After years of wrangling, it looks like pensions minister Steve Webb’s vision for employers to offer ‘defined ambition’ pensions for their staff is finally coming to fruition.
As Money Marketing went to press, the Queen’s Speech was expected to outline plans to allow employees to contribute to Dutch-style collective defined-contribution schemes, where members’ contributions are pooled and the pension is paid from the collective fund.
But, as is often the case with well-meaning pension reform, there are a lot of unanswered questions about how CDC would work in practice.
Webb has described the CDC schemes, as adopted in the Netherlands, as “some of the best pension schemes in the world”. Yet the Dutch don’t seem all that convinced. At the same time as we are moving to a collective model, Dutch political parties are calling for a move to UK-style individual pensions instead.
Experts have also raised concerns about claims made by the Royal Society of Arts last November, which suggested that over the past 57 years a Dutch CDC saver would have seen 33 per cent better returns than their UK counterpart. The experts argue that far from “pooling the risk”, CDCs promise the earth by virtue of the benefits of scale but may not in fact deliver.
There is also the potential threat of market value reductions to contend with, where exit charges akin to those applied on with-profits funds end up penalising savers who leave the scheme early.
This feeds into the biggest issue of all – how CDC squares with the new pension freedoms set out in the Budget. The Government is giving savers carte blanche to spend or save their pot while simultaneously telling them to lock away their investments for the greater good. A lack of joined-up thinking could be CDC’s downfall before it has even got off the ground.
A message from the new editor
So, you may have noticed the leader page is looking a little different this week. Last week we said goodbye to Paul McMillan, who I think we can all agree has led Money Marketing with huge success over the past five-and-a-half years. It has been a privilege to work alongside such a great journalist.
I hope to continue to deliver the high standards Paul has set in terms of editorial integrity. I aim to go out and talk to as many of our readers as possible over the coming weeks to ensure Money Marketing continues to lead the way with breaking news and in-depth analysis about the issues that matter most to advisers.
Follow Natalie on twitter: @Natalie_Holt_MM