Collective defined contributions pensions briefing note

2020 Pension Schemes Bill: establishing collective defined contribution pensions in the UK.

On 7 January 2020, the government introduced a Pension Schemes Bill to the House of Lords, similar to the one introduced in October 2019. Part of the Bill will enable the establishment of Collective Defined Contribution (CDC) pensions, known as Collective Money Purchase (CMP) schemes in the Bill, in the UK. This measure was already promised in both Conservative and Labour Party manifestos, and supported by the Work and Pensions Select Committee. Its immediate effect will allow the introduction of CDC, should companies and their employees wish to do so. Royal Mail and the Communication Workers Union (CWU) have already committed to CDC but the measure has potentially much wider implications for pensions in Britain. We therefore believe there are three key messages of which legislators might want to be aware:

1. For many years the RSA has campaigned in support of CDC in the UK. We believe it will make a very important contribution to pension provision. We therefore firmly support the Bill.

2. If CDC is to deliver its full benefits and avoid potential pitfalls, this must be done within an effective system of governance and regulation – this note discusses what those are and is generally positive that they are covered in the legislation.

3. CDC offers very considerable benefits. The present legislation will be effective for large employers such as Royal Mail, but its benefits could be spread more widely. It is important that those who are making pension policy have some vision of how CDC might be best encouraged to develop over the coming years, so that as many people as wish to can save in a cost-effective manner for a pension income which will last the length of their lifetime.

This briefing paper was updated in July 2020 to include research on how CDC pensions would have responded to movements in capital markets following the coronavirus pandemic.