With the move expected to be formally announced in the Queen’s Speech on 3 June, the DWP said the decision stemmed from a recent industry consultation on the future of workplace pensions, the findings of which are set to be published “soon”.
It is understood that employees will be able to contribute to Dutch-style collective pension schemes in an effort to boost retirement income.
This is a departure from previous policy at the DWP which, in 2009, under a Labour government, claimed in a 52-page research report that Dutch-style CDC schemes could result in “unacceptable intergenerational unfairness” and “breach European legislation”.
In 2009, the DWP said that CDCs were too complicated, trustees could not manage the funds effectively and employers were concerned about potential financial liability on trustees.
When asked about the change of tact on CDCs a spokesman said it was unable to comment before the Queen made her speech at the opening of parliament, adding: “We have tried to make the scheme more attractive, working closely with the industry.”
Lib Dem pensions minister Steve Webb said: “We’ve already done much to make workplace pensions more attractive - but the UK can learn from other countries in taking this further.”
Under the changes, which are part of the Pension Bill, employers can offer collective pensions from as early as 2016, allowing people to pay into pension pots shared with other members, instead of individual saving schemes, giving “better value” for money.
Mr Webb said collective funds would have the resources to make higher-yield investments but spread the risk. He said the advantage was “pooling the risk” of pension investments performing worse than expected across large numbers of people.
But critics have argued that risks are higher and returns are not certain, with young members potentially subsidising older members of the collective.
Tony Clare, pensions advisory partner at Deloitte, said: “Dutch-style collective pensions offer benefits, but it’s also important to consider their drawbacks. For example, 55 out of 415 Dutch funds reduced pensions in payment in 2013 alone.
“Many Dutch pensioners have experienced falling standards of living as a consequence. Once a scheme member retires, the options to rebuild pension savings become more limited.”