Plans to ‘modernise pensions market’ set out by Government
The Government has laid out plans to expand access to a new type of pension scheme that allows savings to be pooled in order to offer a more predictable income and greater security for future pensioners. Collective Defined Contribution (CDC) pension schemes have been identified as having the potential to provide dependable returns for savers while ensuring more predictable costs for employers, according to the Government.
CDC schemes are being positioned as an additional option alongside Defined Contribution (DC) schemes, where individuals bear the retirement savings risk, and Defined Benefit (DB) schemes, which promise a specific income in retirement based on salary. DB schemes have been on the decline, being replaced increasingly by DC pensions.
By pooling employer and employee contributions into a single fund, CDC schemes spread out risk and have the potential to deliver a more stable pension income based on collective investment performance. This also allows schemes to invest more in growth assets, supporting the country’s economic growth mission.
Minister for Pensions, Emma Reynolds, expressed enthusiasm for the opportunity to modernise the pensions market to benefit millions of workers. The consultation on expanding CDC schemes to unconnected multiple employer schemes seeks input from employers, industry experts, pension providers, and the public on draft regulations and potential impacts.
Currently, only single or connected employers can establish CDC schemes, with the aim to make them more accessible to a wider range of businesses and employees. The consultation will run for six weeks until November 19, covering England, Scotland, and Wales, with corresponding legislation expected in Northern Ireland.
Nausicaa Delfas, Chief Executive of the Pensions Regulator, highlighted the potential for multi-employer CDC pension schemes to enhance outcomes for pension savers and urged industry participation in the consultation process. Similarly, John Ball, Chief Executive of the Church of England Pensions Board, welcomed the proposal, anticipating a positive transformation in retirement plans for Church employees.
The UK Government intends to introduce legislation in 2025 to implement these plans, with a focus on improving the pension landscape and securing financial futures for workers across the country.