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

Voices
On the last day of campaigning before the polling booths open, the SNP leader has written to voters in a final attempt to convince them to vote for independence
voicesIs a huge gamble on oil keeping the First Minister up at night?
Sport
A 'Sir Alex Feguson' tattoo
football

Arts and Entertainment
Liam Neeson said he wouldn't
tv

Liam Neeson's Downton dreams

Voices
voicesApple continually kill off smaller app developers, and that's no good for anyone
PROMOTED VIDEO
Arts and Entertainment
Ben Whishaw is replacing Colin Firth as the voice of Paddington Bear
tv

Thriller is set in the secret world of British espionage

Life and Style
life

News
ScienceGallery: Otherwise known as 'the best damn photos of space you'll see till 2015'
Travel
travelWhy Japan's love hotels are thriving through an economic downturn
Life and Style
fashion

Bomber jacket worn by Mary Berry sells out within an hour

Life and Style
Alexander McQueen A/W 2014
fashionPolitics aside, tartan is on-trend again this season
Arts and Entertainment
Rapper Jay Z performs on the Pyramid Stage at Glastonbury in 2008
musicSinger sued over use of the single-syllable sample in 'Run This Town'
Sport
Joel jumps over the board...and into a giant hole
footballFrom joy to despair in a matter of seconds
News
i100
Arts and Entertainment
Pointless host Alexander Armstrong will voice Danger Mouse on CBBC
tv

Much-loved cartoon character returns - without Sir David Jason

Arts and Entertainment
Meera Syal was a member of the team that created Goodness Gracious Me
tv

Actress to appear in second series of the hugely popular crime drama

Finacial products from our partners
Property search
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

    SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

    £320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Head of Audit

    To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

    Audit Manager Central Functions

    To £85,000 + banking benefits: Saxton Leigh: You will be expected to carry out...

    Credit Risk Audit Manager

    Up to £90,000 + benefits: Saxton Leigh: Credit Risk Audit Manager required to ...

    Day In a Page

    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    Exclusive extract from Janis Winehouse's poignant new memoir
    Is this the role to win Cumberbatch an Oscar?

    Is this the role to win Cumberbatch an Oscar?

    The Imitation Game, film review
    England and Roy Hodgson take a joint step towards redemption in Basel

    England and Hodgson take a joint step towards redemption

    Welbeck double puts England on the road to Euro 2016
    Relatives fight over Vivian Maier’s rare photos

    Relatives fight over Vivian Maier’s rare photos

    Pictures removed from public view as courts decide ownership
    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    Donatella Versace at New York Fashion Week