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DWP axes collective DC scheme idea

The Department for Work and Pensions has announced that it will not be taking any further action on collective defined contribution schemes.

Collective DC schemes have been proposed as a potential way to bring together some of the most desirable characteristics of both defined benefit and DC schemes, allowing risk-sharing.

The employer is intended to be free of all risk, providing no guarantees towards any level of pension, with certainty about the level of contributions. Contributions are paid into a collective fund instead of individual savings, thus allowing investment risk to be shared amongst individuals.

In its response to a consultation on risk sharing in December 2008, the DWP committed to undertake further work on whether and how collective DC schemes might operate in the UK.

The DWP says it found there was a risk of unacceptable intergenerational unfairness in the plan and a risk of breaching European legislation, which is designed to provide a high degree of security for future pensioners.

A spokesperson says: “We must ensure that members of pension schemes have appropriate protection.

“Although we found that the drawbacks of collective defined contribution schemes were too great, companies are already using a wide variety of existing risk sharing options.

“Our rolling deregulatory review has aimed at both reducing burdens and introducing simplification measures, targeted specifically at reducing the cost of provision of pension schemes for the sponsoring employer.

“We continue to be interested in finding flexibilities that could be added whilst balancing this with the aim of maintaining good quality pension provision and protection for members.

“A priority has to be that such new ideas must work for both employers and members.”

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