Government consults on pooled workplace pensions

A new type of workplace pension is set to become available in the UK after the Department for Work and Pensions (DWP) launched a consultation on collective defined contribution (CDC) pension schemes.

At present, there are two main choices for workplace pensions: defined benefit (DB), which offers savers a guaranteed level of income when they retire, such as a final salary pension, and defined contribution (DC), where an individual pays into an account, their contributions are invested, and the value of the pension pot can go up or down depending on how the investments perform.

These days, most new workplace pensions are DC schemes. In a recent report on FTSE 100 pension schemes, actuarial firm LCP noted that in 1993 "virtually all" FTSE 100 companies offered traditional final salary schemes to new employees, but by 2018 "not a single one does".

However, DC schemes mean that the individual employee bears the risk of how well their investments perform and how much money they will end up with in retirement.

Now, there is growing interest in CDC schemes, which are seen as being halfway between DB and DC pensions. Already used in the Netherlands, CDC pension schemes pool savers' investments, spreading the investment risks across thousands of employees, and there is a target for what each saver will receive on retirement.

They have been pioneered in the UK by Royal Mail and the Communication Workers Union.

The Work and Pensions Select Committee recently recommended that the government should act quickly to legislate to allow such schemes.

Pensions minister Guy Opperman said: "CDC pension schemes are an important innovation which will provide more choice and flexibility for pension scheme members and employers. I'm grateful to Royal Mail and the Communication Workers Union for their assistance in getting us to this point.

"It is important we get this right which is why we're consulting on the detail of our proposals before bringing legislation forward."

The consultation is open until 16 January 2019 and the DWP said it hoped to legislate for CDC schemes in England, Wales and Scotland "as soon as Parliamentary time allows".

A new type of workplace pension is set to become available in the UK after the Department for Work and Pensions (DWP) launched a consultation on collective defined contribution (CDC) pension schemes.

At present, there are two main choices for workplace pensions: defined benefit (DB), which offers savers a guaranteed level of income when they retire, such as a final salary pension, and defined contribution (DC), where an individual pays into an account, their contributions are invested, and the value of the pension pot can go up or down depending on how the investments perform.

These days, most new workplace pensions are DC schemes. In a recent report on FTSE 100 pension schemes, actuarial firm LCP noted that in 1993 "virtually all" FTSE 100 companies offered traditional final salary schemes to new employees, but by 2018 "not a single one does".

However, DC schemes mean that the individual employee bears the risk of how well their investments perform and how much money they will end up with in retirement.

Now, there is growing interest in CDC schemes, which are seen as being halfway between DB and DC pensions. Already used in the Netherlands, CDC pension schemes pool savers' investments, spreading the investment risks across thousands of employees, and there is a target for what each saver will receive on retirement.

They have been pioneered in the UK by Royal Mail and the Communication Workers Union.

The Work and Pensions Select Committee recently recommended that the government should act quickly to legislate to allow such schemes.

Pensions minister Guy Opperman said: "CDC pension schemes are an important innovation which will provide more choice and flexibility for pension scheme members and employers. I'm grateful to Royal Mail and the Communication Workers Union for their assistance in getting us to this point.

"It is important we get this right which is why we're consulting on the detail of our proposals before bringing legislation forward."

The consultation is open until 16 January 2019 and the DWP said it hoped to legislate for CDC schemes in England, Wales and Scotland "as soon as Parliamentary time allows".

Posted on November 12th 2018

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