Collective pensions are the backbone of the Dutch pension system, regarded by most as one of the very best in the world.
Collective pensions are the backbone of the Dutch pension system, regarded by most as one of the very best in the world
Yesterday, in her speech to parliament, the Queen announced legislation that could be the cornerstone to better pensions in Britain.
The measure is a simple one: that Britons will be allowed to invest collectively for their retirement, just as the Dutch and the Danes are able to do. Its effect, over time will be huge, because research shows that, after twenty five years of saving, a collective pension will give a 30 per cent higher income than a pension saved individually.
That is why collective pensions are supported both by the government and the opposition. They are supported by the TUC, and by the CBI. The Association of Member Nominated Pension Trustees and the National Association of Pension Funds are also backing the measure. So are think tanks such as the RSA and the IPPR.
And of course they enjoy broad political support throughout the political parties, employers and employee groups in Holland.
It is not rocket science as to why collective pensions are better. As everyone who has bought an insurance policy knows, the best way to address life’s risks is to share them. So, if you save for a pension on your own, you don’t know how long you will live for so you can’t tell how much you need to set aside; you don’t know what return you will get, or how much your pension pot will be worth on the day you retire.
That is why, until the budget, everyone saving for a pension had to buy an annuity which ensured they had an income for life. But annuities are very expensive. And if you don’t buy an annuity you can’t guarantee you will have an income until you die.
The better way is to save together. And from the pot of money which has been saved, to pay affordable pensions. That avoids the cost of annuities. It avoids the need to cash all your pension pot in on a single day, or to save very conservatively in the last years before retirement, so you know what the size of the pot will be. That is why studies show that, in the UK, collective pensions give 30 per cent better outcomes than individual ones.
But we must also beware that collective savings are not some holy grail. They need to be properly managed if they are to work properly. So, for example, if returns head south, it may be necessary to cut pensions in payment. In Holland, in response to the financial crisis, pensions in payment were cut, on average, by 2 per cent. But given that they would have started 30 per cent higher than the equivalent British pension, that is surely a price worth paying.
And collective pensions must be run by trustee bodies, whose only interest is the beneficiaries. Otherwise the temptation to misuse funds is all too great. It was that which proved the downfall of the ‘with-profits’ funds offered by insurance companies.
But for seventy years, collective pensions have been the backbone of the Dutch pension system, regarded by most as one of the very best in the world. In twenty five years time, when Britons retire, they too can be part of a pension system of which we can be proud.
David Pitt-Watson is director of the RSA’s Tomorrow’s Investor Project and founder of Hermes Equity Ownership Service
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13 Responses to “Why collective pensions will mean better pensions”
LB
Collective pensions. Lets see the evidence.
ELAS (Equitable Life). The company left off the liabilities for guarantees out of the accounts. Liabilities were enforceable. So they get paid out of other people’s money. Collective fund means other people can get your cash. Big losses all round.
It’s the same with any Ponzi. Early joiners get the cash. Later joiners take the loss.
So with a collective fund it works this way. Pressure gets put on the actuaries to increase the payouts to early joiners. That suckers the later joiners in, looking for this high payouts. After all why join a poorly performing fund. They wham bam, you take the hit.
Same as the with state pension. It’s a collective ‘fund’. It’s got no real assets. No real assets because you cannot lend yourself money to make an asset. It’s just like any Ponzi. Early joiners get the cash, late joiners get suckered.
It can be quantified.
For a person just retiring who has been a median wage earner. They would have started on 800 quid a year, and ended on 25.5K. So if they had been allowed to invest their NI, as of today, a fund of 785K. Dividends of 24K a year, and the fund intact. It would be more if there was no stamp duty.
Compare that to your collective scheme. 5.7K offered. Cuts all over the place. Later retirement age. Not RPI, but CPI. Now Serps being abolished and the records being shredded so people don’t realise they are being screwed. No assets.
Then factor in the debts. With a funded scheme there wouldn’t have been the pension debts. Why are those off the books? A secret. [Answer its about 7.1 trillion]
That median worker is down 800-900K because of that collective ponzi scheme.
Don’t touch with a barge pole.
Leon Wolfeson
Yes, of course you oppose pensions which might do better for the 99%, as you scream again that you’ll murder the taxpayers to make the state pension into a ponzi.
And then you spout crap again, ignoring the fact that unemployment insurance alone would be more expensive and not allow any pension savings if people took it. And you of course oppose one of the few taxes your rich pay, stamp duty.
The only secret is your inability to read public figures, as you sweep up UK assets. You’re going to enjoy jacking up the fees after the Land Registry’s privatised, eh?
LB
Very simple Leon.
1. How much does the state owe for its pensions?
2. What could the average person (or even min wage earner) have got for their NI?
Unemployment insurance is easy to quantify.
http://webarchive.nationalarchives.gov.uk/20131002123620/http://www.hmrc.gov.uk/about/ni-fund-ac-gb-1112.pdf Is a recent set of accounts.
Page 18 is the relevant one.
10% covers the insurance elements.
82,357,733 total spending
74,110,982 on pensions
8,246,751 on insurance payouts (non pensions)
So you can reduce the payout by 10%, and still pay all the insurance elements.
Stamp duty on shares takes 8K off the value of the fund, for a median wage earner. Imagine that? Hitting the poor.
LB
which might do better for the 99%,
============
What is your evidence?
Leon Wolfeson
Yes, of course you think that higher fees are better for the 99%.