Despite the lower risk, savers are still exposed to the market. Mr McPhail adds: “You could still get a cut to your income from one year to the next if investments perform badly. One of the virtues of defined contribution drawdown is you are in control of your capital, but you have to rely on actuaries’ predictions under collective schemes. You have to trust them.”
The Government wants to harness collective pensions to boost the economy. The hope is that more investment will be pumped into British start-ups, infrastructure and private equity if pension funds are able to pool their assets.
Currently, just 4.4pc of the £830bn of assets in British pensions is invested in domestic equities, partly because investors have been put off by lacklustre growth in recent years.
Last year, some of the country’s largest defined contribution pension providers signed the “Mansion House compact” which committed them to investing at least 5pc of their DC assets in private assets by 2030.
The Government hopes this will drum up £50bn of investment. High take-up of collective schemes could boost this figure.
However, using collective schemes as a vehicle for investment in Britain may put off pension savers, according to Gary Smith, of financial planning and wealth management firm Evelyn Partners.
He said: “These schemes in theory benefit from economies of scale, pooling of risk and professional investment management.
“But if they have a weighting towards UK equities, start-ups and infrastructure investments then you’d need some faith that these investments would actually pay off.
“Compared with a traditional defined contribution scheme, which has a choice of funds that members can funnel their own contributions into, it looks like savers into collective plans would be surrendering quite a bit of control and choice over how their pension is invested.
“That might well suit some workers but in return for surrendering control, they will probably want some assurance that their scheme will be a good performer. How that assurance can be provided – at least in a scheme’s early days – is unclear.”