Opinion 

Less is more in the mind-boggling world of pensions

Jeff Prestridge

Jeff Prestridge

I managed to spend a bit of quality time last week reading a wonderful book called The Universe versus Alex Woods by Gavin Extence.

It is a must-read: it was recommended by a financial adviser friend of mine, so it must be good.

It was also recommended last year by the Richard and Judy Bookclub. I know, I am a year behind in my reading and should be hurtling through Helen Dunmore’s The Lie (on Richard and Judy’s list of 2014 summer reads), but as always I am submerged in a sea of financial services press releases and emails. So little time for pleasure.

Back to The Universe versus Alex Woods. In the book, central character Alex estimates the odds of being hit by two meteors in one lifetime (he has already been hit once) as one in four quintillion, or as he says: one in “a four with 18 zeroes after it”.

“Quintillion” is the word I would use to quantify the number of changes made to pensions in recent years. Indeed, I find it increasingly hard to keep up with all the new rules and regulations, most of which have been launched by the incumbent pensions minister Steve Webb.

Anyway, the latest of the quintillion changes was announced last week when the Queen, as part of her 2014 Queen’s Speech, outlined the Coalition Government’s commitment to bring before parliament a Private Pensions Bill, paving the way for new, defined ambition pension plans. Or collective defined contribution plans, as some refer to them.

Even Steve Bee, the font of all pensions knowledge, was left rather bamboozled by yet another proposed change to pensions, proclaiming: “Our pensions system is already mind-bogglingly complex. Adding another different and alien strain to pensions to the two we already have, will surely add to the problems ordinary people already have when they try to get their heads around pensions.”

Well said that man, who has set up a company post Scottish Life called Jargonfree Benefits, with the aim of helping SMEs deal with the requirements of pensions auto-enrolment.

Riskwise, defined ambition will sit somewhere between defined benefit and defined contribution plans. It will offer none of the guarantees that make defined benefit schemes “de luxe” for pensioners (and increasingly unaffordable for employers), but will provide the opportunity to generate a -bigger pension than is normally available under a traditional defined contribution plan (primarily from lower charges and greater investment opportunities).

Information on the proposed legislation was leaked to the Press prior to the Queen’s Speech, so the pensions world was hardly taken by surprise.

It has also long been known that Mr Webb has been keen to bring defined ambition to market.

I was first made aware of collective defined contribution pensions (defined ambition) a couple of years ago, when I was invited to attend a press conference at the Royal Society of Arts in London. The event was to mark the publication of a report into collective pensions by David Pitt-Watson, a man who made his fame at Hermes Fund Managers.

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