A new type of pension scheme delivering reliable returns – and potentially boosting retirement incomes for millions – will soon become a reality after regulations were laid in Parliament, the UK’s Department for Work and Pensions (DWP) announced this week.
The new Collective Defined Contribution (CDC) pension will see both the employer and employee pay into a collective fund, with pensions paid out from this shared pot, it said.
Benefits of the new scheme include that it offers predictable costs for the employer, and is more resilient against economic shocks, such as those caused by the pandemic.
Guy Opperman, minister for pensions, said: “We have seen the positive effect of these schemes in other countries – and it is abundantly clear that when they are well-designed and well-run they have the potential to provide a positive outcome for savers, and can be resilient to market shocks.”
Currently all pensions are either defined benefit (DB), linked to salary or length of service, or defined contribution (DC) where pensions are based on how much savers pay in.
The move also paves the way for the launch of the CDC scheme that Royal Mail and the Communication Workers Union aim to introduce.
Regulations laid before Parliament on Wednesday, 15 December, will provide the foundation for CDC schemes to be introduced in Great Britain, DWP stated.
The regulations will help ensure that CDC schemes are set up and run well by providing clear criteria for The Pensions Regulator (TPR) to authorise and supervise them.
DWP will now continue to engage with a wide range of interested parties on how CDCs can be extended further, it said, adding that these parties include employers interested in establishing multi-employer CDC schemes and some master trusts.
Steven Taylor, a partner at LCP, has welcomed the new CDC regulations, provided they enable the Royal Mail scheme to set up quickly.
He has warned, however, that the government will need to be flexible to make sure that it isn’t a framework that works only for the Royal Mail scheme.
“It’s great that the government has now produced its initial framework for CDC. However, the proof of the pudding will now be not only in the successful emergence of the first scheme but also whether this helps to spur wider adoption.”
He added: “Given the lead times for groups to make such significant decisions, other companies will want government to now quickly pivot to meeting emerging demand from other organisations.”
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