Why collective pensions will mean better pensions

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”

  1. 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.

  2. 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?

  3. 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.

  4. LB

    which might do better for the 99%,


    What is your evidence?

  5. Leon Wolfeson

    Yes, of course you think that higher fees are better for the 99%.

  6. Leon Wolfeson

    Why would other people follow your example?

    And of course you need to lie about unemployment insurance costs, right, because it shows your argument for the genocidal fraud it is.

    It’s far, far more than “10%”. It’s more than employees NI at present, because of course companies are going to pocket their savings.

    Moreover, keep ignoring the way you’re calling for massive tax cuts for the rich – doing billions more in damage per year…

  7. Leon Wolfeson

    The evidence is mixed. However, I have absolutely no faith in this government in implementing this in such a way that workers will have any chance whatsoever of benefiting, given their record with things like NEST, where they end up with very high effective fees.

  8. sarntcrip


  9. sarntcrip


  10. blarg1987

    On the flip side, how much money could people have lost investing it in the stock market, all your assumptions on investing National Insurance on the Stock market is based on the figures that stock market has increased by at the moment.

    What you have not factored into account is what such a large increase in investment may have on the stock market, it may make more money yes, but it could also loose a lot more money as you have a guaranteed investor constantly putting money in.

    Remember endowment mortgages flopped for the same reason as one of the reasons was when everyone did it the returns decreased.

  11. LB

    Correct. It’s a valid question. Then we take the biggest loss off the fund, and see how that compares to the state pension.

    So after taking the stock market loss if the amount in the fund is greater than the value of the state pension, then you would conclude the state pension is crap. We also need to take account of any debts.

    On your second point, the money doesn’t have to be invested entirely in the UK. Just like the Norwegian fund isn’t all invested in Norway

    So two questions what are your answers. I’ve the numbers when you are ready.

  12. LB

    So here is how I would evaluate the risk side.

    1. For the state pension.

    What’s share of the states debts, pensions included, as a negative.
    Value of the state pension as a positive.
    Both as a present value

    The net result is the value of the current set up.

    2. For the investment approach.

    Value of the fund.
    On the debt side, a share of the state’s borrowing as a negative.

    You compare 1 and 2.

    3. The risk

    Next, the risk. What you can do is look at the biggest percentage drop over the last 40 years. Assume that history does repeat itself. You then apply that to the fund value in 2 above. A worse case scenario.

    Now you compare 1 and 3. If 3 is bigger than 1, then the state has screwed people over.

    A reasonable approach, or if not, why not.

    Even on 3, there is one error to avoid. In practice after crashes, the markets recover. You are still OK. The error people make, and the BBC did it this morning, is still assume that you lose permanently if you retire the day of the crash, because you have locked in the income by buying an annuity. That’s gone. It’s now draw down.

  13. LittleOddsandPieces

    Saving helps. A collective pension from your work wages might help if done correctly.

    But this is nothing to do with the state pension.

    The ring fenced National Insurance Fund is full, not needing a top up from tax for decades, despite all the hype about people living longer, which has had no one effect on the viability of the state pension.

    The NI Fund has not beem emptied to pay off national debt, because the NI Fund is not a tax and cannot be used for general expenditure by government. This wrong belief is even said by the Pensioners Convention, who even in most recent conference ignored the total loss of state pension by the Flat Rate Pension.

    People need a works pension and the state pension, to give them protection from food and fuel poverty.

    SERPS and the State Second Pension and Pension Credit are abolished by the Flat Rate Pension from 2016, so the additional pension will have no guaranteed annual rise for current claimants either.

    A lot of women have nil works pension, insurance/private pension and by the changes in pension rules not enough NI credits. From 2016 need 35 years rise from 30 years NI credits. No state pension with less than 10 years NI credit.

    From 2016 the housewife’s 60 per cent state pension is gone for new claimants. Widows will not longer be able to inherit their husband’s state pension.

    The state pension is being withered away by the Flat Rate Pension, and women are hit the most.

    Please share my petition on your social media to inform women what is to befall them. Thank you:

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