Government plans Dutch-style collective pension scheme

Pensions minister Steve Webb says the proposed change will pool risk and give better value for money

theguardian.com, Press Association, Sunday 1 June 2014

Pensioners' incomes could rise by thousands of pounds, supporters
of a collective scheme say. Photograph: Alamy

Employees will be able to put their money into Dutch-style “collective pensions”, shared with thousands of other members, in a radical shake-up of workplace pensions expected to be disclosed in the Queen's speech on Wednesday.

Supporters say retirement incomes could rise by thousands of pounds in the so-called “mega funds”, which are regarded by some as less vulnerable to variations in the stock market.

The controversial changes, which could be introduced by the department for work and pensions as early as 2016, are intended to give pensioners better value for their money.

The minister of state for pensions, Steve Webb, has previously said collective pension schemes are “some of the best in the world”.

The principal advantage was “pooling [the] risk” of investments performing less well than expected among large numbers of people of different ages, “just like car insurance or the NHS”, he told the Sunday Telegraph.

“It gives people greater certainty and probably better value,” Webb said. “There are some quite strong claims made for how much better it is. People say you will get a 30% 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.”

However, critics of the collective pension model have warned that, unlike with a fixed annuity, pensioners only have a “target” for what they will receive in retirement, instead of a guarantee.

If the collective fund’s investments fail to make the expected profits, pensioners’ incomes could fall in some cases.

The plan is based on schemes in the Netherlands and Scandinavia. However, Dutch political parties have recently called for collective pensions to be scrapped in favour of British-style individual pensions.

Meanwhile, the Treasury will take responsibility for a new bill that will remove tax rules that have prevented pensioners taking more than a quarter of their savings in a cash lump sum.