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Government sets sights on radical collective DC move

Steve-Webb-Speaking-2011-700x450.jpg

Pensions minister Steve Webb is set to propose radical plans for collective DC pension schemes with the aim of better sharing risk across members.

Speaking to the Financial Times, Webb said collective private pension schemes, which combine pension funds of “big, household name” firms, could provide better returns for retirees.

A central aim of collective DC schemes, which already operate in The Netherlands, is to better share the risk across members and allow older investors to take more risk and get more return from their asset allocation before and after retirement.

In December 2009, under the previous Labour government, the DWP looked at collective DC proposals but rejected the idea due to concern about ”unacceptable intergenerational unfairness” in the plan and a risk of breaching European legislation.

However, the idea was floated as one of a number of possible proposals in Webb’s policy paper Reinvigorating Workplace Pensions, published last year. The paper also suggested the use of ’auto-escalation’ to increase contributions and a number of ideas for “defined ambition” pensions provision as a bridge between DB and DC provision, including offering Government guarantees. 

Webb told the FT that large employers had expressed interest in moving into a collective scheme. He said: “If you can make it work, you’ve got the chance for significantly better outcomes.”

Webb touted two possible models for collective DC schemes in today’s FT interview. One would see the industry set up a collective scheme itself with Government providing a regulatory structure.

In another model, the Government could underpin schemes through a guarantee or lifeboat scheme. 

Webb said: “You could imagine a DC protection fund or something that pooled some sort of insurance contribution and provided certainty…There could be a role for the private sector.”

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. And where would this leave NEST? A Government underpinned scheme would make it a far more attractive offer.
    We also need to ask whether we want our Government running what will in effect be the largest Ponzi scheme on the planet – madness!

  2. Who would be mad enough to trust any government with tuppence, let alone any savings if they didn’t have to?
    They have cheated a lied with NI; they have messed about with private pensions. Their apparatchiks who have been put in to oversee and mismanage their hair brained schemes are/have been on obscene salaries and enjoyed an unfettered gravy train.
    The less any government has to do with our money the better.

  3. “defined ambition” pensions provision as a bridge between DB and DC provision, including offering Government guarantees.

    He then goes on to say ….

    “You could imagine a DC protection fund or something that pooled some sort of insurance contribution and provided certainty…There could be a role for the private sector.”

    How typical – we have DB public sector members striking because they want private sector to keep funding their gilt edged pensions – meanwhile good old Steve Webb suggests the private sector dig deeper again for another protection levy to – ON A WHIM!!! Unbelievable.

  4. ..and if my Uncle had #### he’d be my Auntie!

    Stop idealising and get something done then …Floating ideas for someone to grab and make a fist of, because you don’t grasp the mechanics, just won’t wash!

  5. Does Webb have even a basic understanding of his brief?He continues to make policy on the hoof,clearly listens to no one who actually works in the industry and makes a fool of himself and his government.Effectively this will produce a state sponsored oligopoly where there will be no pressure on charges and the public purse will pick up the bill again.

  6. I’m all for offering de-risked investment opportunities to clients. However, this simply looks like once again making the taxpayer the underwriter of first resort.

  7. You have to be kidding.

    Setting up a scheme purely to allow older people to take more risk, with other people – taxpayer, younger members etc etc picking up a large proportion of that risk.

    Look Steve, just get on with your job and stop running silly ideas up the flagpole.

  8. Is this derived from their desire to get pension funds involved in Government projects?
    Would members be forced into these collectives rather than having a choice about which fund on the market to invest in?
    Restructuring our pension funds in order that the government can use part of it to fund often high risk low return projects may not be in the interest of the employees pension.
    Major employers which he is talking about often have an AMC of 0.2 and even less. It would not be much less if any in a sort of collective DFM. I have my reservations especially when I read some of his out of context and dubious sales pitch.

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