New pension solutions are needed to offer savers the opportunity to aspire to a comfortable retirement income, the Association for Consulting Actuaries (ACA) has said, warning that it is very unlikely that defined benefit (DB) pension coverage of private sector will recover.

Speaking at an industry dinner, ACA chair, Steven Taylor, noted that, since the end of last year, when liability-driven investments (LDI), the gilt market crisis and issues of systematic risk due to defined pension schemes were very much in the spotlight, things have calmed down somewhat.

"It’s been good to see the emergence of proportionate regulatory announcements by The Pensions Regulator (TPR), the Bank of England and others and ACA fully supports these measures," he stated.

“Partly due to the effect on the gilt crisis on scheme funding measures, much of the more recent debate since then has been how to use the significant surpluses that have re-emerged, now that upwards of a quarter of schemes are fully funded to buyout levels."

Taylor also predicted an acceleration of DB schemes approaching insurance markets in the nearer term, stating that the ACA is "optimistic" that insurance markets will have the financial and operational capacity to meet the requirements of the market without introducing new systematic risks.

However, he acknowledged that, for other schemes, buyout may not be the preferred outcome, noting that there has been lots of debate recently about scenarios where schemes should instead run on for an extended period to take advantage of emerging surpluses, which may be used to pay for DC contributions for current employees.

“We can see a rationale for this in some cases – after all several sponsors already do," he added.

"However, these cases are currently rare and, given the balance of risks, we expect that in practice most sponsors will prefer to simply proceed to insurance buyout as soon as this can be done effectively."

Looking further ahead, Taylor argued that whilst “there will always be a place for open DB schemes”, the majority of schemes that have already closed are "very unlikely" to be reopened, given the historical experiences many sponsors have had with DB schemes. warning that the DB landscape is unlikely to thrive like it once did.

Given this, he said that new solutions are required for the current generation of savers who predominantly are in defined contribution (DC).

In particular, Taylor suggested that collective DC schemes could be well placed to drive the next generation of collective workplace schemes, offering the prospect of improved outcomes for members without thorny risks to sponsors from unexpected deficits.

“There is still a lot to do, however, and at least one more round of CDC regulations still needs to emerge," he continued.

"I think that the period up to the next election will be vital for laying the groundwork for these schemes and building on the current cross-party consensus in this area."

However, Taylor also reiterated calls for the government to plan for a gradual increase in auto-enrolment minimum (AE) contributions over an extended period, acknowledging that the current economic circumstances make this very difficult.

"The widening of AE coverage will help a little, but what is really needed is a plan over a number of years to gradually increase minimum AE contributions to at least 10 per cent and ideally 12 per cent of earnings," he stated.

"This does not necessarily all need to be compulsory, and flexibility could be a useful tool in challenging economic times.”

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