Press Story

Dutch-style 'collective pensions' are the most popular option with the British public for their retirement saving, according to a new report published today by the think tank IPPR. This type of pension is currently illegal in the UK despite working well abroad, and would allow private sector workers in factories and shops to "club together" in the same way that public sector pensions allow teachers and nurses to.

The government wants to encourage people to save more for their retirement and is proposing new 'defined ambition pensions', in which risks might be reduced through guarantees. IPPR's research shows that people like the idea of guarantees but are wary of the costs. Instead, they prefer the idea of investment returns being 'smoothed' but the most popular idea with the public is the idea of 'collective pensions'.

IPPR's new report shows that collective pensions are used in the Netherlands and Denmark, where employers and employees pay a fixed contribution but the pension risk is shared between members. In the Netherlands, pensions are paid direct from the collective fund, in proportion to a person's contributions, so there is no separate annuity - which is one of the aspects the public are most worried about.

IPPR's report shows that, as well as being popular, the public could have a far higher income from a collective pension, because of lower fees and shared risks. The average fee for a collective pension in the Netherlands is just 0.15 per cent - far lower than the government's proposed cap of 0.75 or 1 per cent. And recent calculations for the government found enrolling in a collective scheme could give people a retirement income that was a third higher than an individual pension.

The report also shows that the majority of the public don't understand the UK pension system, even in broad terms, and are very concerned that they are not getting the best deals. Given the complexity of pensions, the public like the idea of sharing risks and rewards with other members for private pensions, as well as for the state pension, rather than taking on all the risk themselves.

Imogen Parker, IPPR Research Fellow, said:

"We urgently need pension reform to ensure this generation of workers ends up with a decent income in retirement, otherwise half the working population will end up have to make serious cut backs when they retire. The public are mystified about pension choices, and want a simpler system that allows them to club together and share the risks with other workers.

"Public support for collective pensions is clear. People don't want the responsibility of choosing an investment fund and shopping around for the best deal when it comes buying an annuity. They think it fairer to get an income directly from a collective scheme while sharing future risks with other members.

"Restoring public trust in pensions is vital. We need a radical re-think of how the pension system works to encourage people to save for their old age. Collective pensions are a fundamental part of provision in the Netherlands and Denmark, and they could work here."

Notes to Editors

IPPR's new report - 'Defining ambitions: shaping pension reform around public attitudes' - will be available here: http://bit.ly/IPPR11684

IPPR held nine focus groups around Britain between August and November 2013 with over 60 people who were currently in employment.

IPPR's report 'Putting pensions to work: Economic easing and the role of pensions in promoting growth' is available here: http://www.ippr.org/publications/55/8365/putting-pensions-to-work-economic-easing-and-the-role-of-pensions-in-promoting-growth