Talking head: Steve Bee argues the pensions changes announced in the Budget, while welcome, prove the pensions system is "very fragile", while collective pensions make it even more complex for ordinary people.
I feel the same about the pension focus of this year’s Queen’s Speech, particularly the introduction of a collective defined contribution regime, although I am also confused by it.
Our pension system seems very fragile to me
The changes to give DC savers unprecedented levels of control over their savings will truly revolutionise UK pensions. It will also make pensions more desirable and hopefully make auto-enrolment a great success.
The fact that I agree with these changes is not really relevant. The way they were introduced, suddenly and unexpectedly, is what makes me nervous.
Our pension system is something we need to be able to count on. When we invest in it we may need to rely on the underlying system for 60 or 70 years. But it can apparently change fundamentally at the drop of a hat.
What if the major change made had, say, removed the right for savers to take a portion of their pension pots as tax-free cash?
That did not happen, and hopefully it never will. But clearly it could, and it seems to me the worry of that can lead people to be wary of pension saving.
Our pension system seems very fragile to me in that it can clearly be changed fundamentally at any time in the future and will almost certainly change many times in the course of a saver’s lifetime.
We need a system that is stable and also easy for ordinary people to understand. That’s why I am confused by the Queen’s Speech.
On the one hand the government clearly understands that DC pot owners value more control over their pension savings.
On the other they recognise that collective funds may offer some level of certainty of pension outcomes, albeit without any guarantees, and that also might appeal to some people.
But what are the chances of all of the employees of a particular company favouring just one option – more control or more certainty? Should employers offer two schemes – one based on individual pots and the other on a collective pot?
Whether they do or not, people changing jobs will clearly stand a good chance of possessing up to three different forms of pension savings when they reach older age: defined benefit, DC and CDC.
Our pension system is already mind-bogglingly complex. Adding another different and alien strain of pensions to the two we already have will surely increase the problems ordinary people already have when they try to get their heads around pensions.
Steve Bee is CEO and founder at Jargonfree Benefits
