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Collective defined contribution (CDC) schemes have taken another step towards reality as the government confirmed it will consult on the "interesting new possibilities" this autumn.
This is the first time the Department for Work and Pensions' (DWP) has indicated its support for collective forms of pension saving, which works by having a target or ‘ambition' amount it will pay out, based on a long-term, mixed-risk investment plan.
The announcement came as part of a wider pensions update issued by pensions and financial inclusion minister Guy Opperman yesterday (4 September), where he outlined an "ambitious programme of work" currently underway in the DWP.
"Collective forms of pension saving offer interesting new possibilities, and the department is currently working through proposals for the first CDC schemes in the UK," he wrote. "We intend to launch a formal consultation in the autumn."
The announcement was immediately welcomed by Royal Mail which, along with its workers and trade union, has been pressing the government to allow for such schemes. Earlier this year, they collectively agreed in principle to introduce the UK's first scheme as soon as possible.
A Royal Mail spokesperson said: "We are pleased that the government has announced that it intends to consult on enabling CDC pensions in the UK. This is an important step forward in enabling us to offer a CDC scheme for our 141,000 employees as soon as possible."
The spokesperson added that Royal Mail and the Communication Workers Union (CWU) hope the legislation required to enable CDC pensions will be introduced "at the earliest opportunity".
The scheme type also has the backing of the Work and Pensions Committee (WPC), which in July said CDC schemes would be part of the "next great pensions revolution", helping to return the UK's system to "among the best pension systems in the world".
However, CDC has proven divisive, with many also worried about the potential risks involved with the largely untested provision.
For example, in a report published in July, Centre for Policy Studies research fellow Michael Johnson said that CDC is a "risk too far" and that with-profit funds would provide a better solution.
The DWP's confirmation of a consultation came as support for CDC schemes continued to grow in the House of Commons. Conservative MP for East Renfrewshire Paul Masterton - previously a pensions solicitor at Pinsent Masons - had tabled a 10 Minute Rule Motion' for 17 October, calling for "a bill to enable the establishment of CDC pension schemes".
In his statement, Opperman also reiterated the government's intention to investigate how to facilitate consolidation of defined benefit schemes, including looking at the establishment of ‘superfunds', and that it intends to publish a consultation on this in the autumn.
The consultation is largely expected to propose an authorisation and supervision regime, similar to that coming into force for master trusts, as at least two DB consolidators have already appeared in the market: The Pension Superfund, set up by former Pension Protection Fund chief executive Alan Rubenstein, and Clara Pensions.