Overdue shake-up of UK’s pensions landscape

Mar 21, 2019 | BLOG

By: Dan Holden

This week the Secretary of State for Work and Pensions, Amber Rudd, announced that a new type of pension is being trialled following an agreement between the Royal Mail and Communication Workers Union.  

This new type of pension, which already runs successfully in Denmark and the Netherlands, is called Collective Defined Contribution and represents a half-way house between the two forms of pensions which have dominated the retirement income landscape in the UK over the last half century– Defined Benefit and Defined Contribution.

Defined Benefit pensions, which culminate in a guaranteed income upon retirement and operate using a single pooled risk investment fund, have become far less common place in the UK over the last twenty years. They are slowly being replaced by Defined Contribution pensions, in which the only guaranteed element is the payment made into your personal pension fund. The collective element of the new model essentially uses the pooled risk model of Defined Benefit pensions to support investment, returns and, ultimately, a stable retirement income.

The ILC has previously called for this form of pensions to be pursued. The announcement by Amber Rudd is, therefore, an very exciting development which has the potential to point the way towards achieving a better balance between the need for fiscal sustainability and the need to secure improved pensioner living standards over the long term.

As Defined Benefit pensions phase out and the baby boomer generation enters retirement, it is imperative that policy supports people to save for a decent income in retirement. We cannot allow healthy, independent and well-funded retirements to be a happy accident for a few generations. With inequality rising amongst retired people over the past decade and improvements in pensioner poverty having stalled in recent years, there is no guarantee that retirement in the future will look like it has done in the past.

This development is welcome, and hopefully signals recognition in Government that our pensions policy horizons must extend well beyond the circumstances of people retiring in the next five years, to ensure that a child born today can enjoy a good quality of life right across their life course, including in retirement.

Dan Holden

Research Fellow, ILC

Dan joined the ILC in May 2018 as a Research Fellow. Prior to joining the ILC Dan was a research consultant at ComRes, specialising in political and social research. Whilst at ComRes Dan was responsible for much of the organisations high profile voting intention research, for clients including the Independent, BBC and The Sun. Dan also worked with social research clients including the Resolution Foundation, NASUWT, the LGA and the Chartered Institute of Building in conducting large scale quantitative, qualitative and mixed methods research projects. Before working at ComRes Dan worked at the Smith Institute as a researcher, contributing to many research projects, the Institute’s events programme and the Institute’s role as secretariat to an All Party Parliamentary Group. Dan’s analysis has appeared in print and other media forms including for the Guardian, BBC 5 Live, the Independent, the New Statesman and Public Finance magazine.