Shadow Pensions Minister backs introduction of Collective DC schemes

The Labour Shadow Minister for Pensions Alex Cunningham has voiced his support for the introduction of collective defined contribution (CDC) schemes, noting it is a “better financial solution”.

Speaking at a PLSA Trustee Conference today, 6 December, Cunningham explained that the proposed scheme would be a “more appropriate vehicle to provide [members with a] monthly income for life”.

Cunningham went on to suggest that CDC schemes may be the solution to deliver better returns for savers. As a result the Minister said he is “happy” that the Work and Pensions Committee is looking to review this type of scheme in the coming year.

It was noted that the move from defined benefit to defined contribution schemes is largely at risk of not providing the same income and retirement lifestyle, therefore, CDC schemes may be a better option. “The move [from DB to DC] has been a move from efficiency to inefficiency, from security to insecurity.”

“We know that collective schemes are cost efficient, much life DB schemes used to be.. Expensive annuities don’t need to be purchased… and risk to members are shared collectively, avoiding a sink or swim of individual DC schemes,” Cunningham said.

To put this type of scheme into practice, Cunningham suggested that the government-backed Nest is “ideally placed” to bring CDCs to the market.

“CDC schemes will provide a better financial solution for hundreds of thousands of ordinary working people. When it comes to retirement policy, people need more from the government…decisive action is needed to guarantee a secure and dignified retirement”.

While the Minister acknowledged that some of the industry are not in favour of CDCs, Cunningham quoted information he has seen recently that 55 per cent of the industry are open to the idea or sure of it.

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