UK Government Urged to Effectively Define Defined Aspiration

8 February 2012 (PLANSPONSOREurope.com) – UK government will have to effectively communicate the idea of “defined aspiration” if it is to be introduced as a third way for the UK pensions industry, Dutch pension delivery organisation APG has told PLANSPONSOR Europe.

The Telegraph reports that UK Pensions Minister Steve Webb will launch a consultation on a series of measures including “defined aspiration” which aims to bridge the gap between defined benefit and defined contribution schemes. The idea is a central plank of Dutch pensions reforms announced last year.

A spokesperson for APG told PLANSPONSOR Europe: “The pure DC system doesn’t work as hoped for. The experience in Holland has shown that a pure DB system with an ageing population is too costly. That is why in Holland we are moving towards a new pension contract that gives people the option to choose between the more guaranteed DB plan and the more risky aspirational plan where markets go well and investments go well pensions can grow in real terms but on the other hand people are aware that if there are setbacks it can influence the level of their pension benefits.

“The pension system in various European countries varies. Holland, the UK and Denmark have similar systems whereas in the rest of Europe it is more of a pay as you go system. What have you seen in broad terms is the pendulum has swung from pure DB which has proven just too costly than to a pure DC in the US and the UK but that seemed like a good option especially for employers but in the end it turns out it has the potential of leaving individual pensioners bereft.

“So you see the pendulum moving towards the centre – that is a trend that you are seeing in more places. You could call what we have in Holland especially where we are heading for now an aspirational system.

“The main element here is the communicating to pension participants that it is aspirational and not guaranteed because in Holland we now find out that people have for years perceived the aspirational part as a guaranteed high pension and are now disappointed that market setbacks can mean low indexation of pensions and even pension cuts. That is something people would not have expected a couple of years ago. An aspirational system only works if participants know what it means.”

 For more on the Dutch pension reforms see our country report on the Netherlands in our upcoming Spring edition.

PLANSPONSOREurope Staff
editors@plansponsoreurope.com