Gov't to seek legislation change for CDC pension schemes

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The government is set to bring forward a ‘modest change to legislation’ to allow for schemes to introduce collective defined contribution (CDC) arrangements.

CDCs, a blend between defined benefit (DB) and defined contribution (DC) schemes set a target for how much a pension scheme will pay out to individuals in retirement based on the long-term risks of an investment plan. The concept, which sees individual pots combined into larger ones, was first developed by Steve Webb when he served as pensions minister.

MPs on the Work and Pensions Select Committee are currently having an inquiry into CDC schemes and the Royal Mail and the Communication Workers Union (CWU) are also pushing to implement its own CDC arrangement for 140,000 Royal Mail workers.

In the government’s white paper on DB schemes published yesterday, the DWP acknowledged primary legislation which included CDC plans was brought forward by the Coalition government in in the Pension Schemes Act 2015.

‘Those reforms were far wider in scope than just Collective Defined Contribution and we have not seen a great deal of appetite amongst employers and pension providers for the major disruption that would follow the implementation of the 2015 legislation,’ the DWP white paper said.

But the government said it is receiving requests for CDC from some and is working to allow certain parties to implement these schemes.

‘Following the emergence of parties who are committed to developing Collective Defined Contribution pensions, we are exploring with them how this might be possible through a more modest change to legislation. This work is in its early days and the extent of changes necessary and the time it will take is unclear – but we are committed to working with those seeking to develop cost effective ways of providing members with security in retirement,’ the government said.