1. The decline of defined benefit pension schemes

There is currently turmoil in the area of financial services and pensions in the UK. This is largely caused by the decline in defined benefit (DB) occupational pension schemes. What should replace them?

Occupational pension schemes are being replaced to some extent by personal and stakeholder pensions, which are not occupational pension schemes. ^x The First Report of the Pensions Commission says that there are "22 million contracts in place" of which 10 million receive tax relief, that is contributions are being made. (page 256) It can be seen from the above diagram that this is more than the number of members of occupational pension schemes. There are about 25 million private sector employees. ^x

Funds looked after as a business as are those of personal and stakeholder pensions rather than by trustees like occupational pensions, are almost always subjected to excessive charges. There are both explicit and hidden charges. This is an above-the-surface below-the-surface problem, which is of course a very general problem. It is for example the reason for the demise of Equitable Life. It seemed sound but below the surface was steadily accumulating a large deficit.

Much of the cost of the long-term savings industry results from excessive activity especially: contract proliferation, excessive portfolio turnover of investment funds, funds moving between different management companies.

Personal pensions were supposed to be portable between jobs. Adair Turner chairman of the Pensions Commission says that on the contrary changing employers results in "contract proliferation":

"There are huge costs created in personal and group personal pension selling and administration as a result of contract proliferation - people with existing pension contracts opening new contracts at a new employer, rather than simply receiving employer contributions into the pre-existing scheme." (Speech to the Investment Management Association on 25th May ^x )

"Pensions system fails job-hopping Brits." ^x

The Sandler Review ^x says that "the proliferation of products" is "a feature of the UK retail savings industry" which "compounds consumer confusion". (3.13) This kind of proliferation is desribed by the FSA as "innovation". The First Report of the Pensions Commission ^x refers to "contract proliferation" (page 243). This is a different kind of proliferation. It is new contracts or policies because of changing circumstances such as changing jobs and retirement, or simply increasing the premiums. Proliferation is not just "a feature of the UK retail savings industry". To a large extent it is the industry.

3. Peripatetic funds

"MORE than £200bn of savers' money in insurance companies has changed hands in recent years - and the savers have had no say at all in what happens to their investments." ^x

We have "personal peripatetic pensions" rather than "personal portable pensions". You don't take them with you, but they nevertheless move around. Personal and stakeholder pensions are not a good replacement for occupational pension schemes.