The defined contribution (DC) pension system is broken and should be replaced rather than repaired, according to scheme administrator and adviser Willis Towers Watson.

The firm called on the government to introduce changes to legislation that allow for innovation in pension scheme designs, rather than looking to repair the existing DB/DC system.

Rash Bhabra, head of Willis Towers Watson’s retirement practice in the UK, said the government, the pensions industry, and employers need to work together to urgently consider replacing the current system.

He said: “DC can be made better, and there is rightly a lot of attention on this, beyond just increasing contributions: schemes can be bigger and more efficient; they can invest more widely and hold growth assets for longer; and they can give employees much more support at retirement. We welcome the sense of urgency on this.

“But we should also ask whether we can do better than DC: in its current form, DC is broken, and we should consider whether it is better to replace it rather than repair it. What individuals really need is retirement income.  Few employers want to go back to anything like a traditional final salary scheme. And so we are proposing other ways of providing higher retirement incomes and which avoid leaving employees with decisions that most are ill-equipped to make, such as figuring out for themselves how to stretch out their pension savings throughout their retirement.”

One measure that the firm called on the government to consider is introducing regulations to allow employers to outsource collective defined contribution provision to a multi-employer arrangement or master trust, which it believes will make these kind of schemes more popular with employers.

WTW added that using DC pots to buy collective defined contribution retirement incomes would be the “least disruptive approach” for employers and savers. Modelling from the firm has found that this approach would give median retirement outcomes of around 40% higher than under DC with annuity purchase.