Tag: Personal accounts

Pauline Skypala

Pension saving is too expensive. According to a report from the Royal Society of Arts, up to 40 per cent of pension savings disappear in fees and costs under the UK’s current system of private pension provision.

Personal accounts, the national scheme to be rolled out in the UK from 2012, are designed to tackle this problem. People will be automatically enrolled into the scheme, removing the marketing and selling costs that have helped make personal pensions so expensive.

But the £3,600 annual limit on contributions to personal accounts is too low, says the RSA report.

Pauline Skypala

There is a chart in a new report from the World Economic Forum that should give anyone designing a pension plan pause for thought. It shows what a lottery defined contribution pensions can be, with Japan a particularly good example.

Based on certain assumptions, the chart (on page 48 of the report) shows a hypthetical Japanese worker retiring just before 1990 would have enjoyed retirement income equivalent to 60 per cent of earnings after contributing 5 per cent a year for 40 years investing in a 60/40 combination of domestic equities and bonds. But the unlucky one retiring 10 years later would have had to survive on 10 per cent.

Pauline Skypala

Legal & General Investment Management has commended the investment consultation paper from the Personal Accounts Delivery Authority to trustees of defined contribution pension schemes. It offers a level of insight “unparalleled in terms of quality and depth” and has the advantage of being free, says Ian Richards, head of DC strategy at LGIM.

Personal accounts will become the benchmark by which other DC schemes will be measured, he says.

It is encouraging to see life companies, which have dominated the DC market in the UK, taking an interest in Pada’s paper. There is much work to be done on designing default funds that have potential to offer reasonable return without high volatility and on the way retirement income is delivered.

Some life companies have already started down this path, but judging by a recent meeting I had with Scottish Life, have yet to work out how to communicate the benefits of their products effectively.

I was hopelessly confused by the presentation by two gents from Scottish Life, who wanted to tell me about their clever pension plans supposed to resolve the governance problems of contract-based DC plans, where no-one is looking after the interests of the members of the scheme.

The plans have some modern features, including a risk-profiling tool, multi-asset portfolios, rebalancing, and a lifestyle overlay that starts working 15 years before retirement. But they are designed to appeal to independent financial advisers rather than scheme members, and it shows.

Too many bells and whistles, I concluded, and some features that just seemed odd, such as moving the fund entirely into cash if a member wants to buy an annuity at retirement rather than draw an income from investments. Where is the protection against annuity rates moving to a member’s disadvantage in that? The aim is to maximise the real value of the pension pot at retirement, was the answer. I was none the wiser.

Maybe when IFAs have to be paid fees for their advice rather than taking commission from life companies, it will be what customers need that takes priority. Having to measure up to the personal accounts benchmark should also force a rethink.

Pauline Skypala

Blue-sky thinking needed

Blue-sky thinking needed

The designers of the UK’s new personal accounts, the national pension scheme to be rolled out from 2012, have a great opportunity to shape the way pensions are delivered in future. They could challenge the pensions industry to come up with new ideas and indulge in blue sky thinking.

Or they could stick with standard industry products and hope they work. That seems to be the preferred approach of the respondents to the Personal Accounts Delivery Authority’s consultation on how to provide retirement income.

Pauline Skypala

saving for retirement

Warning: saving for retirement

The work being done on the design of personal accounts is shining some much needed light into dark and murky corners.

Take the paper published this week by the Department for Work and Pensions on guaranteed investments and their suitability for inclusion as an investment choice within Britain’s new national pension scheme.

Written by David McCarthy of Tanaka Business School and based on economic modelling, it concludes there is zero demand for guaranteed investment products where guarantees are priced using financial techniques commonly used by banks that sell financial guarantees.

About the blog

FTfm is no longer updated but it remains open as an archive.

FTfm's specialist writing team offer their insights into the global fund management industry.

About the authors

Pauline Skypala has been editor of FTfm for four years having previously been deputy personal finance editor. She joined the FT in 1999 and has been writing on savings and investment issues throughout her career.

Steve Johnson, FTfm deputy editor, has been a journalist for 17 years, 10 of which have been with the FT.


Sophia Grene, reporter on FTfm, has been a financial journalist in print and online for 12 years.

Ruth Sullivan has worked as a financial/business journalist and foreign correspondent and for the past 10 years has been at the FT.

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