The Department for Work and Pensions (DWP) has launched its consultation on collective defined benefit (CDC) schemes.

The government has said that it will consult the pensions industry to “shape future legislation” on the new type of scheme to ensure “this new type of legislation delivers for both employers and employees”.

In its consultation, the DWP proposes that all CDC schemes should be subject to a charge cap of 0.75 per cent, the same level as for DC schemes, to “protect the investments of members and ensure costs are controlled”.

It also says that CDC schemes will be required to engage in annual independent valuations once they have been authorised to try and protect members and ensure that schemes are sustainable.

Furthermore, CDC trustees will have to complete a fit and proper persons test.

Minister for Pensions and Financial Inclusion, Guy Opperman commented: “It’s important we get this right which is why we’re consulting on the detail of our proposals before bringing legislation forward. I want to hear the views of the pensions industry as we prepare to introduce CDC pension schemes.”

Royal Mail plans to be the first organisation to offer CDC schemes to its employees and has been working with the Communications Workers Union (CWU) and the DWP on developing the proposals.

Royal Mail Group chief governance and risk officer, Jon Millidge said: “We believe CDC is a progressive option which meets our objectives of providing sustainable, affordable and secure future retirement arrangements. Royal Mail and the CWU want to see CDC become a reality in the UK, and we hope the required legislation will be introduced at the earliest opportunity.”

CDC schemes are seen as a middle ground between DB and DC schemes, as they invest savings in a collective pot which provides a retirement income to its members.

They do not guarantee a particular income level, unlike DB, and instead have a pay-out target based on a mixed risk investment plan.

Opperman said that the DWP wants to consult on whether CDC scheme members should be able to transfer out during the decumulation stage.

Furthermore, f they could transfer out during the decumulation stage, the DWP want to know what methodology should be used to calculate transfer values to balance individual rights against collective longevity pooling benefits.

The government will also be gathering opinions on whether transfers in CDC schemes should be subject to a financial advice requirement above a certain threshold.

The consultation began today (6 November) and will run until 16 January 2019.

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