Julian Knight: A 'defined ambition' is worthless if it turns into shattered dreams

 

Steve Webb, the pensions minister, is a clever man; a professor no less. But sometimes academics can theorise too much, isolating themselves from the real world. Prime example of this is Professor Webb's "defined ambition" pension proposal.

The minister would like to see a new type of pension available to British workers, where returns aren't entirely subject to the ups and all-too-often downs of the stock market, but instead have a degree of performance guarantee, with the provider being given far more flexibility in how they pay for this. For example, the pension scheme might choose to pay a guaranteed pension but could alter the date of payment either forwards or backwards according to how the scheme's investments perform.

The idea came to the minister from the Netherlands, but having spoken to pension experts over there, I can reveal that the flexibility, if it apes the Dutch system, could go further than Department for Work and Pensions officials have owned up to.

Under the Dutch model, some schemes can adjust the pensions of those actually in retirement. This is crucial and disturbing. Think of it this way: you retire on an income of £10,000 a year but then the stock market crashes – as it has done three times in the past 25 years. The scheme then decides that in order to keep itself on an even keel your pension will have to be cut by, say, £2,000. That's two grand you're short which you have budgeted for getting, and your only choices will be to suck it up, use your savings or go back to work.

Whatever the ways in which defined ambition schemes choose to balance their books, the idea in essence amounts to one thing: the conversion of workplace pensions into giant with-profits funds. Now with-profits as a concept has been a busted flush for a decade – the legendary smoothing of returns so often doesn't happen – and here we have the pensions minister recommending we port over this concept for workplace schemes.

The world has also moved on. Having spent the past decade closing final salary schemes, how are employers going to be persuaded to enter an even more complex arrangement? What's more, the Government's new Nest scheme offers them a much simpler, lower-cost way to provide a pension, one which I anticipate they will move current employees to in droves, cutting benefits in the process. The minister's idea may have had a fighting chance circa 2002 but not now, I'm afraid.

 

Energy 'new deal' ignoresthe real issue

We had an early entry for PR Spin of the Year last week with Nick Clegg's claim to have slashed our energy bills by on average £100 a year. Hooray for not-so-calamity Clegg; at this rate even the nation's students may be persuaded to forgive the leader of the Lib Dems and Deputy Prime Minister.

But then the reality of Clegg's deal with the big six energy providers becomes apparent. The £100 figure was plucked from the air because all that has been agreed is that the providers will in future write to their customers and tell them if there is a cheaper tariff available. This, of course, will be used to market payment by direct debit – which is cheaper per unit but can lead to a whole world of pain for the customer, with companies overestimating, overcharging and then, holding on to the cash.

Clegg's new deal is nothing more than window dressing and doesn't go anywhere near the heart of the issue, which is that our market is a six-way monopoly with the providers strongly suspected of massive price collusion. Last week's "great breakthrough" for consumers was all style and no substance, like Mr Clegg himself.

Independent Partners: 10 top tips for retirement. Get your free guide here

Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

    £24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

    Ashdown Group: Business Analyst - Financial Services - City, London

    £50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

    SThree: Trainee Recruitment Consultant

    £18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

    Day In a Page

    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
    How to survive a social-media mauling, by the tough women of Twitter

    How to survive a Twitter mauling

    Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
    Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

    At dawn, the young remember the young

    A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

    Follow the money as never before

    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
    Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

    Samuel West interview

    The actor and director on austerity, unionisation, and not mentioning his famous parents
    General Election 2015: Imagine if the leading political parties were fashion labels

    Imagine if the leading political parties were fashion labels

    Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence
    Public relations as 'art'? Surely not

    Confessions of a former PR man

    The 'art' of public relations is being celebrated by the V&A museum, triggering some happy memories for DJ Taylor
    Bill Granger recipes: Our chef succumbs to his sugar cravings with super-luxurious sweet treats

    Bill Granger's luxurious sweet treats

    Our chef loves to stop for 30 minutes to catch up on the day's gossip, while nibbling on something sweet
    London Marathon 2015: Paula Radcliffe and the mother of all goodbyes

    The mother of all goodbyes

    Paula Radcliffe's farewell to the London Marathon will be a family affair
    Everton vs Manchester United: Steven Naismith demands 'better' if Toffees are to upset the odds against United

    Steven Naismith: 'We know we must do better'

    The Everton forward explains the reasons behind club's decline this season
    Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

    Michael Calvin's Last Word

    Praise to Wenger for having the courage of his convictions