Millions of workers could eventually benefit from better
retirement savings when a new type of pension scheme is
introduced to the market, under pioneering proposals
rubber-stamped by the Work and Pensions Secretary today.
backed plans for the first
Collective Defined Contribution (CDC) scheme in the UK
after the pensions industry, insurers and other bodies welcomed
the move proposed by Royal Mail and the Communication Workers
Union (CWU).
Work and Pensions Secretary said:
Introducing a completely new pension scheme to the market is
yet another revolutionary reform in this government’s quest to
transform the retirement saving culture in this country.
These pioneering proposals should deliver improved investment
returns for workers and savers while cutting costs and red tape
for British job creators.
The new type of pension is currently used in Denmark and the
Netherlands - 2 countries widely recognised as having among the
best pension systems in the world.
Any steps that result in better saving returns for workers are
something to celebrate and I look forward to working with
industry to enhance the prospects of millions of workers.
The benefits of CDCs are clear.
Members get more certainty in their retirement, with regular
pay-outs from their scheme. And unlike traditional final salary
pension schemes, those pay-outs aren’t affected if your employer
goes under.
CDC pension schemes
offer a regular retirement income by allowing group contributions
to be pooled together and invested to give members of the scheme
a higher final benefit level.
It also means much better long-term protections for members
because risk is shared.
The new schemes are expected to appeal to companies who want to
offer strong pensions provisions to employees without having to
hang on to enormous pension liabilities.
The government has worked closely with Royal Mail and the
Communication Workers Union (CWU) to develop the
proposals which went out to consultation in November.
Jon Millidge, Chief Risk and Governance Officer, Royal Mail,
said:
This is very welcome progress. Royal Mail and CWU have been
campaigning together to bring about this legislation, building
a cross-party alliance of supporters in both Houses of
Parliament as well as working with government.
We now look ahead to the next stage, and ultimately, delivering
the UK’s first CDC pension.
Terry Pullinger, CWU Deputy General
Secretary Postal, said:
The response to the consultation on these proposals, and the
degree of support from many key players, confirms our belief
that the pensions industry is in genuine need of scheme
innovation.
We are very proud and ready to be at the forefront of this
historic moment which we believe will make a major contribution
to offering future dignity and security in retirement for
decent working people.
Many of the more than 70 contributors to the consultation
on CDCs urged the
government to make the new type of scheme widely available,
including through multi-employer pensions and those run by
commercial Master Trusts – potentially reaching millions of
retirement savers.
The government has worked closely with Royal Mail and the
Communication Workers Union to develop the proposals which went
out to consultation in November.
The consultation response, due to be published today (Monday 18
March), confirms primary legislation will be brought forward to
introduce CDCs as soon as
parliamentary time allows.
Protections will be built into the system to ensure fairness for
both younger and older CDC pension scheme
members, the consultation response asserts. Trustees
of CDCs will be
required to spell out the potential for fluctuations in pay-outs
– depending on investment performance – to members at the outset.
The latest innovation builds on the success of automatic
enrolment, which has brought more than 10 million people into
workplace pensions since 2012, and the government’s backing of
industry to deliver pensions dashboards – capturing all someone’s
retirement savings information in one place.
