Collective pensions are on the way and could offer savers almost a third more cash for their retirement, so what are they all about?
Here are some answers to frequently asked questions about collective pensions
What are collective pensions?
Instead of each retirement saver having their own pension fund, a collective scheme involves lots of savers putting their cash into a single, giant saving fund. When the saver retires, the pension is paid from the pooled fund is generally a percentage of the saver’s annual salary.
When will the finer points be revealed?
The government will publish the details in a pensions bill announced in the Queen’s Speech in June 2014 and due to go before Parliament in time for the next general election in June 2015.
Are collective pensions a new idea?
No. They are popular in some countries – especially the Netherlands and Denmark
Why change pensions yet again?
Some of the recent changes are a left-over from the last Labour government and some are new ideas from the coalition. Basically, the government has several problems –
- People are not saving enough for their retirement
- Pension providers are slicing off too much cash from savings in charges
- The retired population is growing as people live longer and the working population cannot afford to save and contribute towards pensioners who cannot support themselves
- Employers are switching from guaranteed pensions to schemes based on stock market performance that leave savers at risk from boom-and-bust economic cycles
What are the advantages of collective pensions?
According to Pension minister Steve Webb, collective funds spread the risk of investing across thousands of people instead of just one individual. They also allow economies of scale to reduce charges as administering and running the fund is cheaper.
The minister also believes that savers are also given a target pension income on retirement that helps them plan their finances better.
Why will they pay more than other pensions?
Because the fund managers can spread risk and invest in a wider range of investments to boost fund growth, while fees and charges take less from the pot
Can I still take my money out at 55 years old?
That remains to be seen. Collective schemes work on the basis money is left in and shared among the group. So far, the government has made no announcement about whether savers can take their cash at 55 years old, but the concept would seem to rest uneasy with the collective risk profile of the new pension.
