Steve Berridge: If you can anticipate 10% regular per annum returns, you are going to be far happier giving larger chunks of your earnings towards pensions
Government needs to start ‘supercharging’ pension returns in a bid to improve the value of defined contribution (DC) schemes, IFGL Pensions technical manager Steve Berridge says.
Berridge said whichever political party forms the next government would have a "future timebomb" on its hand with inadequate private pension provision via DC schemes.
He said one of the key issues we have is that DC schemes provide "woeful investment returns" and therefore do not encourage members to invest more of their money.
Berridge added that part of the problem was the culture of regulation which exists in UK pensions – with a number of high-profile due diligence claims involving high risk investments meaning that most providers now only permit "vanilla" investment choices.
He said the Conservative government had started some debate in the area of investment – encouraging larger DC schemes to invest in more illiquid areas such as start-ups and non-listed companies.
Berridge also pointed towards Australia, which he said "led the way" in this area through superannuation schemes, which are "huge investors" in large capital projects, such as the M6 Toll Road.
He said: "In the UK we have always shied away from wealth creation, but somehow the government needs to start supercharging pension returns. I mean, if you are a private investor and you can anticipate 10% regular per annum returns, you are going to be far happier giving larger chunks of your earnings towards pension provision. By contrast, the current real-world returns projected on most DC annual statements make many feel ‘why do I bother'."
Berridge added: "There is definitely a ticking timebomb with UK pension provision, as things stand and future generations are at risk of pension poverty unless we have some radical thinking from government. Unlocking investment returns is a way to start improving the value of those DC schemes."
This article was published as part of Professional Pensions' PP Pensions Commission – which is looking to bring together industry opinion and ideas on the future of pensions ahead of the general election on 4 July.
Send your thoughts and ideas to the PP Pensions Commission via email to [email protected].
