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Govt consultation puts CDC on legislative agenda

The Department for Work and Pensions launched a consultation into collective defined contribution schemes today.

CDC pensions offer regular retirement income but in the form of a target benefit rather than a guarantee like final salary schemes.

The consultation marks a step change in the government’s approach to CDCs as it intends to bring legislation forward and contains concrete proposals.

Under government proposals CDCs will be required to undertake annual independent valuations once they have been authorised to ensure members are protected and schemes are sustainable.

CDC trustees will be subject to a fit and proper persons test while all CDC pension schemes will be subject to the 0.75 per cent charge for all defined contribution schemes.

In the forward to the consultation pensions minister Guy Opperman writes there are always opportunities for innovations which can benefit savers and an appropriately regulated CDC regime is one of them.

Officials at the DWP have been working closely with Royal Mail and the Communication Workers Union to develop proposals for the introduction of CDCs.

Opperman adds: “I’m grateful to Royal Mail and the Communication Workers Union for their assistance in getting us to this point.

“It’s important we get this right which is why we’re consulting on the detail of our proposals before bringing legislation forward. I want to hear the views of the pensions industry as we prepare to introduce CDC pension schemes.”

CDCs have received criticism in the past from the Centre for Policy Studies fellow Michael Johnson.

He says they risk creating irreversible intergenerational injustice by overpaying pensioners at the expense of current and future employees.

The consultation runs until the 16 January 2019.

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