Pension superfunds can save on costs, but may be prone to failure.
Could your pension be transferred into a "superfund"? Several new players in the pensionsmarket say they are alreadyin talks with companiesabout taking on their occupational pension schemes, even though the government has only just published a consultation document onhow such arrangementswould be governed.
The idea is that a pension superfund would consolidate a number of defined benefit (DB) company pension schemes (where payouts are guaranteed) into one set-up, benefiting from economies of scale, operational efficiencies and hopefully a mix of investment styles.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Members' benefits would be unaffected, though savers in pension schemes underwritten by an employer currentlyfacing financial difficulties might be relieved to transfer. Many employers, meanwhile, would be pleased to rid themselves of their pension liabilities, though they would be charged for the privilege.
Nevertheless, ministers are positive about the potential for superfunds to take on liabilities currently causing employers financial difficulties. Many businesses with DB plans are struggling with the cost of their obligations and facing pressure from regulators to increase their payments into their plans.
Under proposals published last month, the pensions regulator would be given new powers to police superfunds to ensure proper standards of consumer protection. Ministers also propose to introduce a "fit and proper person" test that trustees of superfunds would be legally bound to meet.
If superfunds get the go-ahead, consolidation could be very rapid. Some 11 million Britons are currently members of DB schemes though many plans have been closed tonew savers that are oftenrun by small employers who lack the resources to manage the funds in the most efficient ways possible.
Benefits change leaves pensioners worse off
Currently, pensioners whose partners are still below state retirement age can claim pension credit, a top-up to their state pension of around £255 a month, if their income is below set thresholds. From May, however, new pensioners with a partner still of working age will have to claim universal credit instead, with a maximum weekly payment for couples of around £115 a week.
In the worst cases, new pensioners will miss out on around £7,300 of income a year they would be entitled to if reaching state retirement age today.
The average age gap between couples is 2.6 years, suggesting that new pensioners will, in future, miss out on 135 weeks of the higher pension credit benefit before they are eligible to move on to the more generous payment, according to charities working with older people. That would equate to a loss of around £19,000.
With single people effectively better off under the new rules, since they would be entitled to pensions credit as soon as they reach state retirement age, the DWP may be forced to investigate whether older couples claiming their relationship had broken down were genuine.
Couples already claiming pensions credit are unaffected by the changes.
Overpaid scheme member harassed
But this certainly wasn't the case when retired pension-scheme member David Carrington learnt that he had been paid £28,000too much over 11 years.He had been contributing towards a fund run byTPT Retirement Solutions.
When the scheme spotted the error, it told him it would immediately cut his pension by 40% in an attempt to claw back the overpayment. Carrington then sought to negotiate a settlement to pay back the money over an extended time period, but was told he would be expected to sign a non-disclosure agreement preventing him from discussing the case.
Pension specialists accept that schemes have a legal duty to seek to recoup such losses, but warn that unreasonably aggressive requests are unlikely to stand up to scrutiny. The Pension Ombudsman has the power to intervene in such disputes on the member's behalf potentially even to order the scheme to write off some of its overpayment. There will soon be more such cases, with schemes currently following instructions from HM Revenue & Customs to check their record-keeping for payment errors.
David Prosser is a regular Money Week columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments.
David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor. He has won a number of awards, including the Harold Wincott Personal Finance Journalist of the Year, the Headline Money Journalist of the Year and the BIBA Journalist of the Year. He has also been a frequent contributor to broadcast news, providing expert advice and punditry on radio and television.
For the past ten years, David has worked as a freelance journalist, writing for a broad range of newspapers, magazines and online publications. He also writes a regular column for Forbes, and is a frequent contributor to both specialist and consumer publications.
Act now: First Direct’s £175 switching bonus ending soon
First Direct has launched a £12,500 prize draw on top of its £175 cash bonus - but they both finish soon, so you’ll need to be quick
By Vaishali Varu Published
Credit card providers slash 0% balance transfer deals
Customers face a double whammy of rising interest rates and shorter 0% balance transfer periods. We look at what’s going on in the credit card market and why you’ll need to act fast to get the top 0% balance transfer deal
By Ruth Emery Published