schemes to publish their rules for calculating and distributing member benefits, and communicating the risk of benefit reductions to members;* Whether CDC schemes will need sufficient scale to pool longevity risk across the membership; and* Trustee duties and requirements.The document included a series of questions for the industry in an attempt to frame responses.Reaction