Proposals to introduce collective defined contribution (CDC) schemes in the UK will be set out in detail in the coming weeks, Guy Opperman has promised.
Speaking at the Trade Union Congress (TUC) Pensions Conference last week, the minister for Pensions and Financial Inclusion (pictured) confirmed that the government intends to proceed with legislation for the new types of schemes, after a consultation on their implementation closed in January.
CDC pension funds differ from defined contribution (DC) pensions because they do not produce individual pension pots.
Instead they invest savings in a large collective pot which provides an income in retirement to its members.
They also differ from defined benefit (DB) plans because do not guarantee a particular income in retirement and instead have a target amount they pay out based on a long-term, mixed-risk investment plan.
The Pension Schemes Act 2015, passed by the coalition government, included a provision for the creation of CDC schemes but the secondary legislation to create them was never introduced.
Pressure to act came as Royal Mail is already working with the DWP on the changes needed to introduce CDC schemes after it reached an agreement with the Communication Workers Union to set up a collective scheme for its employees after closing its DB scheme.
Mr Opperman said: "CDC has the potential to open up new avenues for employers and their workforces to develop the best pension arrangements for their individual circumstances.
"The positive and constructive way that the Communication Workers Union (CWU) and Royal Mail have worked [on CDC schemes] is an important lesson to us all about how the best can be achieved."
In the meantime, Paul Masterton, Conservative MP for East Renfrewshire, has withdrawn his ten-minute rule motion and private member’s bill on this matter, after he received assurances from the minister on the progress of the introduction of CDC schemes, the DWP stated.
Steven Cameron, pensions director at Aegon, said: "It was never in doubt that the government would proceed with the legislation needed to allow the Royal Mail and the Communication Workers Union to proceed with its proposed scheme.
"We hope that the consultation responses will have proved helpful in identifying the many issues that need addressed to protect members of this scheme and of any others set up in future.
"This will require full consideration of security issues, how to address fairness across cohorts of members and how to frame communications so that members including auto-enrolees understand the specific features of CDC."
Among the issues considered by the government in its consultation were whether CDC scheme members should be able to transfer out in the decumulation stage and, if so, what methodology should be used to calculate transfer values to balance individual rights against collective longevity pooling benefits.
It also sought views on whether CDC transfers should be subject to a financial advice requirement above a certain threshold.
maria.espadinha@ft.com
