View more on these topics

Govt to back controversial ‘collective’ schemes in Pensions Bill

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”.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There is one comment at the moment, we would love to hear your opinion too.

  1. What about just making the exercise of the Open Market Option compulsory with allowing health screening as part of the annuity purchase, instead of yet more change, increased regulation and yet more uncertainty.

    Most industry estimates indicate that the simple exercise of the OMO and impaired health annuities would see income rise by a third. No need for defined ambition, CDC or more half baked policies.

    Just keep the promise you made at the CII lecture in 2012 Mr Webb, when you said you would make the OMO work. Two years on and the only change has been an increase in high commission non-advised annuity sales.

Leave a comment