Pooling pots for retirement will help savers go Dutch
TENS OF thousands of workers will be able to pool their retirement pots under a pensions revolution expected to be outlined in the Budget.
Philip Hammond is expected to announce a consultation on Dutch-style pension schemes – known as “peoples’ pensions” – under which thousands of members will pay into a single pot.
The approach is seen as a “middle way” between gold-plated final salary schemes, which guarantee income in retirement but can leave companies with huge deficits, and defined contribution schemes under which workers shoulder the risk of shortfalls.
Under the Dutch approach, known as “collective defined contribution” schemes, members reduce the risk by pooling their income and can secure bigger payments. They are given a “target” for their income on retirement, rather than a guaranteed income.
Royal Mail has already announced plans to move its workers on to the scheme once it is in place.
Guy Opperman, the pensions minister, has said the plans offer “interesting new possibilities”. He said: “My belief is that we are in a very good place to get pensions legislation in the summer of next year, and much of the work I am doing is to ensure that happens.”
Steve Webb, a former Liberal Democrat pensions minister who is now director of policy at Royal London, said: “Traditional final salary schemes where employers bear all the risk are almost extinct in the private sector. But this means investors now have to deal with uncertainty over how their investments perform. Collective schemes are used elsewhere in Europe to share these risks more evenly between employer and employee.”
Frank Field, the chairman of the Work and Pensions select committee, said: “I applaud the Government for the approach it is taking. The deal struck between Royal Mail and CWU, combined with the Government’s willingness to make CDC [collective defined contribution] pensions a reality, mean a huge change is coming to the UK pensions landscape, offering a new and different kind of pension choice.”