Any successful future scheme design will have to be resilient to future changes, which implies a need to capitalise upon commonality of interests between employers and employees where possible, and strike an equitable balance between the parties’ interests where it is not.  This rules out solely DB or DC.

The following principles should all feature at some level in future designs:

·         equitable sharing of risks and costs

·         strong member support

·         flexibility/portability

·         stability/resilience to new challenges

·         simplicity, both to reduce administration costs and to enhance member understanding

·         effective member communication

·         building on state provision.

An appropriate example design balancing the above might have the following features:

·         The arrangement would be written under trust, to give appropriate support for members.  Trustees should be given clear guidance on their freedom to explain the terms of the scheme to members and to guide them in their choices.  Providing the scheme met certain standards, a light touch regulatory regime should then be applied

·         To share the risks, the scheme should provide a mixture of DC and DB.  Given that the state schemes are DB, this scheme would be primarily DC with a minimal DB underpin.  On the DC element, for the standard contribution the company would match the member’s contribution of 7% of pay i.e 14% in total.  Of this, 1% of pay will be held in reserve to fund the DB underpin if it bites.  If a member wants to pay more, this would not be linked to the underpin

·         Investment options for the standard DC fund would be selected by the trustees to minimize the potential volatility, and so protect the DB underpin; members would have the option to go outside the standard DC options offered, but would give up the DB underpin.  There would be a default investment fund, run along “with profits” lines

·         The DC fund would be convertible to an annuity or applied on an income drawdown basis    

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