By Vivienne Russell | 5 November 2013
The Department for Work and Pensions needs to take ‘immediate steps’ to allow people to save into collective defined contribution pensions, the Royal Society of Arts think-tank said today.
In a report examining the pensions market, the RSA said defined benefit schemes have now withered away, but defined contribution pensions that had replaced them offered little more than a ‘tax-advantaged private savings plan’.
Collective pensions are commonplace in Denmark, the Netherlands and parts of North America. Savings are pooled in collective, rather than individual, pots.
According to Aon Hewitt research cited by the RSA, collective saving would have given UK investors a 33% better outcomes, as well as more predictable outcomes, than individual savings over more than half a century. Collective pensions would have outperformed an individual DC pension in 37 of the past 57 years.
David Pitt Watson, head of the RSA’s Tomorrow’s Investor project, said: ‘With the right choices the young people of this country could be enjoying pensions which are 30% higher than those they will otherwise be entitled. With the wrong decisions, our retirement system will be little more than a tax-advantaged private savings plan.
‘The message is clear: united we stand, divided we fall. It will be through encouraging the growth of well governed, collective pensions that the UK will finally have a framework for private pension provision that is fit for purpose.’
