The UK government has launched a consultation today to explore the expansion of Collective Defined Contribution (CDC) pension schemes, offering an innovative solution for securing retirement income for workers. This consultation aims to gather input from employers, industry professionals, and the general public regarding the potential benefits and implementation of expanding access to CDC schemes across more businesses.
Understanding Collective Defined Contribution (CDC) Pensions
Introduced in 2022, Collective Defined Contribution (CDC) pension schemes combine employee contributions into a pooled fund that is collectively managed, allowing for a more predictable income for retirees. Unlike traditional pension schemes, CDCs provide a shared risk model, which could lead to greater returns while ensuring more stability in pension income. The government now seeks to expand the reach of these schemes, allowing more workers to benefit from this model, especially in the face of rising economic uncertainty.
Global Inspiration: Canada’s Success with Pooled Pension Funds
The government’s interest in expanding CDC schemes is partly influenced by successful examples from Canada. There, pooled pension contributions are invested in a broad range of assets, such as infrastructure and private equity, contributing to higher returns. The UK government now aims to replicate this approach by allowing larger pools of funds to be invested for greater returns, benefitting UK workers and boosting the national economy.
Emma Reynolds, Minister for Pensions, Comments on the Expansion
Emma Reynolds, Minister for Pensions, emphasised the importance of this opportunity for UK workers:
“By modernising the pensions market, we aim to provide millions of workers with a more secure and predictable income in retirement. This consultation opens the door for innovative changes that will improve outcomes for workers across the country.”
Expanding Access to CDC Pensions
At present, only single or connected employers can establish CDC schemes, with the Royal Mail being the first to launch a scheme under these conditions. The government is now proposing to extend access to unconnected multiple employers, significantly broadening the scope of CDC schemes. This expansion would allow a wider range of employees across different industries to take advantage of the security and benefits these pensions offer.
Consultation and Future Legislative Plans
The consultation, which runs until 19 November 2024, invites feedback on draft regulations that would enable multiple unconnected employers to join together to offer CDC pension schemes. The government anticipates that this shift will provide more financial stability for workers and enable greater pooling of funds for investment, which could stimulate economic growth and increase returns.
Industry Leaders Support CDC Expansion
Industry figures have expressed strong support for the proposed changes. John Ball, CEO of the Church of England Pensions Board, commented: We are pleased to see the publication of draft regulations that support the establishment of multi-employer CDC schemes.
Andy O’Regan, Client & Strategic Partnerships Director at TPT Retirement Solutions, stated:
“These new regulations will make CDC schemes viable for a broader range of employers, enabling more workers to benefit from the financial security they offer. The potential for higher returns and a stable income in retirement is significant.”
The Road Ahead for CDC Pensions
The government aims to introduce new legislation in 2025, subject to parliamentary approval, with the hope of establishing the expanded CDC pension model shortly thereafter. By pooling risks, these schemes are positioned to deliver more reliable returns, supporting the government’s broader economic growth ambitions while offering better retirement outcomes for UK workers.