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Collective DC plans to be unveiled in Queen’s Speech

Employees will be able to contribute to Dutch-style collective defined contribution schemes under plans to be announced in the Queen’s Speech on Wednesday.

Pensions minister Steve Webb has previously signalled his support for CDC schemes, where members’ contributions are pooled and the pension is paid from the collective fund.

The Sunday Telegraph reports the changes could be introduced as early as 2016.

Webb told the newspaper the key advantage of CDC schemes was “pooling the risk” of investments performing worse than expected across large numbers of people.

He said: “People say, you will get a 30 per cent bigger pension. You might, you might not, but clearly it is pretty unambiguous that you will get a more certain outcome and potentially a better one.”

But critics argue CDC schemes fail to guarantee a minimum level of income, and only promise a “targeted” retirement income.

Dutch political parties have recently called for collective pensions to be scrapped in favour of British-style individual pensions.

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Comments

There are 10 comments at the moment, we would love to hear your opinion too.

  1. Exasperated Me 2nd June 2014 at 8:50 am

    Fiddling while Rome burns, when will they ever learn?

  2. Neil Shillito 2nd June 2014 at 8:55 am

    Pensions simplification – remember that?

  3. Paul Williams 2nd June 2014 at 9:19 am

    Are the other pension changes (relating to flexible drawdown with no minimum income requirement) also being confirmed on Tuesday? While I’m at it, is anyone else losing touch with these legislation changes now? If we want to hear about legislation changes we have the Queen’s speech, the Autumn Statement and the Budget. Personally I won’t trust a word that comes out at the Queen’s speech or the Autumn statement anymore, as Osborne has proved that they mean nothing and they will not offer anyone a “head up” before any major changes.

  4. “Dutch political parties have recently called for collective pensions to be scrapped in favour of British-style individual pensions” and all the while “Pensions minister Steve Webb has previously signalled his support for CDC schemes, where members’ contributions are pooled and the pension is paid from the collective fund”???

  5. Yes I read a report in the Sunday paper.

    If the reporting is accurate then:

    1. Life Office – Goodnight?
    2. Fund managers – on bread and beans?
    3. Financial Advisers – Extinct?
    4. Regulators – Unemployed?
    I also see that the Dutch are not enamoured of their plan and there is actually rumblings that they would like to adopt the UK system!

    Now speaking as a customer.

    A. Excluding the valuable tax relief my own pension fund is showing a very healthy profit on my (gross) cost price – thank you very much.
    B. I certainly wouldn’t want to lose control of how , where and with whom my money is invested
    C. The very idea of being lumped into a big pot with everyone else is anathema.
    D. How can I plan?
    E. What sort of value can I see for my section of the pot? How can I calculate what I will get – not a ‘target’ but a solid number? How do I see how my contributions are growing?
    F. What about joint lives? What happens to my bit if I peg it? Will my wife get any?
    G. If I decide to defer retirement how will my pot grow?
    H. Will those who manage the pot be pressured into buying Gilts by the Government – who in effect is running this scheme? Gilts according to the latest consensus are going to produce worse results than cash. Indeed if I want to take a punt on Russian Smaller Companies I’d be stymied.
    I. Can I opt out? Can I just not bother with pensions and rely on ISAs and other investments? And if I do that will some future Government mess up my plans by tinkering with the rules and reneging on the tax reliefs?
    J. I thought I was already contributing to a collective pool through my NI contributions. If so why all this messing about? Just increase NI and let’s have some certainty about pensions and let the Government stop trying to pretend we are on a 20% tax rate and passing the buck for their responsibilities to the private sector.

    All in all this looks like a scheme tailored for ‘the great unwashed’. I wonder what sort of pension Mr Webb has and whether he has other investments besides which will aid his retirement income? Indeed apart from his continual fatuous theories how truly engaged is he with the people whose pensions he is so glibly mucking about? Mr Webb has a pretty good idea that he will not be in Government or Parliament after the next election, so he really doesn’t give a toss as he won’t be held to account when things go wrong.

  6. How does this square with the Budget reforms allowing increased flexibility? As I understand it, in these collective schemes you don’t have a share in the fund that you can measure in pounds and pence; the fund aims to pay a consistent level of income to all scheme members in retirement, past and future, and the cleverness of the actuaries will ensure that they can pay the same income whether the market is up or down. (Where have we hard this before…)

    So you can’t just say that you want to withdraw your entitlement all at once. Or rather, I assume that you can ask for a transfer value, but it will be like transferring out of a zombie with profits fund or a defined benefits scheme – the transfer value offered won’t be close to the actual value of your “share” in the scheme.

    Am I missing something? I would have thought the movement towards increased flexibility would have torpedoed this. In the Budget the government said “People should take responsibility for their own pension incomes, annuities are poor value”, with this they are saying “People can’t manage their own pensions, they should give over responsibility to a collective scheme over which they have no control, they can hand over the risk to the actuaries and hopefuly they will get a decent annuity out of it”.

  7. So just to clarify things, Mr Webb wants a pension for people in retirement that offers guaranteed rates of income which exceed current annuity (or alternative methods), paid for by cross subsidy from other contributors if required, but with the option to take one’s fund in full at any time in retirement?

    Whilst he’s at it, can I have a hover-ship for Christmas!

  8. @sascha-klau
    The Budget reforms don’t really fit in with other legislation anyway. Auto enrolment is being introduced because apparently the working classes cannot be trusted to save for their retirement. However, when the same people get to retirement, they should be trusted to spend their entire pension pot sensibly if they are given a lump sum.

  9. Collective DC = With Profits revisited.
    What a novel idea!

  10. John Shackleton 3rd June 2014 at 9:53 am

    Correct Harry – With Profits followed by With Profit Annuity….QED
    Regulated out of existence now regulated back into existence
    Good for some not for others
    Oh well, the new proposed free ‘advice’ will sort that!

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