‘Flat rate’ pension tax break would provide relief

Not for the first time, I find myself both agreeing and disagreeing with Martin Wolf on pensions policy (Opinion, November 25).

I agree people should be encouraged to save more, but this should be done by moving to a “flat-rate” pension tax break set to be neutral for the Treasury, at say 30 per cent, not by any compulsion.

I disagree that there is any magic in “collective defined contribution”. It produces exactly the same investment returns as defined contribution, because CDC “target pensions”, including pensions in payment, move up or down each year as the value of assets changes, just as DC savers move their “target pension” up or down.

And if CDC is such a good idea why has only one company — Royal Mail — introduced it, six years after it was first announced? Royal Mail’s CDC is structured as a transfer from younger staff to older staff — not a good recommendation. I also agree that company defined benefit pensions have been closed because they became unaffordable, as people lived longer, and real interest rates plummeted.

Companies then moved from holding equities to bonds in their defined benefit pension schemes not because of any “bleats”, but to match their liabilities to pay pensions. Reducing risk in their pension scheme means they can take on more debt to invest in their real businesses.

And more companies are going the whole hog, and transferring their DB pensions to specialist insurers, such as Pension Insurance Corporation, which in turn invest billions in UK infrastructure, exactly what the government wants.

John Ralfe
Hognaston, Derbyshire, UK