Editorial: To the collective benefit

Pensions Week alumnus Katie Morley – who now covers personal finance for our sister title, Investors Chronicle – stirred up a Twitter debate last week after her open letter to pensions minister Steve Webb said the current system would fail a generation of young people.

Here are a couple of extracts:

“Most of the pensions providers powerful enough to lobby for change are clouded by vested interests, and merely see young people as a redundant market in which there's little money to be made.”

“Are you surprised, then, Mr Webb, that the pensions industry's disinterest in us is mutual? The world is changing fast and young people want pensions that are efficient, trustworthy and obviously relevant to their needs.”

Katie’s solution? Auto-enrolling these under-30s into a few large-scale, regulated CDC schemes that invest on their behalf, at lower administration and investment costs than smaller schemes.

Critics doubt the research on which claims of better outcomes are based, and point out the extent to which industry providers would be prepared to implement this move.

But the clamour and evidence base has grown with the government’s defined ambition initiative. Recent research from Aon Hewitt demonstrates CDC schemes would provide a higher and more stable retirement income than a traditional DC lifestyle strategy.

Crucially, this research did not assume lower fees from scale, but factored in the benefits of collective investment, and pensions being paid out of the plan rather than through an annuity.

Currently, the government’s line is Dutch-style DC is unfeasible, but it is investigating whether “elements” of the plan could be adopted. 

It is hard to see that this design can be done by halves.

Hopefully this debate doesn't lose its steam running into 2014. A pensions system that provides objectively better value for today's savers is worth fighting for. 

Ian Smith is editor of Pensions Week. You can follow him on Twitter @iankmsmith and the team @pensionsweek.