Collective Defined Contribution Pension Schemes:Written statement - HLWS1391

Department for Work and Pensions
Made on: 18 March 2019
Made by: Baroness Buscombe (The Parliamentary Under Secretary of State, Department for Work and Pensions)

Collective Defined Contribution Pension Schemes

My Right Honourable Friend, The Secretary of State for Work and Pensions (The Rt. Hon. Amber Rudd MP) has made the following Written Statement.

Today the Government publishes our response to the consultation on Delivering Collective Defined Contribution Schemes.

The UK has a world-class occupational pension system. But there is always opportunity for further innovation and improvement to ensure pensions work for their members, who deserve security in retirement. The Government believes that Collective Defined Contribution (CDC) pension schemes can be a key part of this.

CDC schemes are a new type of pension scheme. In a CDC scheme, like Defined Contribution (DC), contributions are paid into a fund. Unlike DC, these funds are pooled, and at retirement, individual members receive a regular pension income from the fund. This income will be based on the value of their contributions and savers will save towards a ‘target’ benefit whose value will depend on the fund’s performance.

The CDC approach increases investment leverage for savers, and helps members secure a regular income in retirement at lower cost. For employers, CDC, like DC, provides stability and predictability in their obligations to the pension scheme. Therefore, CDC helps improve retirement outcomes for members whilst also benefitting employers.

In that spirit, Royal Mail and the Communication Workers Union have proposed a CDC pension scheme in the belief that this will be advantageous to both the employees and the business. This is a start and will provide a firm footing for further innovation in pensions.

We set out our proposed approach for providing for CDC schemes in our consultation document Delivering Collective Defined Contribution Pension Schemes, including requirements for CDC schemes to operate with systems and approaches that ensure sustainability, transparency and effective communication. Intergenerational fairness must be at the heart of CDC schemes. All this will be underpinned by a requirement for CDC schemes to be authorised by the Pensions Regulator. Government is grateful for the constructive comments and broad support our proposals received. Also, many responses, from trade unions, master trusts, and other pension providers, expressed a desire to see more people benefiting from the advantages that CDC can bring. They urged us, in time, to extend CDC to other parts of the pensions market.

Pension reforms in recent years have transformed pension saving in this country, whether it is auto-enrolment or the new state pension. The creation of CDC schemes is part of an ambitious reform of private pensions schemes, the pensions regulator and the way that savers interact with their savings through improved information and guidance. This means people can prepare for retirement with confidence. We will provide more options for employers to ensure that scheme members can adequately save for retirement and to better protect their income in later life.

As part of these reforms we intend to bring forward legislation to facilitate single and associated employer CDC provision as soon as Parliamentary time allows, and consider further what other provision would be appropriate for the future.

This statement has also been made in the House of Commons: HCWS1422

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