Her speech, written by ministers for the Queen and delivered this morning (4 June) in the House of Lords, reiterated the “control” and “discretion” given to Britain’s savers to manage their own financial affairs.
The Queen said: “My government’s legislative programme will continue to deliver on its long-term plan to build a stronger economy and a fairer society.”
The proposed collective defined contribution pension schemes, similar to those found in the Netherlands, are intended to lower charges and raise pension incomes by allowing employees to sharing risk in order to drive potentially better investment returns. They do not guarantee income in retirement.
David Smith, wealth management director at London-based Bestinvest, said the model would only work effectively with economies of scale and warned that due to a number of such schemes performing poorly in the Netherlands, “serious consideration is being given to ditching these collective pensions and employing the UK individual pension model”.
He said: “The UK pension market is already extraordinarily fragmented and as a result, it is highly unlikely that such schemes will establish sufficient critical masse to work as well as they theoretically could.”
However Joanne Segars, chief executive of the National Association of Pension Funds, said CDCs offered employers “increased flexibility and choice” in how they could structure pension schemes providing they could operate “at scale”.
She said: “Defined benefit schemes have operated on a pooled risk basis for many years and have shown considerable innovation in managing this effectively and at low cost. The real goal here has to be schemes operating at scale. Scale is a necessary precondition for CDC but it also enables a much wider range of member benefits.”
Carol Knight, operations director at the Tax Incentivised Savings Association, added: “We applaud the increased focus on savings for retirement in today’s speech.
“Giving people more choice in how they save, complementing the recently announced increased freedoms regarding the options at retirement, is a positive step towards ensuring that people build up a pension pot sufficient to meet their needs.”
The Queen also confirmed the government’s commitment to Help to Buy, increasing housing supply and continued support for the mortgage market.
