Dutch-style "collective pensions" or CDC schemes can at best deliver 30 per cent higher pensions but at worst could merely transfer liabilities onto succeeding generations. The proposal, unveiled in the Queen's Speech, follows hard on the heels of the radical budget which scrapped compulsory annuities and gave over-55s the freedom to take their DC (non-final salary) pensions as cash.
But unlike the budget blueprint, said to have been a last-minute initiative by chancellor George Osborne, the CDC plan is the latest in a string of pensions changes piloted by LibDem pensions minister Steve Webb.
Andrew Pennie, marketing director at Intelligent Pensions in Glasgow, said: "Steve Webb, who has achieved much in his time as pensions minister, is the driving force behind CDC schemes and there is no doubt the CDC initiative will take years to implement. Unfortunately however, Steve Webb is unlikely to be in government after the next election and one wonders how this initiative will develop without his passion and involvement."
Steve Bee, one-time pensions guru at Scottish Life and founder of Jargon-Free Benefits, said: "I'm confused by the Queen's Speech. On the one hand the government clearly understand that DC pot owners will value more control over their pension savings. On the other they recognise that collective funds may offer some level of certainty of pension outcomes, albeit without any guarantees, and that also might appeal to some people. Should employers offer two schemes, one based on individual pots and the other on a collective pot?"
Mr Bee said: "Our pension system is already mind-bogglingly complex. Adding another different and alien strain of pensions to the two we already have will surely add to the problems ordinary people already have when they try to get their heads around pensions."
Alan Higham, head of retirement insight at Fidelity Worldwide Investment, said collective schemes "allow one generation of member to receive more pension, in the hope that future investment returns will ultimately justify the decision".
He warned: "Younger people may bear the cost in reduced future pensions should these judgments proved flawed and/or pensioners may see their income fall or in extremis see income clawed back."
Neil Lovatt, marketing director at Scottish Friendly, put it more bluntly, claiming that the government would be creating "a huge Ponzi scheme."
David Smith, financial planner at Bestinvest, said: "For collective pension schemes to work effectively you need economies of scale. However, the UK pension market is already extraordinarily fragmented and as a result, it is highly unlikely that such schemes will establish sufficient critical masse to work as well as they theoretically could."
Tom McPhail at Hargreaves Lansdown, said: "With the best will and skill in the world actuaries won't be able to distribute money fairly between generations, between social groups, and between individuals.
In particular CDC schemes will benefit the affluent, who tend to live longer than low-earning workers.
By contrast, the individual pension accounts we currently have in the UK allow individuals to buy enhanced annuities if they are in ill health, or have a lower life expectancy."
Mr McPhail said: " None of the employers we speak to are talking about CDC. They are talking about auto-enrolment, the impending charge cap, the impact of the Budget, and getting employees engaged. Meanwhile over in the Netherlands, employers are looking to the UK model of pension provision and wondering whether they should adopt our approach."
He said UK employers did not collaborate over pensions as they do in the more heavily-unionised Netherlands.
"Employers might be persuaded to embrace these schemes but ironically, the DWP has just abolished the commission and consultancy charging system which might have been used to pay the pensions industry to promote these schemes to employers."
Graeme Forbes, founder of Glasgow-based chartered financial planners Intelligent Capital, commented: "They are just as likely to go wrong as private pensions. I believe people want to make their own decisions."
However independent analyst and lobbyist Dr Ros Altmann said legislating to allow CDC schemes was "absolutely right". She went on: "It is important not to over-hype the potential benefits of such pension arrangements. But they can, indeed, offer better pension outcomes than pure DC and also are much more likely to be acceptable to employers than traditional DB (final salary)."
Dr Altmann said pension savers might well now prefer the freedoms offered by the Budget, but went on: "One of the biggest drawbacks of the current DC schemes is the high costs of management and administration and the poor range of investments offered. The industry should come up with more diversified investment options at lower cost to deliver better value over time."