Collective pension schemes backed by ministersGrouped funds tipped to boost retirement incomes

28 January 2014

Coins falling into pension pot

Workers could see a significant boost to their retirement incomes thanks to a controversial shake-up of the pensions system.

Pensions Minister Steve Webb is leading calls for the introduction of collective pension schemes, which have been known to produce returns more than 33 per cent higher than individual products.

The schemes, which are popular in EU states such as Denmark and the Netherlands, have been rejected by previous governments for being too risky. 

However, Mr Webb remains keen to give British residents the opportunity to pool their retirement funds collectively.

Go further: Read our beginner's guide to starting a personal pension fund

How do collective pension schemes work?

Collective pension schemes allow workers to place their contributions into a single fund, thereby sharing the risks and rewards of investment. 

Members' returns are based on the performance of underlying investments, making it harder for them to project their retirement income. 

Nevertheless, Mr Webb is convinced that these schemes will reduce costs for employers and significantly improve investors' returns. 

'Some of the best pension schemes in the world are run on a collective basis,' he said. 'I would like to see British workers have access to schemes run on this basis.'

State pension top-ups 

Mr Webb has also unveiled a scheme which will allow British residents to top up their state pension by buying additional National Insurance Contributions (NICs).

The scheme will be made available both to existing pensioners and those due to retire before the new flat-rate state pension is introduced on 6 April 2016.   

These individuals will be able to boost their state pension by up to £25 a week, depending on how much they invest. 

It has been suggested that those taking part will receive an additional £1 a week for every £900 they invest, although the exact figures are yet to be released.  

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