U.K. Starts Collective Pensions, Latest Savings Shakeup

The U.K. will introduce Dutch-style collective pensions that pool risks for members, the third change to laws governing the savings market and insurance companies administering the plans in as many months.

The Private Pensions Bill will allow “Defined Ambition” plans, “encouraging greater risk sharing between parties and allowing savers to have greater certainty about their retirement savings,” according to a speech read by Queen Elizabeth II in Parliament today.

“My government’s pension reforms will also allow for innovation in the private pensions market to give greater control to employees,” the Queen said.

The speech also said the Pensions Tax Bill will allow people over 55 to withdraw savings without the requirement to buy an annuity, as announced in Chancellor of the Exchequer George Osborne’s budget in March. That shakeup sent shares of insurers such as Legal & General Group Plc and Standard Life Plc tumbling at the time.

Insurance stocks were little changed after the Queen’s Speech, an annual event that outlines ministers’ legislative agenda. Standard Life slipped on June 2, after the collective pension plan had been reported in the Sunday Telegraph, amid concern that Scotland’s biggest insurer may have the most to lose from the change.

Earlier this year, the U.K. also capped the fees that pension funds are able to charge savers.

‘Bridge Too Far’

“We wonder whether the introduction of rules to allow collective defined contribution arrangements in the U.K. is a bridge too far for employers and the pensions industry,” given the other changes so far this year, Stephen Bowles, the head of defined contribution plans at money manager Schroders Plc, said in an e-mailed statement.

Standard Life, the U.K.’s largest provider of defined-contribution pensions by assets, rose 0.9 percent to 391.6 pence today after slipping 3 percent in the previous two days. Oriel Securities Ltd.’s Marcus Barnard reiterated his buy rating on Standard Life yesterday, saying that while the change was a potential burden to employers, the industry “has little to fear” from the plans.

Pensions Minister Steve Webb said on his department’s Twitter feed this week that the government could “learn from other countries.”

The Netherlands has the euro area’s biggest pension industry. The assets are held in collective plans run by industry, company and occupational pension funds. ABP, the biggest Dutch pension manager, runs more than 300 billion euros ($409 billion) in assets for teachers and civil servants.

Tony Clare, a pension advisory partner at Deloitte LLP, said Dutch-style collective pension funds have drawbacks as well as benefits, and can cut payments should deficits rise. In 2013, 55 out of 415 Dutch funds reduced their payouts, he said.

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