LONDON (Reuters) - A government plan to consolidate large company pension schemes to give staff a better deal in retirement should focus on smaller corporate schemes instead, industry experts say.
Pension minister Steve Webb wants to bring together pension funds run by the UK’s biggest blue chip companies to help to make them cheaper to run and to improve returns. It will launch a consultation this summer for so-called ‘collective defined contribution’ pension schemes.
But pension experts believe smaller sized pension schemes would benefit most from consolidation rather than the 1 billion pound plus retirement plans.
“It’s a good idea but Steve Webb is talking to the wrong people,” said Richard Parkin, head of proposition for DC and workplace savings at Fidelity Worldwide Investment.
Industry consultants said the priority was to help company pensions schemes ranging in size from 100 million pounds to 1 billion pounds. These schemes are broadly under-capitalised and cannot afford to invest in higher-yielding asset classes because of the increased risks involved.
“The largest schemes already chase yield by accepting risk on a portion of their monies. Lower down the scale there is neither the access to expertise nor the ability to withstand loss,” Mark Wood, CEO at JLT Employee Benefits, said.
Pooled pension funds which bring schemes sponsored by several companies under a single management structure are common in Denmark and the Netherlands, but have mixed track records.
Some employers in these countries will be forced to cut retirement income offered to members by up to 2 percent next year in order to offset a run of low returns on investments and because members were living longer than expected.
In Britain, pooled pensions are just one of several new savings plans proposed to address the rapid disappearance of final salary pension schemes and encourage more people to save for their retirement.
The government hopes they will help managers and members by sharing investment risk across a larger number of people, and more equally between employers and employees but there are still no guarantees that all members will eventually do better.
Participation in a state pension scheme known as The National Employment Savings Trust (NEST) has also got off to a slow start.
The scheme was designed to offer workers at small to medium-sized businesses better access to corporate pension schemes but take up has been lower than expected.
Reporting by Sarah Mortimer. Editing by Jane Merriman