DWP 'minded to assist' Royal Mail CDC plans but offers no 'bespoke legislation'

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The government is "minded to assist" any collective defined contribution (CDC) proposal that may arise from Royal Mail and the Communication Workers Union (CWU), Guy Opperman has said.

However, as "there is only person in the queue at this moment", the Department for Work and Pensions (DWP) will not proceed solely for the postal firm and its workers.

Instead, the DWP will seek to gain further information on the changes needed to enable CDC schemes for all companies, if evidence supports this. This will include meetings between the DWP, its advisers, The Pensions Regulator (TPR), and both Royal Mail and the CWU, which Opperman recently said had been "very productive" so far.

"We are minded to assist but at the same stage I don't want to give any cast-iron guarantees," the pensions and financial inclusion minister told the Work and Pensions Committee (WPC) on 14 March. "Self-evidently this is still very early stages. If it is the case that we are able to, then we are in a position to assist."

He said there had been no action to implement any kind of defined ambition element since 2015, when primary legislation defined the third type of scheme, due to other priorities.

"This has not been a priority since 2015, partly because there has not been a call for it," he added. "It is clearly the case that there is now one group… and we are keen to facilitate and assist them and we are going to wait and see what the committee says on these matters."

However, he warned the government was mindful of any "unintended consequences" of CDC, and added: "We are not in the business of creating legislation, bespoke pieces, for one party. It is important that legislation is created that can accommodate everybody".

Yet, he confirmed that no wholesale primary legislation would be needed to enable the schemes, with only a statutory instrument to modify the Pensions Act 2011. He added: "Clearly we have got to design a scheme that has the appropriate standards on funding, valuations, rules, adjustments and the appropriate safeguards. The complexity of that is significant."

This could also include TPR running an authorisation regime for CDC schemes, at least at the outset.

In a previous session, the committee was told that CDC schemes could easily be legislated for by making tweaks to the existing DC rules, while adding additional requirements for governance, communication and transparency standards.

Although the schemes are not yet possible under law, Royal Mail and the CWU are pushing the DWP to make them an option, while Universities UK is keen to consider the scheme type in negotiations over the Universities Superannuation Scheme.

Larger pots
Earlier in the 14 March session, the WPC heard that CDC schemes could result in between 30% and 50% larger pots for members than individual DC schemes, including benefits from reduced costs levied on investment management.

Aon senior partner Kevin Wesbroom said CDC schemes improve pots by sharing investment risk, overcoming the possibility of bad years significantly damaging eventual pots.

"We're not saying that a CDC scheme will guarantee to give you better than an individual DC," he said. "The issue is nobody knows upfront if they are going to be the lucky generation that retires at the top of the Dot Com Boom, or five years later."

Association of Member Nominated Trustees co-founder Janice Turner added: "What ordinary people are looking for, which they can't get at the moment, is a pension they can rely on. What people want is the safety to be able to take the default option knowing that would be a safe option."