Morning Papers: Pension reform to take centre stage... again

Ministers have dropped plans to hand more powers to employers which would have given them more freedom on how they operate pension schemes, the Financial Times reports ahead of the announcement of further pension reforms at the Queen’s speech on Wednesday (4 June).

The speech, to take place at the state opening of parliament and which marks the legislative agenda in the parliamentary session in the lead up to the 2015 election, is set to focus on pension reforms.

Steve Webb, pensions minister, will bring in rules to allow savers to “pool their funds” to help smooth out the risks of individual defined contribution schemes, as he continues his drive towards ‘defined ambition’ pensions.

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However, the government has shelved the plans to give employers more powers to amend the terms on salary-linked schemes, after companies hinted they would not take them up.

The government is to focus on implementing changes which will allow savers to put their money into Dutch-style ‘collective defined contribution schemes’. In 2013, Mr Webb touted CDC schemes as one of seven proposals to save DB pensions.

Under the CDC model, contributions are not retained in an individual fund for each member but are pooled. When a member retires the income is paid from the asset pool rather than through the selection of an individual retirement income product.

Ministers believe that pooling money in this way will help increase the retirement incomes of some workers up to 30 per cent.

However, in January this year, Tom McPhail, head of pension research at Hargreaves Lansdown, warned CDC schemes are similar to a “with-profits fund” in that they work by “sharing risk across a broad pool of investors”.

Mr McPhail warned that the danger with these schemes lies with the risk controls and ‘with-profit’ funds are an example of how they can members can find payouts being cut if they are not properly regulated or if the investments fail to perform to expectations.

DB schemes have been under threat because employers have drastically scaled back their offering due to high costs and spiralling liabilities.

However, Mr Webb said at a seminar in May 2013 that he believed a “slimmed-down” version of DB pensions could still have a place in the market. At the time, he warned that the industry only had 12 months to save the model.

ECB to cut commercial interest rates

Mario Draghi, the head of the European Central Bank, is expected to cut the rate at which commercial banks borrow from 0.25 per cent to 0.15 per cent to encourage business lending, the Guardian reports.

The cute are expected to boost the eurozone’s struggling economy.

The Frankfurt-based institution is also expected to cut the interest rate it pays to banks that keep funds on deposit in a further move “to discourage lenders from hoarding cash”.

BNP Paribas faces £6bn fine

According to the Guardian, BNP Paribas is reported to be facing a fine of more than $10bn (£6bn) to settle allegations that “it violated US sanctions against Iran and other countries”.