Fidelity has slammed the volume of pension legislation being pushed through parliament at the moment, warning it risks consumer detriment, while Bestinvest has branded the push for collective pension funds ‘double Dutch’.
This follows the Queen’s Speech in which the monarch confirmed a third Pensions Bill, which will legislate for collective defined contribution (DC) schemes as part of the radical overhaul of the retirement market.
Collective DC schemes, or ‘Dutch pensions’, provide greater clarity on what income an individual will receive in retirement and are said to have around a third higher payouts than standard DC schemes.
While supporting the broader aims of increasing flexibility for consumers around pension and post-retirement planning, Fidelity’s head of retirement insight Alan Higham believes the sheer amount of change being enacted is ‘confusing’ consumers and known problems should be addressed first before new types of arrangements are introduced.
‘Today’s announcement of a third Pensions Bill in this parliament to legislate for collective DC schemes is badly timed and will further dilute resources that need to be applied to help people retiring today,’ he said.
'We would like to call for a pause within parliament from issuing more significant pension changes whilst we digest what’s on our plate now. Customers we speak to are totally confused by their choices which leads to paralysis of action which benefits few. Industry is inundated with demands from regulators and politicians whilst being asked to innovate.’
Higham pointed out that the industry is still waiting to hear the findings of the FCA’s detailed supervisory review of the at-retirement market and greater clarity is needed on how annuity pricing will be regulated ahead of forced annuitisation being abolished next April.
'People will have more choice than ever from April 2015,’ he said. ‘We need to prioritise fixing the known issues before then rather than legislating for schemes that no one wants nor needs at this moment.’
But Standard Life calls for further reform
However, Standard Life has called for further reform and is calling on the government to ‘review and consider’ its three key proposals.
These are the removal of all barriers to pension savers accessing flexible pension options, a scrapping of the upper age limit for DC schemes and increased employer tax breaks to fund employee guidance on options.
James Jenkins, Standard Life head of workplace strategy, said: ‘We warmly welcomed the increased flexibility and choice for savings introduced in the Budget, however we believe the government could go further.
‘The three recommendations we are outlining today would further simplify the savings landscape while increasing the flexibility on offer to savers. We are calling on the government to review and consider all of our proposals.’
Is going Dutch the way forward?
David Smith, a wealth management director at Bestinvest, said that collective DC schemes are no silver bullet for pension savers and arguably run contrary to the aim of enabling individuals to have greater control of their funds at retirement.
‘Collective pension funds work by pooling all members pension contributions together and the scheme will employ one uniform investment strategy, which is in direct contrast to UK pension schemes where members invariably select their own individual investment strategy,’ he said.
‘They will also physically pay out an individuals’ retirement income directly from the fund, thus avoiding the costs associated with annuity purchase, with pension income levels being calculated by a scheme actuary with the aim of providing a level, or ideally increasing, income in retirement."
While the theory may appear sound on paper, they are not without problems, particularly in a market such as the UK.
Smith said: ‘For collective pension schemes to work effectively you need economies of scale, as the more monies that are invested, the lower the associated charges will be and therefore the higher pension incomes will be. However, the UK pension market is already extraordinarily fragmented and as a result, it is highly unlikely that such schemes will establish sufficient critical masse to work as well as they theoretically could.
He added: ‘Maybe if such schemes had been made available as part of the role out of workplace pensions and as an alternative to Nest the concept would have stood chance? However, launching such a vehicle after all the many thousands of employers in the UK have gone through the costs and administrative burden of bringing in a workplace pension, is dumbfounding.’
‘Perversely, it is rumoured that due to a number of such schemes performing poorly in the Netherlands, serious consideration is being given to ditching these collective pensions and employing the UK individual pension model. All in all, this is double-dutch to me.’