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SpanishUK. How will new ‘collective’ pensions work? Royal Mail to pioneer a scheme that shares risks – but slashes income if things go wrong
The Government has approved a new type of ‘collective’ pension scheme, where workers share investment risks in the hope of gaining more certainty over payouts in retirement.
Pensions won’t be guaranteed – retirees could see their income rise or fall from year to year – which makes them insecure compared with traditional final salary pensions.
But schemes will be designed to give stronger protections than modern defined contribution pensions, where individual workers bear all investment risks when building pensions pots, and when drawing an income in retirement too unless they buy an annuity.
Royal Mail staff look set to be the first to save into this new kind of pension, as the firm and union have teamed up to support the plan as soon as the Government fulfills its promise to pass legislation.
We explain how ‘collective defined contribution’ pensions will operate, and look at the potential benefits and pitfalls below.
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