The U.K. retirement industry has warned that changes to retirement plans, including creating collective defined contribution plans, announced in the queen's speech should be approached with caution.
In Queen Elizabeth II's speech Wednesday, the queen confirmed changes that were announced in Chancellor of the Exchequer George Osborne's 2014 budget in March. She announced a bill that will end the obligation for participants in defined contribution plans to use their retirement savings to buy an annuity to fund their retirement.
The queen also announced a private pension bill that paves the way for the development of collective DC plans, where risks are shared among participants. These plans, which would be set up by employers, would pool retirement savings and share risk and would be similar to plans in the Netherlands.
“A raft of new pension legislation has been announced in the queen's speech,” said Paul Sweeting, European head of strategy for J.P. Morgan Asset Management, in a news release. “This offers a range of new options and opportunities for individuals and employees. However, none of the new options is without risks, and a significant amount of planning is required to ensure that the legislation does not cause more problems than it solves.”
However, some executives warned that these two bills, while positive in intensifying the focus on defined contribution, were at odds with one another.
“The two pensions bills announced today pull in opposite directions,” said Frances O'Grady, general secretary at the Trades Union Congress, in a statement. “The pooling and risk sharing in Dutch-style not-for-profit pensions offer a better and more predictable retirement income. But the chancellor's ill-thought-through budget proposals take the collective out of pensions and turn them into individual savings pots.”
Stephen Bowles, head of defined contribution at Schroders, said in a news release that the move toward collective DC in the U.K. might be “a bridge too far for employers” and the retirement industry.
Mr. Bowles said the industry has already dealt with auto enrollment and charge caps, and that “these fundamental changes are already stretching all those involved in providing workplace pensions. The industry may now struggle to effectively implement collective DC, which is a completely new concept for the U.K.”