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Securing Pensions in Turbulent Times

The RSA's project Tomorrow's Investor has explored how the millions of people who have pension savings would like the financial system of UK pensions to operate. The project has provided sure and evidence-based research and policies for future pension reform, including the basis for new collective pensions.

The UK is facing a pensions crisis. Too few of us are saving, and for those who do, the current system of individual pensions is not transparent and has high administrative costs. It is imperative to discover a more trustworthy pension system that provides better and more predictable outcomes.

Against this background, the RSA has been investigating what a fairer, cheaper and more accessible private pension system could look like. Our Tomorrow’s Investor reports argue for a radical change to our pension system.

The focus for the research came from a group of 'citizen juries' assembled by the RSA in order to find out how the millions of peple who have pension savings would like the financial system to operate.

The most common form of private pension today is based on a ‘defined contribution’ scheme that creates individual pots of money for each worker. The problem with this is that the saver does not know how much pension that pot of money will buy. Furthermore, the fees that are charged on these funds are not fully disclosed and transparency is poor.

When these schemes and their fee structures were explained to our citizen jurors, they felt the most pressing issue was to come up with more trustworthy pension system that provided better and more predictable outcomes to its members.

That search led the project to look at pension systems around the world, of which the Dutch and Danish systems have been rated the best for a number of years. There is no one perfect pension system, but the Dutch and the Danish systems understand two key issues. Pensions must have an effective system of saving and be able to work out how best to ensure that the saver will always have an income in retirement, no matter how long they live.

The RSA compared the outcomes of individual and collective pensions, all of which showed that collective defined contribution pensions would offer better results.

It was clear that a change in the law on pensions was necessary. To make this happen, there had to be a consensus amongst stakeholders, workers, consumers and employers. Since 2010, the RSA has been putting together a coalition of social partners to support what would be one of the most progressive changes to our pension system since the introduction of workplace pensions.

The support of the Confederation of British Industry, the Trades Union Congress, the National Association of Pension Funds, the Consumers’ Association and the Association of Member Nominated Trustees, has encouraged the government to introduce legislation to allow for collective pension arrangements to be set up in the UK. All three main political parties support the idea.