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Plans to broaden access to a new type of pension scheme allowing savings to be pooled have been set out by the Government.
Collective defined contribution (CDC) pension schemes have the potential to deliver reliable returns for savers, while ensuring more predictable costs for employers, the Government said.
It launched a six-week consultation on Tuesday into expanding the scheme.
CDC schemes offer another option in addition to defined contribution (DC) schemes, where employees bear the risk as individuals as to how much money they end up with in retirement, and defined benefit (DB) schemes, which promise pension savers a certain income in retirement based on their salary.
DB schemes, which are often described as “gold-plated” due to their guarantees, have increasingly been replaced by DC pensions.
We are seizing this exciting opportunity to modernise our pensions market to deliver better outcomes for millions of workers
Minister for Pensions, Emma Reynolds
CDC schemes are sometimes seen as a compromise option. Employer and employee contributions are pooled into a single fund, spreading out risk and potentially providing a more predictable pension income, based on collective investment performance.
Pooling risk also means that schemes can invest more in growth assets, including in the UK, and for longer than an average DC scheme, the Government said, supporting its growth mission for the economy.
In Canada, the funds from pooled pension contributions are invested in a range of assets such as infrastructure, start-ups and private equity, it added.
Minister for Pensions Emma Reynolds said: “We are seizing this exciting opportunity to modernise our pensions market to deliver better outcomes for millions of workers.
“People work hard to put money aside for their pension with every pay cheque. This significant innovation will offer a more predictable income and greater finance security for future pensioners.”
Currently only single or connected employers can set up CDC schemes, with the first scheme launched by the Royal Mail.
The Government is now seeking to broaden access further by allowing unconnected multiple employer schemes, making such schemes more accessible to a wider range of businesses and employees.
The consultation seeks views from employers, industry experts, pension providers and the public on draft regulations and their potential impact.
It will run until November 19 and it applies to England, Scotland and Wales.
Occupational pensions are a devolved matter for Northern Ireland and the UK Government said it is anticipated that Northern Ireland will make corresponding legislation.
The UK Government plans to introduce legislation in 2025.
Nausicaa Delfas, chief executive of the Pensions Regulator, said: “Multi-employer CDC pension schemes offer the potential to deliver better outcomes for thousands of UK pension savers, turning a pension pot into a retirement income.
“I encourage industry to take part in the consultation and we look forward to working with Government to develop an appropriate regulatory regime.”
John Ball, chief executive of the Church of England Pensions Board, said: “We look forward to scrutinising the detail, and to seeing how in due course, such an arrangement might transform retirement plans for those who work for the Church.”
