Part of the problem goes back to the issue of what a DC fund actually is, and who is on the hook if things go wrong.
Most DC schemes operate via a contract with an insurance company, which in turn holds the assets that have been provided by the member. The member buys units in the policy from the life company, which in turn promises to administer their investments on their behalf.
There are several advantages to this.
Hugh Cutler, chief commercial officer at Mobius Life, which provides a unit-linked wrapper product for pension investors, says: "Unit-linked insurance policies are tax advantageous, you can move UK equities in and out of a unit-linked life fund without paying stamp duty.
"They also pay different and lower rates of withholding tax on overseas equities. The US is the big one – it is their biggest allocation. A unit-linked life fund you pay zero withholding tax; a UK Ucits 15 per cent, and Lux Sicav 30 per cent.
"Another advantage is there's no restriction on fund of funds, whereas with Ucits there is a restriction on fund of funds. For example, [with unit-linked] you've got some emerging equities, US, European and Asian equities, so with those you can create the overseas fund, and use them in the global equities fund."
The current DC landscape sprang out of the pre-existing defined benefit sector, which made use of the unit-linked life policies, but the difference with DB is that the individual is not responsible for the performance, and is not likely to need to move in and out of their pension fund, unlike with a DC scheme member, where the client needs more access.
DB schemes are also usually considerably larger than current DC schemes.
Cutler says: "The client has to satisfy themselves they're happy with the product, and the insurer has to make sure the product is being used appropriately. [DC funds] are retail products, the FCA and Prudential Regulation Authority are keen that insurers aren't putting any old rubbish in there.
"It's easier to make the argument for DB schemes, as it's not a retail product, and there's no retail exposure. With DC you are personally taking the economic exposure on those assets; the returns on those assets are going to directly impact your pension.
"Yes, with DC schemes [you could say] it's not a retail product, because it's selected by trustees of a DC scheme, and they're professionals, but ultimately if my provider puts [my money] in a unit-linked fund, I need to be able to get out – I don't want to be gated or suffer a massive loss because someone's thought it through badly."
