Collective Defined Contribution (CDC) pension schemes, first introduced to the UK in 2022, could potentially deliver reliable returns for savers, while ensuring more predictable costs for employers.
In a CDC scheme, both the employer and employee contribute to a collective fund. Like a defined benefit scheme, the collective fund pays scheme members an income in retirement. However, unlike in a defined benefit scheme, the employer does not guarantee the pensions paid by the scheme.
Following Chancellor Rachel Reeves’ recent visit to Canada to see how retirement schemes successfully pool contributions from employees into larger funds that are managed by investors, the UK Government is fast-tracking plans to modernise its own pensions system by broadening access to CDC schemes.
The consultation means industry experts, savers and pension providers can have their say on new proposals to extend the current offering of CDC pension schemes to more employers. The Government said expansion will deliver better value for money for future pensioners and unlock huge investment potential.
In Canada, the funds from pooled pension contributions are invested into a wider range of assets like infrastructure, start-ups and private equity – which can benefit the wider economy and boost returns.
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‘More predictable income and greater finance security’
Emma Reynolds, minister for pensions, said: “We are seizing this exciting opportunity to modernise our pensions market to deliver better outcomes for millions of workers.
“People work hard to put money aside for their pension with every pay cheque. This significant innovation will offer a more predictable income and greater finance security for future pensioners.”
Currently, only single or connected employers can set up CDC schemes, with the first scheme launched by the Royal Mail yesterday.
The Government is now seeking to broaden access further by allowing unconnected multiple employer schemes – making this pension model more accessible to a wider range of businesses and employees.
This work builds on plans to review the UK’s pensions landscape, as well as the new Pension Schemes Bill, which could boost pension pots.
Andy O’Regan, TPT Retirement Solutions client and strategic partnerships director, said: “The introduction of multi-employer whole-of-life CDC scheme regulations will be a landmark moment for UK pensions. Previously, CDC schemes had only been viable for the largest employers.
“These new rules will make it possible for all employers to provide their staff with a CDC pension scheme. We’ve already been speaking to around 200 employers who have expressed interest in how a CDC scheme could be delivered for their employees.”
The consultation will run for six weeks – opening today and running until 19 November 2024.
Related: Autumn Statement 2024: Chancellor urged to lock pension tax
