U.K.: Collective Defined Contribution Plans to Be Allowed

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By Sarah Jones  

July 1—The U.K. will introduce Dutch-style collective defined contribution plans that pool risks for members, the third change to laws governing the savings market and insurance companies administering the plans in as many months.

The Private Pensions Bill will allow “defined ambition” plans “encouraging greater risk sharing between parties and allowing savers to have greater certainty about their retirement savings,” according to a speech read by Queen Elizabeth II in Parliament earlier this month.

“My government's pension reforms will also allow for innovation in the private pensions market to give greater control to employees,” the queen said.

The Pensions Tax Bill will allow people over age 55 to withdraw savings without the requirement to buy an annuity, as announced in Chancellor of the Exchequer George Osborne's budget in March. Earlier this year, the U.K. capped the fees that defined contribution funds are allowed to charge savers.

‘Bridge Too Far'?

“We wonder whether the introduction of rules to allow collective defined contribution arrangements in the U.K. is a bridge too far for employers and the pensions industry,” given the other changes so far this year, Stephen Bowles, the head of defined contribution plans at money manager Schroders PLC, said in an e-mailed statement.

While Pensions Minister Steve Webb said on his department's Twitter feed this week that the British government could “learn from other countries,” Tony Clare, a pension advisory partner at Deloitte LLP, noted that Dutch-style collective defined contribution funds have drawbacks as well as benefits and can cut payments should deficits rise. In 2013, for example, 55 out of 415 Dutch funds reduced their payouts.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

To contact the editor responsible for this story: Rick Vollmar at rvollmar@bna.com