The Department for Work and Pensions (DWP) have announced a new type of pension scheme will, as of August 1st. The Collective Defined Contribution pension schemes (CDCs) differs from the existing UK pension schemes, Defined Contribution (DC) and Defined Benefit (DB), as they aim to provide greater returns for retirement funds. This will also aim to provide more accurate costs for employers.
The news follows the Pension Schemes Act of 2021 and has been greeted with positivity with many sectors exploring the possibility of different CDC variations.
These include Nigel Peaple, Director Policy & Advocacy, PLSA, who has said:
“The PLSA supports innovation within the pensions sector where it improves people’s retirements. CDC blends some of the desirable elements of Defined Benefit (DB), such as clearer target outcomes for the saver, and of Defined Contribution (DC) schemes, such as predictable contributions for the employer and member. By pooling longevity risk and the ability to invest money over a longer period, CDC has the potential to provide new and better approaches for benefit provision.
There are, of course, challenges, including how to ensure savers understand the variability of benefits, and ensuring new models can deliver in practice once reserving and regulation is in place. Nevertheless, we are confident that this ambitious proposal will provide the incentive and momentum to overcome them.”
The DWP have been encouraged by the schemes reception, and have laid plans for talks later this year to expand the current CDC model. They aim to help bring the potential benefits of the new pension scheme to more across the UK.
Minister for Pensions, Guy Opperman, said:
“CDC schemes have the potential to transform the UK pensions landscape.
We have seen the positive effect of these schemes in other countries, and it is abundantly clear that, when well designed and well run, they have the potential to provide a better retirement outcome for members, and can be resilient to market shocks.
I have no doubt that millions of pension savers will benefit from CDCs in the years to come.”
