UK. Government gives green light to CDC pension schemes
The government has confirmed the launch of Collective Defined Contribution pension schemes in a new consultation.
CDC schemes, which are already popular in Denmark and the Netherlands, pay out a regular income from a collective fund rather than producing an individual ‘pension pot’.
Last year, Royal Mail reached a deal with the Communication Workers Union which sought to launch CDC pensions in the UK.
The government has today confirmed that it will “introduce CDC provisions slowly”, starting with the Royal Mail scheme and building on this.
Several studies have shown that CDC schemes could offer more generous and predictable benefits than individual DC provisions by pooling risks, such as around life expectancy.
However some industry experts, including Aegon’s Steven Cameron, warned that there are “huge challenges in automatically enrolling individuals into a scheme with such complex design features”.
The government agreed that communicating the variable nature of the pension income in a CDC scheme will be a “huge challenge for schemes”, adding that “misunderstanding around the nature of CDC benefits will be the single biggest risk a scheme will face”.
However the government stressed that it is “very alive to this issue, and fully recognise the challenges it poses”.
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