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Pensions minister Emma Reynolds expects fresh legislation for collective defined contribution (CDC) schemes to be laid next year – but they are not expected to feature “directly” in the pensions bill.
Speaking at an event marking the recent launch of Royal Mail’s CDC scheme – the first of its kind in the UK – the pensions minister talked up CDC’s potential for improving retirement outcomes as well as the role that it is hoped it will play in the government’s economic growth agenda.
“CDCs offer an innovative solution,” she said. “By sharing investment and longevity risks, CDCs are able to smooth market volatility and provide savers with a predictable income in retirement.
“When we look at the experience in Canada and the Netherlands, we see funds from pooled pension contributions are invested into a wider range of assets like infrastructure, green technology startups and private equity, which can boost returns and benefit the wider economy.”
Earlier this year, chancellor Rachel Reeves met with Canadian pension bosses to help inform the government’s thinking on how scaling pensions can drive greater domestic investment.
Reynolds emphasised the importance of an appropriate regulatory framework for CDC in the UK.
The government launched a consultation in October seeking views on extending its CDC regime beyond single and connected CDC schemes to unconnected multiple employer CDC schemes. The consultation closes on November 19.
“We have learned the lessons of excessive cross-subsidisation that has been experienced elsewhere,” Reynolds said.
The minister said that the “exact timetable” for authorising these schemes depends on the issues raised in the consultation.
“The regulations will be presented to parliament for approval as soon as we are able to,” she said. “Our intention is to bring the legislation and an updated regulator’s code into force as soon as practical after that.”
When pressed, the minister said that “the plan would be to introduce legislation next year”.
CDC schemes “don’t feature directly in the pensions bill”, Reynolds said, adding that “we envisage that they will have a role to play in our consolidation aims and in our proposals to require schemes to offer retirement products”.
Reynolds was asked whether CDC is an option that should be available to all at retirement.
“I think that remains to be seen, that is something that I think we’ll need to look at in the round,” she responded.
Further reading
Can CDC help fix a ‘broken’ DC system? (9 October 2024)
Church of England eyes CDC as consultation launches (8 October 2024)
CDC: Making progress towards a collective goal (29 May 2024)
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