Government ushers in Dutch-style collective pensions

Plans to allow workers to contribute to Dutch-style collective pension schemes will be announced in the Queen’s Speech later this week, according to reports.

Under the plans, employers will be able to offer collective pension funds from as early as 2016.

The introduction of collective schemes aims to offset to decline of defined benefit (DB) schemes but offer lower costs and better returns than current defined contribution schemes.

The schemes offer members a target level of pension related to their average salary, shared administration and management costs and exposure to a wider spread of assets. The government has predicted that collective schemes could boost savers’ pensions by 30%.

However, critics of the schemes point towards political opposition in Holland. It is also argued that the target pension is not guaranteed and that pensions could fall if the market dips, as has happened in Holland.

The government has stepped back from introducing plans to allow employers to water down DB schemes. Pensions minister Steve Webb had consulted on allowing DB schemes to change their terms for future members, but schemes were more interested in making retrospective changes, which will not be allowed, according to the Financial Times.