Will you go Dutch with your pension?

Dutch flag

Employees will be able to save for their pension in Dutch-style collective funds, under plans unveiled by the government.

The changes, which could be introduced by 2016, would allow workers to pay into funds with thousands of others, pooling their risk and theoretically lowering the costs associated with the fund, thus giving a higher return.

Ministers say the move to collective defined contribution schemes could give better value than current defined contribution schemes, though returns cannot be guaranteed.

Find the best pension funds available on your selected pension platform

Stable outcomes

Will Aitken, senior consultant at Towers Watson, added that the move wasn't necessarily about improving pension funds but creating more stable outcomes. "Collective defined contribution is sometimes presented as a magic wand that can make everyone better off in retirement but the government has never been convinced of that," he said.

"Instead, it hopes it can make pensions less of a lottery, rather than making them bigger on average."

The Private Pensions Bill was one of two pension bills unveiled during the Queen's Speech at the State Opening of Parliament in early June.

The other, the Pensions Tax Bill, will implement reforms to annuities announced in Chancellor George Osborne's Budget in March, which allow people to draw their retirement income out in one go.

The change will mean no one with a defined contribution pension will have to buy an annuity with their pension pot, which would guarantee an income for life.

The moves have received a mixed response from industry experts, with some praising the greater choice available to those approaching retirement age, while others are unhappy with the raft and speed of changes the government is introducing.

Alan Hingham, head of retirement insight at Fidelity Worldwide Investment, said: "Customers we speak to are totally confused by their choices, which leads to paralysis of action that benefits few."

More about