This government is backing the introduction of a new kind of pension in the UK. Our consultation on collective defined contribution pension schemes launched this month.
This is an opportunity to provide an alternative way to support members in retirement, and we should take it. We are working very closely with the initial proposers, the Communications Workers Union and the Royal Mail, to ensure this is a scheme that benefits members and the employer.
Introducing a new product to the pensions market needs to be done properly
A different way forward
Since its introduction in 2012, auto-enrolment has truly been a game-changer. Through this flagship policy, we have transformed the pensions prospects of almost 10m people in just six years.
Traditionally, workers’ pensions in large organisations have been through defined benefit schemes. And while the system is working well for most employers, it is clear that others are looking for a different way forward.
Royal Mail fits into this category. And it has come to an agreement with the CWU, whereby they see the CDC pension as the way ahead.
Government has sat down with both organisations and has carefully considered the conditions that need to be in place in order to introduce CDCs successfully.
This CDC innovation, which pools workers’ investments into one pot, has a number of benefits for employees and employers alike.
For employees, pooling resources means members share the investment risk, providing additional security. This leads to more stable pension incomes, at a lower cost, than in traditional defined contribution schemes.
And for employers, the flexibility of pay-outs from such schemes will reduce costs and risks compared with DB schemes.
Royal Mail and the CWU have been instrumental in getting us to this point. I am very grateful to them for their commitment to this cause.
We all want the optimum outcome for one of the country’s best known businesses. And we want a great retirement package for the tens of thousands of postal workers employed by Royal Mail, who provide a vital service to our communities up and down the country.
Building on the success of AE
Other employers will no doubt be watching these developments closely and thinking about whether CDCs could be the right option for them.
Introducing a new product to the pensions market needs to be done properly – and that is why we are consulting to make sure we get it right. I am clear that any new scheme needs to be based on sound foundations, so that both employers and employees have the protections they need.
In the consultation launched this month we explore the possibilities of CDC pensions, and the necessary legal framework to ensure these schemes are regulated appropriately. We welcome contributions from all corners of the pension and investment industries.
The government believes that we can build on the huge success of auto-enrolment in the personal retirement space, reform DB for those who want to continue down that path and pioneer CDCs as an alternative option for the likes of Royal Mail and its employees.
This is a real opportunity to effect lasting change, building the public’s trust in pensions as they look ahead to brighter futures.
Guy Opperman is minister for pensions and financial inclusion
