LONDON, June 26 (Reuters) - Britain took a step closer to reforming pensions by publishing draft legislation on Thursday that permits collective workplace pension schemes, despite criticism of the plans by the industry.
The new rules, which were outlined earlier this year and should become law before a general election next May, will allow pension providers for the first time to pool the assets bought by fund members to reduce risks and cut costs.
Such pooling is already used in other European countries like the Netherlands and Sweden.
The government said that the reforms were supported by the industry and were needed to provide more choice and retirement income security for workers.
“These new proposals are all about encouraging a flourishing and diverse private pensions market by providing greater choice to employers and savers,” pensions minister Steve Webb said.
However, earlier this month parts of the pension industry expressed concern that the new rules would add complexity to an already heavily-regulated sector, may not be more cost effective to run and could undermine other parts of the government’s pension reforms.
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 retirement.
The draft legislation also set out a new category of pension which splits the risk of providing a future income between employer and employee.
The British pension industry has been moving away from ‘defined benefits’ schemes where the pension provider bears the risk of providing a retirement income towards ‘defined contribution’ schemes, where the worker bears the risk. The new middle-ground category is referred to as ‘defined ambition’. (Reporting by William James; Editing by Ruth Pitchford)