A consultation to extend Collective Defined Contribution pension provision has been launched by the Department for Work and Pensions.
The DWP explained that, following a recent trip by Rachel Reeves to Canada to observe its pension system, the UK government is fast-tracking plans to modernise its pension system by broadening access to CDC schemes.
Industry experts, savers, and pension providers have now been invited to have their say on proposals to extend the current offering of CDC pension schemes to more employers, delivering better value for money for future pensioners.
Minister for Pensions, Emma Reynolds, 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.”
CDC schemes provide an alternative to traditional defined benefit (DB) and defined contribution (DC) pension schemes and see member and employer contributions pooled in a collective fund from which an aspired to pension income for life is drawn.
The DWP explained that, in Canada, the funds from pooled pension contributions are invested into a wider range of assets like infrastructure, startups, and private equity, which it argued could benefit the wider economy and boost the economy.
It added that extending CDCs could similarly allow for greater return on investment for those saving into the schemes and allow for larger investment in the UK thereby supporting the government’s growth mission to boost the economy.
Outlining the current CDC landscape, the DWP explained that, at the moment, only single or connected employers can set up CDC schemes, with the first scheme recently launched by Royal Mail.
Building on the “significant” appetite from the industry for extending CDC provision, the government is now seeking to broaden access further by allowing unconnected multiple employer schemes, making the model more accessible.
This work builds on plans to review the pensions landscape as well as the Pension Schemes Bill which could boost pension pots.
The consultation will run until 19 November 2024.
David Brooks, head of policy at Broadstone, said: “Today’s consultation and the rhetoric from the pensions minister suggests CDC will be a core pension policy for the current government. They seem clear that CDC could be an answer to many of the issues in the current pension system – including greater investment in the UK economy – and are looking to replace the reliance on individual defined contribution pots with pooling of collective pots.
“However, if CDC is to gain a foothold in the UK’s pension provision, then there has to be an allowance for unconnected employers to work together. If not, CDC will remain the domain of only the very largest employers.
