Pensions Bill introduces CDC legislation

The newly introduced Pensions Bill will include a legislative framework for the implementation of collective defined contribution (CDC) pension schemes, it has been confirmed.

Following its announcement in the Queen’s Speech earlier today (14 October), the bill states that it will be “providing a framework for the establishment, operation and regulation of collective money purchase schemes (commonly known as CDC pensions)”.

Its inclusion was expected and its confirmation will give companies another option when deciding which type of pension scheme they want their employees to enrolled in, if the bill successfully passes through parliament.

Royal Mail, which will adopt a CDC scheme for its employees, worked with the Department for Work and Pensions (DWP) and the Communications Workers Union (CWU) on the framework for CDC pensions.

Commenting on the announcement, a Royal Mail spokesperson said: “We welcome the announcement of the Pension Schemes Bill today. If the bill is passed, this will enable CDC pension schemes under UK law, for the first time in the UK.

“The announcement of the bill puts us one step closer towards making CDC a reality for Royal Mail and its people. We have worked closely and jointly with CWU at all levels on this important issue and will continue to do so.

“We are grateful to DWP and the Pensions Minister for their hard work in securing this bill.”

AJ Bell senior analyst, Tom Selby, said that communication would be “absolutely key” to ensuring that people understand the nuances of CDC schemes.

“The Pensions Bill proposes legislation which should eventually allow new CDC schemes to be introduced in the UK,” he said.

“Versions of these schemes, which sit somewhere between old-style defined benefit arrangements and more modern DC plans, have been introduced in other countries, to varying degrees of success.

“Royal Mail has pledged to shift its members to a CDC scheme once the rules are in place, although there has been little sign of significant demand from other employers.”

He warned, however, that although CDC schemes target a certain level of pension, it would not be guaranteed.

“Members could see cuts in their benefits even after they have started drawing an income from the fund. Such benefit reductions were experienced in the Netherlands and sparked vociferous protests from those affected.”

Aon head of UK retirement policy, Matthew Arends, called on the government to continue with the development of CDC regulation.

He stated: "We have long been strong advocates of permitting CDC in the UK and it is refreshing to see this country being in the vanguard of global pensions innovation.

"Having said that, we expect this to be phase 1 of CDC, which will enable single employer plans.

“We call on the government not to stop here, but to press on with phase 2, enabling multi-employer and commercial CDC plans. This will enable all UK retirement savers to take advantage of a pension for life with a fixed cost."

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