As expected, the Queen’s Speech today confirmed that plans will be introduced to allow for collective pension arrangements.
In recent years, employers have moved away from providing defined benefit pension arrangements, owing to the funding risks imposed upon them, and have tended to introduce defined contribution pension arrangements, in which each employee has his or her own designated pot from which to provide a pension.
The proposed collective pension arrangements are intended to facilitate risk, and cost, sharing across a very broad base of participants. A key aim of the Government is to provide greater certainty for employees through a targeted (but not guaranteed) pension outcome at retirement.
The Government must be congratulated for its efforts in trying to retain employers’, and employees’, interests in pension saving. In particular, the stated objective of trying to find a middle ground, that does not leave either individuals or employers shouldering the entire risk, has much to recommend it.
It seems unlikely, however, that these collective pension arrangements will create the same kind of interest as that created in March this year with the Budget 2014 pension changes. In focusing upon the individual’s right to choose the way in which to spend his or her own pension pot (even by buying expensive sports cars) the Budget, for the first time, created a sense of real, individual, ownership within the UK pension system. Contrasted with the incentivising prospect of owning an individual fund, collective pension arrangements will be a comparatively harder sell, even taking into account their intended advantages of risk sharing.