Defined Contribution  

Govt to consult on collective pension schemes in autumn

Govt to consult on collective pension schemes in autumn

The government will launch a formal consultation on collective defined contribution (CDC) schemes in the autumn, the pensions minister has revealed.

In a written statement to Parliament, Guy Opperman said collective forms of pension saving offered "interesting new possibilities" and the Department for Work and Pensions (DWP) was working through proposals to create the first CDC schemes in the UK.

Mr Opperman said this was part of an "ambitious programme of work" to "transform" the pensions landscape which included strengthening the powers of The Pensions Regulator.

CDC pension funds differ from defined contribution pensions because they do not produce individual pension pots. Instead they invest savings in a large collective pot which provides an income in retirement.

They also differ from defined benefit plans because do not guarantee a particular income in retirement and instead have a target amount they will pay out based on a long term, mixed risk investment plan.

The Pension Schemes Act 2015 passed by the coalition government referred to CDC schemes but the secondary legislation to create them was never introduced.

Royal Mail is currently working with the DWP on the changes needed to introduce CDC schemes in the UK after reaching an agreement with the Communication Workers Union to set up a collective scheme for its employees, which was given approval by workers in April.

The agreement included the closure of its DB pension fund to future accrual on 31 March 2018.

The postal company welcomed the announcement of a consultation, which a spokesman said was an important step towards allowing Royal Mail to offer a CDC scheme for its 141,000 employees.

He added: "As the provider of around one in every 190 jobs in the UK, Royal Mail is committed to delivering the best possible pension arrangements for our people.

"Royal Mail and the CWU hope the legislation required to enable CDC pensions will be introduced at the earliest opportunity."

In July, the Work and Pensions select committee urged the government to facilitate the creation of CDC schemes, after an inquiry on the topic.

FTAdviser reported in May there were several companies interested in setting up CDC schemes if the legislation was passed to allow this.