The government has today given the green light to new collective defined contribution (CDC) schemes, but refused to say whether members will have to get advice if they want to transfer out of these schemes.
CDCs, a blend between defined benefit (DB) and defined contribution (DC) schemes, set a target for how much a pension scheme will pay out to individuals in retirement based on the long-term risks of an investment plan.
The schemes, first proposed by former pensions minister Steve Webb with his plans for defined ambition, came to the fore in recent months with the Royal Mail and the Communication Workers Union (CWU) pushing the government to allow it to introduce the new pension.
Today the government has published its response to a consultation on CDC schemes, which will form the basis of new legislation to allow other employers, as well as the Royal Mail, to adopt CDC schemes.
The consultation documents said CDC members ‘will need to be able to transfer out of the scheme in order to make use of the pension freedoms’.
However, the Department for Work and Pensions (DWP) refused to say whether or not it would require members to get advice before taking a transfer from a CDC scheme – as they do with DB pensions worth more than £30,000.
‘We can see there are strong arguments for requiring members of a CDC scheme to take advice before transferring out. However, we are also conscious that suitable financial advice may be very difficult to find before CDC schemes become fully established in the UK pension landscape. We will continue to review developments in this area as we develop the legislation for CDC.’ the consultations said.
Pensions minister Guy Opperman said: ‘There were encouraging signs of a growing interest in CDC among employers and commercial providers, outside of the Royal Mail and CWU. I expect this will increase further as all parties become more accustomed to this type of provision. We will continue to review developments in this area as we develop the legislation for CDC.’
Opperman told New Model Adviser® last year he is hopeful of securing a private pension bill in the next Queen’s speech which will include CDC legislation.