With job security becoming a thing of the past, make way for the portable pension pot

Patrick Collinson looks at Peter Lilley's idea for the pension plan of the future

A recent speech by Peter Lilley, the Social Security Secretary, will affect millions of people. It concerned pensions and the problem of how small employers can meet demands to provide some sort of retirement safety net for their staff.

Mr Lilley's touted solution is group personal pensions, which the Government now hails as the pensions answer for the 1990ss Though sold as the answer for people who hop between jobs, are they just another way for companies to cut costs and leave employees without a decent pension? GPPs are pensions offered by an employer but which belong to employees, who, ideally, can carry their "retirement pots" with them as they switch jobs.

Peter Lilley's speech marks an attempt to put GPPs firmly at the top of the pension agenda. But in the wake of the pounds 3bn personal pensions misselling scandal, are they the way forward for you?

Employers have a range of options when deciding what pensions to offer. In final salary schemes - the 'Rolls-Royce' of pension schemes - your pension depends on your pay at, or near, retirement.

With group money purchase schemes, sometimes known as 'defined contribution' plans - both employees and employers pay contributions, but your pension depends on how well the invested contributions grow and how much the investment will buy at retirement.

These have soared in popularity among employers, as they take away the risk that the employer will have to make up any shortfall if the pension investments do not grow rapidly enough. But they cannot offer a guaranteed pension of two-thirds of your retiring salary in the way that the best final salary schemes can.

Both these are generally too complex and expensive for small companies and are not suited to the new world of job mobility. If you leave your job, you will need to obtain a value of your pension on that date, then either transfer it to another scheme or leave it with your former employer and waituntil retirement for payment.

David Dunn, head of product marketing at pension specialist NPI says: "Many companies stick with their final-salary schemes in the belief that it is better for their employees, but is that necessarily the case? Changes in employment patterns mean that very few of us will stay with one company throughout our career.

"I suspect that the future is with group personal pension schemes. From an employee's perspective, it is about ownership and control - it is their pension plan and not the employer's."

Fans of GPPs say that not only are they a simple and portable answer to job mobility but that they also enable a small company to at least offer some sort of pension where none previously existed. In doing so they also give small employers an extra tool to attract and retain key staff.

Yet the opponents of GPPs are numerous, and many fear a new wave of mis- selling matching the individual personal pension mis-selling scandal. Chief among their concerns is whether an employer will use a GPP as an excuse to cut the costs of pension provision.

Typically final salary and money purchase schemes offer a contribution from employers of at least 5 per cent of salary, with a similar amount put in by the employer. Anyone offered a GPP should check that their employer is putting money into the scheme, and at a decent rate. A 2 per cent contribution makes a GPP a very poor relation of final salary schemes.

GPPs also place investment choices firmly in the hands of the individual. Employers setting up a GPP usually use an independent adviser, but the level of advice and service to the employee varies sharply according to the fee the employer pays. Penny-pinching companies may be tempted to go for a cut-price option that leaves employees without sufficient advice.

GPPs have a role to play for smaller companies and for skilled workers and professionals happy to hop between job contracts. Longer-term employees barred entry to a final salary scheme and offered a GPP instead may find that rather than taking control over their pension they have added yet another layer of insecurity to their lifestyle.

But for millions of others, whose employers have been unwilling to make any contribution towards their retirement, a GPP may seem ideal. As long as they can persuade their boss to set one up in the first place.

Patrick Collinson is editor of Money Marketing, a weekly newspaper for independent financial advisers.

Start your day with The Independent, sign up for daily news emails
Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm tomorrow
Arts and Entertainment
Mark Wright has won The Apprentice 2014
tvThe Apprentice 2014 final
Arts and Entertainment
X Factor winner Ben Haenow has scored his first Christmas number one
music
News
i100
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
news
Arts and Entertainment
James May, Jeremy Clarkson and Richard Hammond in the Top Gear Patagonia Special
tv
News
File: James Woods attends the 52nd New York Film Festival at Walter Reade Theater on September 27, 2014
peopleActor was tweeting in wake of NYPD police shooting
News
Claudia Winkleman and co-host Tess Daly at the Strictly Come Dancing final
people
Extras
indybest
News
peopleLiam Williams posted photo of himself dressed as Wilfried Bony
Sport
Martin Skrtel heads in the dramatic equaliser
SPORTLiverpool vs Arsenal match report: Bandaged Martin Skrtel heads home in the 97th-minute
Finacial products from our partners
Property search

Simon Read: The point of having protection insurance? The right cover can help reduce your financial concerns at a time of extreme worry

In May Nicola Groves got a massive shock. The 45-year-old mother of two was told, bluntly, that she had breast cancer. "When I heard the words, 'You do have breast cancer and you are going to lose your breast', I felt as if time stood still," she says.

Mark Dampier: Maybe boom, maybe bust, but we'll probably just muddle along

It's that time again when the media looks back over the past year and forward to the next. I am reminded of an old film, The Day the Earth Caught Fire (1961). Near the end of the film a newspaper prints two headlines – which one it uses will depend on whether the world is saved or doomed.

Sainsbury’s sank 7 per cent to 234p; Tesco fell 3.2 per cent to 180.2p ; and Morrisons dropped 5 per cent to 159.9p

Money Insider: Supermarkets: the real challenger banks

The supermarket banks have always excelled at offering simple, no nonsense products, and savings accounts is another area in which they fare well

Pat and Richard Astbury at their home in Norton Canes, Staffordshire. They have benefitted from the Community Energy Project aimed at helping council tenants with their energy bills. They have had solar panels installed.

Locals in Staffordshire to save hundreds after new council-backed project to install solar panels

The sun is shining on people who struggle to heat their homes and it’s thanks to a sense of community

Gross household debt reached a historic high of around 160 per cent of combined incomes in 2007

Simon Read: Give people struggling with debt some breathing space

Struggling people need help, understanding and forbearance, not ill-thought-out pronouncements

A person walks through the City of London during the early morning rush hour in London

Simon Read: Caught up in the scandal about leaks at the regulator

You won’t find me bashing the banks for the sake of it, but sadly they’ve deserved all the criticism that’s been sent their way in recent years

There were around 750,000 victims of mobile phone theft in England and Wales last year, according to official figures

Money alert: Stolen mobile phones

Gillian Guy, chief executive of Citizens Advice: 'The injustice of shock bills for crime victims must end. The Government must stand up for consumers and cap bills from lost or stolen phones at £50'

Indian workers boil sugarcane juice to make jaggery, a traditional cane sugar, at a jaggery plant in Muradnagar, Uttar Pradesh's Ghaziabad district

Mark Dampier: A hot investment story is taking shape as India lets the light in

Stirring the pot: the Indian Government’s reforms of labour rules offer hope of a brighter future for businesses 

An AA patrol man helping a woman whose scooter had broken down.

Bargain hunter: Whisk up those leftovers instead of just throwing them in the bin

Knight of the road, look out: you’ve got a new rival 

How to raise money for charity this Christmas

There are so many ways you can raise money - and awareness - for charity. Rob Griffin explains how easy it is to donate and reap financial rewards

Simon Read: The Chancellor has stamped on an unfair tax. But will the delight of homebuyers mean misery for others?

Were you surprised by the sudden reform of the rules for stamp duty on property purchases? I certainly was. I've been calling for ages for a change in the tax to make it more fair – and, at a stroke, George Osborne did just that on Wednesday in his Autumn Statement.

Santander, whose ads have been fronted by the Olympic gold medallist Jessica Ennis-Hill, was among the banks where there were potential pitfalls with shared licences

Best savings rates are not all they might seem

Consumers can sometimes think they are shopping around for a rewarding account when in one important aspect, writes Samantha Downes, they are not
The sunlit uplands: switching out of a final salary pension may seem like madness, but there could be cases where it makes sense

Gold-plated pensions – the key to retirement freedom?

With some people are weighing up whether they will be better off cashing in their final salary pension next spring, Samantha Downes asks the experts

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

    Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

    $200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

    Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

    $125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

    Sheridan Maine: Commercial Finance Manager

    Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Sheridan Maine: Regulatory Reporting Accountant

    Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Day In a Page

    The week Hollywood got scared and had to grow up a bit

    The week Hollywood got scared and had to grow up a bit

    Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

    Panto dames: before and after

    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
    Thirties murder mystery novel is surprise runaway Christmas hit

    Thirties murder mystery novel is surprise runaway Christmas hit

    Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
    Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

    Anne-Marie Huby: 'Charities deserve the best'

    Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
    The botanist who hunts for giant trees at Kew Gardens

    The man who hunts giants

    A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
    The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

    The 12 ways of Christmas

    We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
    Birdwatching men have a lot in common with their feathered friends, new study shows

    The male exhibits strange behaviour

    A new study shows that birdwatching men have a lot in common with their feathered friends...
    Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

    Famous diaries: Christmas week in history

    Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
    From noble to narky, the fall of the open letter

    From noble to narky, the fall of the open letter

    The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
    A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

    A Christmas ghost story by Alison Moore

    The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'
    Marian Keyes: The author on her pre-approved Christmas, true love's parking implications and living in the moment

    Marian Keyes

    The author on her pre-approved Christmas, true love's parking implications and living in the moment
    Bill Granger recipes: Our chef creates an Italian-inspired fish feast for Christmas Eve

    Bill Granger's Christmas Eve fish feast

    Bill's Italian friends introduced him to the Roman Catholic custom of a lavish fish supper on Christmas Eve. Here, he gives the tradition his own spin…
    Liverpool vs Arsenal: Brendan Rodgers is fighting for his reputation

    Rodgers fights for his reputation

    Liverpool manager tries to stay on his feet despite waves of criticism
    Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

    Amir Khan attacks the Taliban

    'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
    Michael Calvin: Sepp Blatter is my man of the year in sport. Bring on 2015, quick

    Michael Calvin's Last Word

    Sepp Blatter is my man of the year in sport. Bring on 2015, quick