Exclusive: Another important step towards a ‘third way’ for pension savers

People saving for retirement shouldn’t have to choose between security and affordability. With the introduction of a new pension type, we can help millions of savers find the right balance and bring a new injection of innovation into the pensions sector.

Collective defined contribution (CDC) pension schemes will offer a ‘third way’ for employers and savers, from 1 August this year.

We’ve seen these schemes work overseas in countries such as the Netherlands and Canada, and I’ve been making the case for some time that well-designed and well-run CDC schemes have the potential to provide a positive retirement outcome for savers.

These new schemes offer an alternative to the status quo by combining a reliable income in retirement for members with predictable costs for the employer, as well as building in more resilience against economic shocks.

Their collective nature means that investment and longevity risks are shared across the whole membership. As these schemes provide an income for pensioner members, they also eliminate the potential risk associated with having complex financial decisions at the point of retirement.

Following our consultation last year, we have continued to engage with a wide range of interested parties on how CDCs can be extended beyond the single or connected employer schemes we are currently legislating for.

At this stage I am willing to discuss any potential model of CDC that parties want to explore.

It was a pleasure to speak today at the Royal Society of Arts, Manufactures and Commerce’s CDC Forum.

I hope this work will help inform the consultation we plan to undertake later this year on potential options for extending the scope of CDC provision to bring the potential benefits to more members.

I truly believe that this new type of pension provision will be more sustainable for employees and employers alike and has the potential to offer better outcomes for savers.

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