020 7189 9999
Opening hours
Mon - Fri: 7.45am to 6pm (Thurs 8pm)
Sat: 9.30am - 1.30pm
Request a call back
  • Home
  • News
  • Proposed reforms to final-salary pension schemes: too little, too late

Proposed reforms to final-salary pension schemes: too little, too late

Proposed reforms to final-salary pension schemes: too little, too late

Defined benefit pension schemes have been under the increasing threat of extinction in recent years, with most company schemes closed to new members and new employees having to bear the risk and uncertainty of defined contribution schemes.

The Government has therefore been seeking to develop a new category of pension that will give employees some certainty about how much income they will receive in retirement, yet be cheaper for employers to run than traditional defined benefit final salary schemes.

The various options set out comprise of 1) a "money-back guarantee" to ensure that the amount of money someone gets out of a pension scheme at the point of retirement or transferring out is not less than what they paid in; 2) a "retirement income insurance" which would be bought gradually from a worker's fund as they approached retirement and would pay out a guaranteed minimum income if their investments failed to perform; and 3) a collective defined contribution scheme, which pool workers' assets; in effect pensions would be drawn from the pool rather than buying an annuity.

Whilst this consultation process should be welcomed as it acknowledges the gravity of the problem, I am not convinced that it will achieve anything as all of these proposals will almost certainly lead to some form of increased cost. Indeed, the recent focus on Workplace Pensions has very much highlighted the vital importance of keeping pension costs to the absolute minimum.

In addition, it is difficult to understand why employers will want to put in place a pension scheme which increases their liability, and surely if such a scheme was to be brought in, then the time to announce it was at the start of the Workplace Pensions initiative?

This is a classic example of the Government doing too little, too late. After all, can you really see there being any appetite from employers or employees to join a new type of pension scheme when they have just jumped through all of the hoops associated with Workplace Pensions? I think not.

Download our guide Planning for Retirement or contact our team on 020 7189 2400 for more information.

The value of your investment can go down as well as up, and you can get back less than you originally invested.

The Bestinvest Online Investment Service, including any account analysis and investment reports provided by our guidance services, is an online execution-only dealing service for investors who want to make their own investment decisions. It does not provide advice on the suitability of products and investments; if you are unsure about the suitability of any investment you should seek professional advice. Clients of our Investment Advisory Service and Managed Portfolio Service can use the website to obtain current valuations of their investments but cannot trade on these accounts online and should call their adviser if they wish to discuss changes to their investments.

Past performance or any yields quoted should not be considered reliable indicators of future returns. Restricted advice can be provided as part of other services offered by Bestinvest, upon request and on a fee basis. Before investing in funds please check the specific risk factors on the key features document or refer to our risk warning notice as some funds can be high risk or complex; they may also have risks relating to the geographical area, industry sector and/or underlying assets in which they invest. Prevailing tax rates and relief are dependent on your individual circumstances and are subject to change.

Issued by Bestinvest (Brokers) Limited (Reg. No. 2830297), which is authorised and regulated by the Financial Conduct Authority. Financial services are provided by Bestinvest (Brokers) Limited and other companies in the Tilney Bestinvest Group, further details of which are available here. This site is for UK investors only.
© Tilney Bestinvest Group Ltd 2016.

Version: RC1027.44113