The Work and Pensions Committee has published a letter from Guy Opperman, minister for pensions and financial inclusion, which indicates the government’s intention to lay primary and secondary legislation for collective defined contribution schemes.
The government will first launch a consultation on CDC in the autumn. A spokesperson for the Department for Work and Pensions was unable to provide a date for the consultation.
The DWP looks set to draw upon the groundwork developed by Royal Mail and the Communication Workers’ Union, which together have engineered a CDC framework that could replace its old defined benefit scheme, legislation pending.
Our current focus is on the constructive approach adopted by both Royal Mail and the CWU
Guy Opperman, minister for pensions and financial inclusion
On September 4, Opperman wrote to Frank Field, chair of the committee. The letter was published on October 17.
“Our current focus is on the constructive approach adopted by both Royal Mail and [the] CWU,” he wrote. “We are therefore concentrating on a framework that is appropriate to their needs.”
He added: “If following consultation it seems beneficial to lay foundations for a CDC framework more widely, we will endeavour to ensure that any initial legislation can be adapted without unnecessary delay to address this at a future date, if the appetite is there."
Change is coming
The consultation will consider a range of issues, including questions over risk-sharing, whether CDC members should be able to transfer out in the decumulation phase, and how to ensure effective communication between CDC schemes and members.
The DWP will also give thought to a framework for good practice that could include specific CDC qualifications for trustees and their advisers.
In response to Opperman’s letter, Field said: “This is a great response and a great news story for everyone, a real win-win situation. I applaud the government for the approach it is taking.
"The historic deal struck between Royal Mail and [the] CWU, combined with the government’s ready willingness to make CDC pensions a reality, mean a huge change is coming to the UK pensions landscape, offering a new and different kind of ‘pension choice’.”
The WPC has previously called for the government to use powers included in the Pensions Act 2011 in order to introduce CDC.
But the DWP has concluded that “we need further primary legislation, along with secondary legislation”, according to Opperman.
Tom McPhail, head of policy at Hargreaves Lansdown, observed that some experts will be disappointed that an act of parliament will now be required to make CDC happen.
“CDC schemes may one day become part of the UK’s pensions landscape but at the moment it is all a bit theoretical,” he cautioned.
Over to the government
On the same day Opperman’s letter was published, Conservative MP Paul Masterton introduced a private member’s bill to parliament on CDC.
Masterton told Pensions Expert: “They are by no means a magic solution to the complex questions of saving in the modern workplace, but there is a clear desire amongst employers and employee representatives to move forward.”
The former pensions lawyer looks set be relieved of his self-appointed role in the drive to introduce CDC to the UK.
“I brought forward a bill because I was frustrated at progress, I'm delighted if this announcement means I can hand the baton over to the government."
Give CDC schemes the best possible start
In September, DWP defined benefit strategy team leader Julian Barker disclosed to a business forum that a handful of corporate entities have held exploratory discussions with the department on CDC schemes.
Tom Barton, partner and head of the defined contribution team at law firm Pinsent Masons, called for a comprehensive consultation that will ensure that CDC will fit into the current pensions landscape.
Select committee hails CDC as 'new Beveridge' for UK pensions
Collective defined contribution schemes could usher in a new era of progress for the welfare state, according to the Work and Pensions Committee’s latest report, as the influential group of MPs seeks to increase pressure on government to facilitate the swift creation of CDC schemes.
“It’s really about making sure that any form of CDC that gets introduced can work alongside the two existing forms of pension delivery we’ve got at the moment,” he said.
Matthew Arends, head of UK retirement policy at Aon, was delighted by the government’s decision to take CDC forward.
He urged the consultation to assess “the framework for regulation… the kinds of qualities that the trustee board ought to have and advisers ought to have, [and] how transparency is going to be established for these pension schemes, so that they start off on the right footing”.
