U.K. Government Seeks to Go Dutch With Collective Pension Pots
(Bloomberg) -- Theresa May’s government is pushing ahead with plans for a radical new kind of private pension that allows U.K. savers to pool their investments -- and is likely to set out the details after next week’s budget.
The pensions department aims to launch a public consultation on Nov. 5 on how to establish “collective defined contribution” pension pots, which are already used in the Netherlands and Denmark, according to a document seen by Bloomberg. The policy is designed to reduce risks associated with individual savings, which are regarded as more vulnerable to stock market variations.
While the plan still needs to be formally signed off by the Cabinet, Chancellor of the Exchequer Philip Hammond could use his annual budget statement on Monday to outline the tax reforms needed to make the policy work.
May’s officials want to use the budget as an opportunity to show that her government is able to deliver on voters’ domestic priorities beyond Brexit. The prime minister has already promised to end austerity, pump billions of pounds more into the National Health Service and provide more affordable housing.
A fairer pensions system would be another consumer-friendly policy to show the electorate next time May’s Conservative Party is seeking a mandate.
It remains to be seen whether the government will be able to push the new laws needed through Parliament while so much legislating time is dominated by Brexit, according to Tom McPhail, head of policy at Hargreaves Lansdown Plc.
“In principle, they’re a good idea -- they’re about sharing risk, potentially delivering higher returns for investors, they’re quite paternalistic because they could require minimal engagement from individual members,” McPhail said in an interview on Friday. “That all sounds like motherhood and apple pie, and who wouldn’t want that?”
As part of the reforms, the U.K.’s tax office will also be seeking clearance for minor tax changes to allow the so-called CDCs to move forward.
Spokespeople at the Treasury had no immediate comment on the plans. A spokesman for the Department for Work and Pensions said they don’t “comment on speculation.”
While ministers have been looking at introducing the collective pensions since 2014, the issue rose up the government’s agenda after Royal Mail Plc and the Communication Workers Union agreed on such arrangements earlier this year as a way to resolve a dispute. The two sides are now working with the government to help deliver the changes needed into law.
Members of Parliament’s select committee on work and pensions urged the government to pass new laws that would allow the creation of CDCs in July, saying the change could “transform the U.K. private pensions landscape.”
By setting an ambition or target income level, CDCs are also seen as a more attractive alternative for employers compared to so-called defined benefit pensions, which set a fixed income level for savers on retirement.
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