Ground-breaking deal could transform UK private pensions

Ministers have been urged by MPs to move swiftly to allow the establishment of a new form of occupational pensions scheme offering workers the prospect of a reliable retirement income.

The Commons Work and Pensions Committee welcomed a ground-breaking agreement between the Royal Mail and the Communications Workers Union to create a “collective defined contribution” (CDC) as part of the settlement of an industrial dispute.

CDC pensions, popular in Denmark and the Netherlands, are middle way between defined benefit schemes, which are in decline as employers seek to reduce their liabilities, and defined contribution schemes, which are riskier for employees.

They offer a regular retirement income but in the form of a target benefit rather than DB schemes’ guarantee. Changes in the funding position of the scheme are addressed by adjusting the benefit rather than calling on extra contributions from the employer.

The committee called on the UK Government to use its existing powers to enable Royal Mail to introduce a CDC scheme in the UK, which would enable other companies to follow suit.

“This could transform the UK private pensions landscape,” it said.

“CDC may well appeal to companies who want to offer good pensions to their staff without the risk of large longterm pension liabilities on their balance sheets. The prospect of a regular and relatively reliable income in retirement may be welcomed by those staff.

“The government should seek to encourage such innovation, and its great potential gains, in establishing a framework for a new wave of collective pensions in the UK.”