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

VIDEO
Life & Style
Father and son: Michael Williams with son Edmund
lifeAs his son’s bar mitzvah approaches, CofE-raised Michael Williams describes the unexpected joys he’s experienced in learning about his family’s other faith
Arts & Entertainment
Ian Anderson, the leader of British rock band Jethro Tull, (right) and British guitar player Martin Barre (left) perform on stage
musicJethro Tull frontman leads ‘prog rock’ revival
Sport
Gareth Bale dribbled from inside his own half and finished calmly late in the final to hand Real a 2-1 win at the Mestalla in Valencia
sport
Arts & Entertainment
Who laughs lass: Jenny Collier on stage
comedy... writes Jenny Collier, the comedian whose recent show was cancelled because there were 'too many women' on the bill
News
House proud: keeping up with the Joneses now extends to children's playhouses
newsLuxury playhouses now on the market for as much as £800
News
news
Life & Style
Stir it up: the writer gets a lichen masterclass from executive chef Vivek Singh of the Cinnamon restaurants
food + drinkLichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines
Extras
indybest
Arts & Entertainment
Ken Loach (left) and Mike Leigh who will be going head to head for one of cinema's most coveted prizes at this year's Cannes Film Festival
filmKen Loach and Mike Leigh to fight it out for the Palme d'Or
News
The academic, Annamaria Testa, has set out on her website a list of 300 English words that she says Italians ought to stop using
newsAcademic speaks out against 'Italianglo' - the use of English words in Italian language
Life & Style
tech
Finacial products from our partners
Property search
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    1st Line Helpdesk Engineer Apprentice

    £150.00 per week: QA Apprenticeships: This company has been providing on site ...

    Telesales & Sales Support Apprentice

    £221.25 per week: QA Apprenticeships: This company is a well established Inter...

    Client Relationship Manager - SQL, Python

    £40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...

    **Financial Services Tax**

    £35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...

    Day In a Page

    How I brokered a peace deal with Robert Mugabe: Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC

    How I brokered a peace deal with Robert Mugabe

    Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC
    Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'

    British Muslims's Happy video attacked as 'sinful'

    The four-minute clip by Honesty Policy has had more than 300,000 hits on YouTube
    Church of England-raised Michael Williams describes the unexpected joys in learning about his family's Jewish faith

    Michael Williams: Do as I do, not as I pray

    Church of England-raised Williams describes the unexpected joys in learning about his family's Jewish faith
    A History of the First World War in 100 moments: A visit to the Front Line by the Prime Minister's wife

    A History of the First World War in 100 moments

    A visit to the Front Line by the Prime Minister's wife
    Comedian Jenny Collier: 'Sexism I experienced on stand-up circuit should be extinct'

    Jenny Collier: 'Sexism on stand-up circuit should be extinct'

    The comedian's appearance at a show on the eve of International Women's Day was cancelled because they had "too many women" on the bill
    Cannes Film Festival: Ken Loach and Mike Leigh to fight it out for the Palme d'Or

    Cannes Film Festival

    Ken Loach and Mike Leigh to fight it out for the Palme d'Or
    The concept album makes surprise top ten return with neolithic opus from Jethro Tull's Ian Anderson

    The concept album makes surprise top ten return

    Neolithic opus from Jethro Tull's Ian Anderson is unexpected success
    Lichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines

    Lichen is surprise new ingredient on fine-dining menus

    Emily Jupp discovers how it can give a unique, smoky flavour to our cooking
    10 best baking books

    10 best baking books

    Planning a spot of baking this bank holiday weekend? From old favourites to new releases, here’s ten cookbooks for you
    Ricky Gervais: 'People are waiting for me to fail. If you think it's awful, then just don't watch it'

    Ricky Gervais: 'People are waiting for me to fail'

    As the second series of his divisive sitcom 'Derek' hits screens, the comedian tells James Rampton why he'll never bow to the critics who habitually circle his work
    Mad Men series 7, TV review: The suits are still sharp, but Don Draper has lost his edge

    Mad Men returns for a final fling

    The suits are still sharp, but Don Draper has lost his edge
    Google finds a lift into space will never get off the ground as there is no material strong enough for a cable from Earth into orbit

    Google finds a lift into space will never get off the ground

    Technology giant’s scientists say there is no material strong enough for a cable from Earth into orbit
    Westminster is awash with tales of young men being sexually harassed - but it's far from being just a problem in politics

    Is sexual harassment a fact of gay life?

    Westminster is awash with tales of young men being sexually harassed - but it's far from being just a problem in politics
    Moshi Monster creator Michael Acton Smith: The man behind a British success story

    Moshi Monster creator Michael Acton Smith

    Acton Smith launched a world of virtual creatures who took the real world by storm
    Kim Jong-un's haircut: The Independent heads to Ealing to try out the dictator's do

    Our journalist tries out Kim Jong-un's haircut

    The North Korean embassy in London complained when M&M Hair Academy used Kim Jong-un's image in the window. Curious, Guy Pewsey heads to the hair salon and surrenders to the clippers