The Government will back the creation of controversial collective defined contribution schemes in the UK as ministers look to wrestle back the initiative on pension reform, according to The Times.
The decision to support CDC schemes – whereby members’ contributions are pooled and the pension is paid from the collective fund – comes less than a week after pensions minister Steve Webb confirmed plans to introduce a cap on workplace pension charges in April 2014 had been delayed by at least a year.
The Times says measures to encourage the adoption of CDC schemes by UK employers, which would likely require changes to legislation, will be included as the “centrepiece” of a Pensions Bill before the general election in May 2015.
Speaking to the paper last night, Webb said: “Some of the best pension schemes in the world are run on a collective basis. I would like to see British workers have access to schemes run on this basis.”
A report by the Royal Society of Arts, published in November last year, suggested introducing CDC schemes in the UK could boost retirement incomes by 33 per cent compared with individual DC. This claim has been vigorously contested by Aviva head of policy John Lawson.
Former Labour work and pensions secretary Lord John Hutton has also warned CDC schemes create a greater risk of intergenerational unfairness, make it difficult for members to assess their exposure to risk and fail to account for individual circumstances.
In addition, Hutton said encouraging CDC in the UK would require a major regulatory overhaul and claims the benefits of scale are “exaggerated”.