Toby Murray looks back on the RSA's work to make CDC pensions a reality, reflecting on a process that has championed collaboration and found common ground.
The Forum is part of the RSA’s long-standing Tomorrow’s Investor programme which began in 2008. Tomorrow’s Investor examined the UK pension system and whether it could be improved to deliver better outcomes for savers and the wider economy.
One of its recommendations was that the introduction of CDC pension schemes would provide a better income in retirement than most of the existing options available. This resulted in changes in the 2015 Pensions Act allowing the introduction of CDC schemes in the UK.
Following the recent commitment by Royal Mail and the CWU to deliver the UK’s first CDC scheme, the policy debate is moving to implementation and regulation.
The CDC Pensions Forum aims to support this policy debate and ensure that we take the opportunity to establish CDC plans that benefit the saver, within an effective regulatory framework and with appropriate governance.
After nearly a decade’s worth of meticulous research from the RSA, CDCs are firmly in sight. The CDC Forum will aim to make these a reality, acting as one voice for CDCs from across both industry and unions.
What are CDC Pensions?
Collective Defined Contribution (CDC) are a type of pension that allow workers an option of paying into one giant pot with other people from any company they have a pension with. This collective pot is then invested in a way which is designed to provide everyone with an income from the time they retire until the time they die, dependent on how much they have saved.
Often workers can only save into an individual pot, and are then left to fend for themselves, not knowing how long they will need their pension savings for. The only current alternative to this is to buy an annuity which is very expensive.
CDC pensions offer that guarantee. They can make longer term investments and offer economies of scale, ie pooling the pensions of workers across and between large companies help keep costs low. As a result, they offer much higher pensions than are available by buying annuity.
We are grateful to the RSA for its input and work to develop Collective Defined Contribution pensions to ensure that pension schemes work well for employers and workers. I welcome the creation of the cross-industry forum, especially as we’ll be consulting on enabling Collective Defined Contribution schemes, and we look forward to receiving their input.
The Labour front bench has given its wholehearted support to the proposed CDC scheme negotiated by Royal Mail and CWU. This ground-breaking scheme covering 142,000 workers is one of the most significant developments in Pension policy in years and will offer a better income in retirement for the employees concerned. Guy and I have worked closely together to facilitate the necessary legislation believing CDC is an option that should be open to all who so wish.