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A Third Way for Pensions

You may be familiar with the concept of defined contribution, defined benefit, or self-invested pension plans. Now there is a new option on the table; collective defined contribution (CDC) schemes, otherwise known as collective money purchase (CMP) schemes.  In essence these are schemes in which employers and employees contribute to a collective fund, from which individual retirement incomes are drawn.

Introduced in the Pension Schemes Act 2021, the Government has now launched a consultation on the draft regulations which will govern the operation of CDCs. This includes the criteria for authorisation of schemes, on-going supervision, and member protection and transfers. The consultation also covers options for single-employer schemes as well as the potential for schemes to be set up by a group of connected employers.

The concept of CDCs has proved popular; with the Royal Mail and Communication Worker’s Union already looking to sign up as soon as possible. However, in their currently proposed form they will not be suitable for all businesses, with current estimates suggesting that employee numbers need to be in excess of 5,000 for CDCs to be effective.

If you are looking for advice on pensions, or if your situation has changed and you may therefore need to review your existing pensions or investments, contact Beckworth by using one of the links on our website.