Coalition pledges pension reform

The Coalition has announced its last legislative programme of this parliament. The measures announced in the Queen’s Speech included a charge on plastic bags in supermarkets, and some tweaks to childcare legislation and the planning system.

The speech also contained two pension reforms. As announced in the Budget, savers will have greater freedom on how they can manage their pension pots, while the government is also legislating for the introduction of Dutch-style Collective Defined Contribution (CDC) funds, where employees across a company pool their savings and invest them together, rather than saving in an individual pot.

What the commentators said

There is a “historically important” reform in the programme, said Janet Daley on Telegraph.co.uk.

Those who have saved into a pension all their working lives “will no longer be ripped off – sorry, be forced to buy an annuity – in a market fixed by insurance companies”. This allows individuals to choose what to do with their retirement fund.

The future of CDC schemes, on the other hand, is unclear. On the plus side, said Alistair Osborne in The Times, if members pool their savings, they should reduce their exposure to market volatility and cut management costs. There is no need for an annuity as the pension is paid out of the same overall pot.

However, not only can returns disappoint, leading to cuts in benefit levels as we have seen in Holland, but the young tend to cross-subsidise the old. They may be asked to make bigger contributions to maintain older members’ benefits.

Ultimately, said Allister Heath, it seems hard to get excited about a scheme where you simply have “pension rights that depend on investment performance”, rather than a pot of your own money.

However, the policy of auto-enrolment in occupational pensions of the past few years is proving very successful. On balance, “after years of political vandalism, UK pensions are on the mend”.