Brexit could halt ‘Collective Defined Contribution’ pensions rollout

Tom Selby
18 March 2019

The Government has today set out details of how it plans to introduce Collective Defined Contribution, or CDC, pension schemes in the UK. 

You can read the full consultation response here:

Key points

•        CDC legislation likely to require a new Pensions Bill – although Brexit process means Government can only commit to implementing “as soon as Parliamentary time allows”
•        DWP plans to facilitate single-employer schemes only initially
•        CDC schemes will be classified as ‘money purchase’ in response to demands from employers fearful of shouldering pensions risk
•        Members wanting to use the pension freedoms will have a statutory right to transfer but it remains unclear whether advice will need to be taken first 
•        Complexity of CDC will require the development of a new retirement communications framework


Tom Selby, senior analyst at AJ Bell, comments: 

“While the DWP is clearly champing at the bit to get CDC legislation in place, Brexit remains the only show in town in Westminster at the moment. We know CDC is coming but we have at this stage no idea when.

“The Government is taking a pragmatic approach to bringing forward this new regime, focusing almost entirely on creating a framework which will allow Royal Mail to provide collective pensions to its 140,000 UK staff. 

“It is particularly positive that some of the more outlandish claims of the benefits of CDC made by some advocates have not been repeated by legislators. CDC clearly have strengths but they also have significant weaknesses too. It is important as we look to rebuild trust in pensions that members are given a realistic idea of what they will get from their scheme and communication of the pros and cons of CDC schemes will become crucial part of the retirement framework. 

“It would be sensible to use this opportunity to review communications across the retirement spectrum to ensure consistency and simplicity for members.

“Although there is obvious enthusiasm for expanding the CDC design from DWP – potentially through the creation of multi-employer schemes - that is not the focus of policymakers at this moment in time. If we do ever get to this stage it is unclear how such arrangements might differ materially from traditional with-profits schemes run by insurance companies.

“There remain several unknowns with regards CDC even after lengthy debate and consultation. For example, it is unclear how pension tax relief will be administered in these schemes, with HMRC expected to consult shortly on its approach. And while transfers out will be permitted so savers can take advantage of the pension freedoms, we do not yet know whether advice will need to be taken beforehand.

“CDC schemes have the potential to be a positive new addition to the UK pensions landscape. But anyone expecting an immediate retirement revolution or a massive ‘pensions boost’ resulting from the design of such schemes probably needs to reassess their expectations.” 

Tom Selby
Senior Analyst

Tom Selby is a multi-award-winning former financial journalist, specialising in pensions and retirement issues. He spent almost six years at a leading adviser trade magazine, initially as Pensions Reporter before becoming Head of News in 2014. Tom joined AJ Bell as Senior Analyst in April 2016. He has a degree in Economics from Newcastle University.

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