News sources have announced this week, that the upcoming Queen’s Speech is expected to feature the announcement of the roll-out of Dutch style collective pensions. Prestige Tax and Trust Service asks what this could mean for your pension planning.
Prestige Tax and Trust Services exists to offer you all the help and advice you need to, among other things, plan out your pension strategy, so that you are ready when you hit retirement. Part of that service involves keeping you up to date on the latest developments in the pensions market, and letting you know what the effects of said developments could be.
What Are Collective Pensions?
So what are collective pensions? In light of the move from defined benefit to defined contribution schemes, that have seen the burden of risk shift to the employer to the employee, the government have been researching alternative pension policies for the last few years, to aid the British public in saving for their retirement.
This is where the change comes. Defined contribution schemes, which see the value of your pension determined by amount you contribute and the interest it returns, is individualistic, which is why they carry such an element of risk. A collective option pools together contributions into an overall fund, which keep costs lower. It also further negates the need for an annuity (something that the Chancellor already gave pension savers the ability to scrap in this year’s budget), as the level of income is determined ever year by actuaries, which aim to keep a level in place with slight increases, making for a more stable situation.
The scheme has seen some success in the Netherlands and across Scandinavia, however some disappointing performances have seen many in these regions question whether they should actually opt for the current British model.
It “Should Deliver Better Pensions.”
The BBC recently featured an article detailing more of what’s expected to come from the announcement in the Queen’s Speech, and they spoke to independent pension’s expert Ross Altmann to shed some more light on what it could mean for pensions saving in this country.
Altmann said that it “should deliver better pensions than pure defined contribution, because the costs of managing them are lower due to economies of scale, and you are not giving big profit margins to annuity companies, so there is more money to pay out directly.”
Prestige Tax and Trust Services on the Collective Pension
At Prestige Tax and Trust Services, we certainly think that Altmann has a point; the reduced administration services could deliver better pensions returns. However the limited success this model has seen on the continent leaves us with some doubts over how effective it may be for pension savers in this country. Over the coming days and weeks, we’ll certainly see how the government is going to address these concerns.