(Repeats to add story link in first paragraph)
* Legislation will allow schemes to pool contributions
* Queen's Speech confirms plan for Defined Ambition schemes
* Pensions industry critics say schemes risk unfairness
By Jemima Kelly
LONDON, June 4 Britain's pensions industry has
criticised government plans to introduce collective workplace
pension schemes, which formed a part of the legislative
programme for the coming year announced on Wednesday.
In a ceremonial speech delivered by Queen Elizabeth, the
government confirmed plans for collective defined contribution
(CDC) schemes, part of an overhaul of UK pensions that will also
remove the need for retirees to buy annuities with their
But the plans for CDC schemes - which the government has
named Defined Ambition schemes - were lambasted by the pensions
industry, which warned they would add to a welter of reforms
that the industry may struggle to deal with.
"We wonder whether the introduction of rules to allow
collective DC arrangements in the UK is a bridge too far for
employers and the pensions industry," said Stephen Bowles, head
of defined contribution at asset management firm Schroders
The spate of proposals reflects growing concerns in Britain
and other mature economies that ageing populations, with more
people living longer in retirement, are not adequately prepared
financially and are too expensive for governments to fund.
Under the new legislation, three mutually exclusive types of
scheme will be available: defined benefit (or final salary)
schemes, which are being phased out by most employers; defined
contribution schemes, in which workers build up individual
pension pots; and the new collective schemes.
Supporters of the collective schemes say they would reduce
costs, as they have the advantage of economies of scale, and
could bring richer returns because assets can be kept in riskier
investments such as equities, rather than being transferred into
safer asset classes as members approach
LAYER OF COMPLICATION
But Bowles noted any cost advantages would be offset by a
cap on charges already announced by the government. And he said
CDC schemes could be at odds with the abolition of compulsory
annuities, as they would be designed to provide long-term income
"The announcement on CDCs seems at best inconsistent with
other pension policy, and at worst as another layer of
complication in an already overcomplicated industry," Bowles
Mark Wood, CEO at advisory firm JLT Employee Benefits, said:
"While investment returns and life expectancy conform with
expectations, the system brings some benefit. Outside these
norms ... the system breaks down.
"Annuities protect the individual from investment risk and
living longer than expected. Defined Ambition gives no such
guarantee," Wood added.
The schemes have, however, received cross-party support,
with opposition Work and Pensions Minister Rachel Reeves saying
last week they could boost returns by up to 30 percent - an
argument previously made by Pensions Minister Steve Webb.
But some argue that the idea of collective schemes runs
counter to the decision to give retirees increased flexibility,
as set out in March's budget.
Neil Shillito, investment manager at SG Wealth Management,
called the plans "muddled thinking in the extreme", while Tom
McPhail, head of pensions research at financial services firm
Hargreaves Lansdown, said: "An employer selecting a CDC scheme
may have to explain to their staff why they'll be missing out on
these new pension freedoms.
"Good luck with that."
Critics also warned that predicted returns from the schemes
could be too optimistic, noting they had had a mixed record in
Denmark and the Netherlands, where 55 out of 415 collective
pensions schemes cut benefits to pensioners last year.
Insurers, many of which were left reeling after the budget,
may be set to suffer further from the changes, which could
deliver another blow to their profitable annuities businesses.
Shares in major pension provider Standard Life fell
earlier this week as investors worried about future profit
margins, after newspaper reports confirming plans to introduce
legislation for the collective schemes.
(Editing by David Holmes)