The Department for Work and Pensions (DWP) has announced that it will not be taking any further action on collective defined contribution (CDC) schemes, a response to its consultation on risk sharing from December 2008.

In the consultation, the DWP said it would undertake further work on whether and how a potential new approach, that of CDC, could operate in the UK. However, the conclusion was that although modelling suggested this new approach could provide better and more predictable outcomes for individuals, a risk of 'unacceptable intergenerational unfairness' and of breaches of European legislation was a feature.

"We must ensure that members of pension schemes have appropriate protection," said a DWP spokesperson. "Although we found that the drawbacks of collective defined contribution schemes were too great, companies are already using a wide variety of existing risk sharing options.

"Our rolling deregulatory review has aimed at both reducing burdens and introducing simplification measures, targeted specifically at reducing the cost of provision and protection for members."

The DWP added that a priority for this review had to be that any new proposals would work for employers and members.

The announcement has been met with disappointment in the industry, with Nigel Peaple, director of policy at the National Association of Pension Funds (NAPF), commenting that the Government's decision to close off one potential option that could have preserved some aspects of the rapidly disappearing defined benefit (DB) pension.

"This makes it all the more important that the Government presses ahead with other policies to promote risk-sharing in both DC and DB. The worst possible outcome would be for the DWP's 'Deregulatory Review' to dismiss all the options one by one until we end up back where we started," Peaple added.

The Trades Union Congress (TUC) added that the CDC option should be explored further. Kay Carberry, TUC assistant general secretary, said: "Individual savers face big risks as they bear all the costs of the volatility of both investments and annuity rates. This is why there is a growing interest in collective approaches to DC pensions - which could offer more to members than DC schemes based on individual accounts - from all sides of the pension debate.

"While we may not be able to simply transfer the Dutch model to the UK, we do need to explore a collective approach that works in the UK.

"The role of trustees, which the TUC believe should be at least 50 per cent member-nominated, and employers paying adequate contributions will be vital in a collective DC approach," Carberry added.

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