This week’s Queen’s Speech will bring about further reforms to the pensions’ landscape focusing on collective defined contribution proposals, according to reports.
Proponents argue implementing such a system could help increase the retirement income of some workers up to 30 per cent and could bring down administration costs, by pooling workers' savings into collective schemes, while critics claim intergenerational unfairness will undermine CDC schemes.
Pensions minister Steve Webb told the FT: “In other parts of Europe, workers benefit from pooled pension arrangements, which can deliver scale and more predictable outcomes. We want to see British workers have the same rights.”
The proposals seemingly bring to fruition the minister's long-developed plans for defined ambition, but the government has shelved plans to give employers power to change the terms of salary-linked schemes, due to an apparent lack of appetite. The industry has so far had mixed reaction to the proposals.
Proponents argue implementing such a system could help increase the retirement income of some workers up to 30 per cent and could bring down administration costs, by pooling workers' savings into collective schemes, while critics claim intergenerational unfairness will undermine CDC schemes.
Pensions minister Steve Webb told the FT: “In other parts of Europe, workers benefit from pooled pension arrangements, which can deliver scale and more predictable outcomes. We want to see British workers have the same rights.”
The proposals seemingly bring to fruition the minister's long-developed plans for defined ambition, but the government has shelved plans to give employers power to change the terms of salary-linked schemes, due to an apparent lack of appetite.
In 2012, the government publicly revived the possibility of CDC schemes after a 2009 report had ruled it out due to the "the risk of unacceptable generational unfairness”. A report issued last year, 'Reshaping workplace pensions for future generations', addressed its advantages and disadvantages in more detail.
Source: DWP
The industry has so far had mixed reaction to the proposals.
Friends of CDC calls for action! - our letter in the Times http://t.co/iBCunSMn2G via @henryhtapper
— Mark Rowlinson (@markjrowlinson) June 2, 2014It would be better to have a debate on sustainable pensions rather than launch #CDC The problem is accrued DB
— Nico Aspinall (@nicoaspinall) June 2, 2014@rosaltmann It is a dangerous con trick to say "CDC" is less risky than DC for individuals. CDC can transfer risk but it cannot reduce it
— John Ralfe (@JohnRalfe1) June 1, 2014@iankmsmith@FT I wonder if @stevewebb1 still expects members to police the schemes. Unlikely, given the current level of engagement!
— Ian McQuade (@IanMuseTweets) June 2, 2014Late last year, Webb and Alan Rubenstein, chief executive of the Pension Protection Fund, wrote in Pensions Expert about plans for a CDC-like system.
They said: “For sponsoring employers this looks like a DC scheme – contributions are fixed and the liability is limited to the contributions.
“With proactive investment risk management and high-quality governance in place to ensure these schemes remain financially sustainable and protect their members, people can have a high degree of confidence and security in the running of their pension plan.”
The key questions for this reform are, firstly, whether it fits with the Budget flexibilities, as it is hard to see how allowing people to withdraw their pension pot would work under these set-ups.
Secondly, it remains to be seen whether there is any appetite from employers to adopt these schemes, given the rush to close down final salary schemes over the past few years.
While the finer details are yet to be set out, this is clearly the last piece in the puzzle for Webb's pensions legacy. The question is whether it will fit with what has come before.
