MPs have urged the government to facilitate the creation of collective defined contribution (CDC) schemes after an agreement on a potential blueprint was reached earlier this year.
In a report published today (16 July) the Work & Pensions select committee set out how such a scheme could work for employers and their staff and called on the government to implement a swift timetable for their creation.
The committee said CDC schemes should be governed by a board of trustees and be authorised and supervised by The Pensions Regulator.
These should be required to publish their benefit calculation rules and funding position and strategy at least annually.
The MPs also called on the government to consult on benefit adjustment and risk sharing policies, and on the regime for transfers out of CDCs, including whether they should be permitted once pensions are in payment and whether members transferring out should have to take financial advice.
Another idea mooted was whether CDC scheme trustees should be required to have a specific qualification.
Frank Field, chair of the committee (pictured), said: "The idea of a ‘new beveridge’ has been overused and under-delivered during most of the welfare state’s life.
"But the report published today by the select committee offers that opportunity for pensions: how to combine decades of individual pension ownership and provision with collective security.
"The report centres on collective defined contribution schemes specifically in relation to the breakthrough at Royal Mail."
Royal Mail and the Communication Workers Union (CWU) reached an agreement to set up the UK’s first CDC scheme for workers in January, which was given approval by postal workers in April.
The agreement included the closure of its defined benefit (DB) pension fund to future accrual on 31 March 2018.
CDC schemes differ from defined benefit pensions in the sense that they do not guarantee certain incomes in retirement.
Instead, CDCs have a target amount they will pay out, based on a long term, mixed risk investment plan.
These schemes also differ from the traditional defined contribution plans, since they do not produce individual pension pots. Instead they invest savings in a larger collective pot, which provides an income to individuals during their retirement.
The Pension Schemes Act 2015 created by the coalition government defined CDC as a distinct pension category, but secondary legislation to bring them into effect was never introduced.
In its report, the committee called the Royal Mail agreement "ground breaking" and said it could "transform the UK pensions landscape".
The government has already indicated it will seek to enable CDC for Royal Mail in a way which will allow other companies to follow suit.
But pensions minister Guy Opperman told the committee in March that changing the underlying legislation was complex and there was still a long way to go to achieve this.
Some critics have said the collective approach of CDC ran counter to the spirit of pension freedoms, which gives everyone the right to spend their pension pot in any way they wish from age 55, subject to certain tax charges.