The new Collective Defined Contribution pension will see both the employer and employee pay into a collective fund, with pensions paid out from this shared pot.
Benefits of the new scheme include that it offers predictable costs for the employer, and is more resilient against economic shocks, such as those caused by the pandemic.
Minister for Pensions, Guy Opperman, said:
I am very pleased that these schemes will soon be able to operate in Great Britain.
We have seen the positive effect of these schemes in other countries - and it is abundantly clear that when they are well-designed and well-run they have the potential to provide a positive outcome for savers, and can be resilient to market shocks.
I have no doubt that millions of pension savers will benefit from CDCs in the years to come.
Currently all pensions are either Defined Benefit, linked to salary or length of service, or Defined Contribution where pensions are based on how much you pay in.
The move also paves the way for the launch of the CDC scheme that Royal Mail and the Communication Workers Union aim to introduce.
Regulations laid before Parliament will provide the foundation for CDC schemes to be introduced in Great Britain.
The regulations will help ensure that CDC schemes are set up and run well by providing clear criteria for the Pensions Regulator to authorise and supervise them.
The department will now continue to engage with a wide range of interested parties on how CDCs can be extended further.
These parties include employers interested in establishing multi-employer CDC schemes and some Master Trusts.
Additional information
The Pension Schemes Act 2021 introduces an authorisation and supervision regime for CDC schemes, which will help ensure that:
- only schemes that are well run and built on sound foundations are allowed to operate
- schemes must have a clear strategy and resources to deal with any problems that may arise;
- schemes must have an effective framework for communicating with members
- the interests of members continue to be protected throughout the life of the scheme
- the Pensions Regulator has appropriate powers to intervene when necessary
