Personal Pension  

Pensions legislation will improve provision in the UK: Steve Webb

The Liberal Democrat pensions minister defended the coalition’s proposals following the Queen’s speech last week, which confirmed more flexible access to pensions savings for those retiring, as well as new “collective defined contribution” scheme options for employees.

Mr Webb said: “The new Private Pensions Bill will offer firms the chance to provide better workplace pensions for their employees. The problem with existing forms of pension provision is that risk now falls on individuals who are not always placed to deal with it.

“The Private Pensions Bill will allow for new forms of pension that allow that risk to be pooled or shared. This will help to reduce the volatility of pensions and produce better outcomes.”

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But Jonathan Parker, head of investment proposition at Barclays Corporate and Emp­loyer Solutions, said there was a “very real danger” that employers and individuals were becoming overwhelmed with yet “another ann­ouncement of major reforms”.

He warned that CDC would only work if sufficient scale is reached and that those belonging to generations X and Y were more likely to move jobs than previous generations.

He said: “This could have a knock-on effect on other reform proposals, such as pot-follows-member. If large amounts of money leaves or indeed joins CDC schemes when people move jobs, then it may have a detrimental effect on the risk-sharing benefits.”

ADVISER VIEW

David Harrison, managing partner at Newcastle-based True Potential, said: “We have long argued that the pensions system in the UK is in desperate need of a complete overhaul if it is to regain public confidence.

“We should not be under any illusions, however. There is still a long way to go if we are to restore public confidence and credibility into the system.”

What is a collective DC scheme?

Under a CDC scheme, assets are pooled. The employer’s liability to pay contributions is fixed in advance in the same way as in a standard DC scheme. Certain levels of pension are targeted, but actual pension payments depend on each member’s share of scheme assets.

Collective investment gives trustees access to a wider range of investment opportunities, and returns are smoothed. Many members of traditional DC pension schemes prefer not to assume personal responsibility for their investments. By contrast, trustees of CDCs can afford to take investment risks on behalf of members to target higher pensions for the same contributions.

There is no guarantee that the pension will not be cut if investment experience is poor, as has happened in The Netherlands.