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Savers could boost the size of their pension pots by one third, if the government was to act now to enable collective defined contribution schemes in Britain, an RSA report has found.

Collective Pensions in the UK II, which has the support of the CBI, TUC, NAPF and AMMT, concluded that UK regulation has resulted in individual defined contribution schemes becoming the only option available, with savers suffering as a result.

View the Collective Pensions in the UK II report

It warned that with “defined benefit” pensions ‘withering away’, a new framework was urgently needed if people are to enjoy a good standard of living in retirement.

The report said that the DWP must take immediate steps to enable collective pensions in Britain, or our retirement system will become little more than a ‘tax advantaged private savings plan’.

Examining how collective pensions have performed over the past 57 years, the RSA’s Tomorrow’s Investor project in collaboration with Aon Hewitt found that collective saving would have given UK investors a 33 percent better outcome, and a more predictable outcome than saving as an individual.

Collective pensions are commonplace in Denmark, the Netherlands, and parts of North America. Given that we spend 6.5 percent of our GDP annually on private pensions, the move from individual to collective saving would have a considerable positive impact on national welfare, equivalent up to 2 percent increase in GDP, the report found.

Commenting on the report, head of the RSA Tomorrow’s Investor project, David Pitt Watson said:

“With the right choices the young people of this country could be enjoying pensions which are 30 percent higher than those they will otherwise be entitled to. With the wrong decisions, our retirement system will be little more than a tax advantaged private savings plan.”

“The message is clear: united we stand, divided we fall. It will be through encouraging the growth of well governed, collective pensions that the UK will finally have a framework for private pension provision that is fit for purpose.

Commenting on the report, the RSA’s Dr Hari Mann said:

“The creation of collective defined contribution pension schemes, which allow for a sharing of risk that is impossible in conventional DC schemes, will greatly boost pensioners’ living standards. It is unacceptable that these, more effective pensions, which are available to Dutch and Danish citizens are effectively illegal in this country. British pensioners should not become the poor man of Europe.”

Further Details of the Report

Written using research conducted by Aon Hewitt, one of the world’s leading actuarial companies, the report compared what would have actually happened in the past 57 years to savers who had decided to provide for their retirement through a collective or an individual pension. The report found that:

  • On the best like-for-like comparison, a collective pension would on average have outperformed an individual pension by 33 percent

  • That in 37 of the past 57 years, a collective pension would have outperformed individual DC pensions.

  • That the variability of the pension, and thus the risk the saver would have taken, would be lower with a collective rather than an individual pension.

With the government’s position on collective pensions currently under review, the report concludes that now is an excellent time for the DWP to create a framework that allows for collective saving, enabling employers and employees to be given a wider range of choice in the type of pension they have available.

Today’s report follows the RSA’s 2012 investigation into collective pensions which concluded that Collective Defined Contribution schemes:

  • Are the natural replacement for Britain’s DB pension system and remain the best long term solution for preserving adequate pensions while avoiding employers being faced with potentially unsupportable pension liability

  • Can help support investment in UK infrastructure through the increased investment in illiquid assets that collective pensions allows

  • Require good governance and appropriate regulation in order to work, including strong trustee management. Those who establish and run collective pensions must limit the profit they take from them

  • Need an adequate number of participants to begin the ‘collective’ and as such small employers may find less value from the approach

View the Collective Pensions in the UK II report

Notes to editors

  1. For more information contact RSA Head of Media Luke Robinson on 020 7451 6893 or 07799 737 970 or

  2. David Pitt Watson is an Executive Fellow in Finance at the London Business School, the founder of Hermes Equity Ownership Service, the largest shareholder stewardship programme of any fund manager in the world.


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