The greater use of collective pension vehicles, including collective defined contribution (CDC) schemes and pension superfunds, could improve saver outcomes and unlock more long-term productive investment in the UK, New Capital Consensus (NCC) has argued.

In its new report, Redistributing the Risk Burden, the think tank said that the systematic transfer of investment risk from institutions to individuals over the past 25 years has contributed to more short-term and risk-averse investment, while leaving savers bearing greater responsibility without sufficient support.

According to NCC, the decline of with-profits, deposit-administration and other guarantee-rich products, alongside the closure and de-risking of defined benefit (DB) pension schemes and the rise of defined contribution (DC) pensions, has shifted the “risk burden” towards individual savers.

The report argued that DC savers now typically bear investment, longevity and residual risk themselves, often without financial advice, contrasting this with markets including the US, Canada, parts of Asia and continental Europe, where products offering some form of protection remain more common.

NCC said greater use of investment vehicles that pool risk and share both the potential benefits and downsides of long-term investment could help reverse this trend and support more appropriate risk-taking.

In particular, the think tank called for greater support for CDC schemes, which pool investment and longevity risks across members.

It also argued that pension superfunds should be encouraged in the DB market, with the vehicles bringing together smaller employer-sponsored schemes into larger funds backed by dedicated capital buffers.

NCC highlighted mark-to-market accounting requirements and daily liquidity expectations as factors that can undermine pension funds' long-term investment capacity.

NCC policy director and report author, Dan Hedley, said the range of products available to savers had been “systematically stripped of its collective risk-bearing capabilities” over the past 25 years.

“The result is that the burden of risk has been transferred almost entirely from institutions to individuals, especially in the DC world,” he continued.

“When individuals are bearing risk alone, their appetite is naturally more risk-averse, and this damages their potential for greater returns as well as starving the UK of long-term, illiquid investment capital.”

Hedley argued that treating DC pensions primarily as savings pots, rather than as vehicles for providing an income throughout retirement, also created risks for savers.

“What we have to do is improve the vehicles available to savers, which can pool risk with others and share both the risks and rewards,” he added.

NCC director, Ashok Gupta, described risk-bearing as a “valuable activity”, noting that while excessive concentrations of risk could create dangers, the aim should be to manage risk rather than remove it from the investment system.

He warned that the UK’s ability to pool risk and share collective risk and reward had “dramatically reduced” in recent decades, while much of the responsibility for managing that risk had moved from institutions with specialist expertise to individuals with limited or no risk-management skills.

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