The DWP says that CDC schemes will be subject to a charge cap of 0.75% - the same as Defined Contribution pension schemes.
The government has given the green light for CDCs with publication of a 52 page Consultation Document from the DWP today.
The DWP says the government plans to:
•Legislate for Collective Defined Contribution pensions
•Impose ‘strict regulation’ on them and require them to undertake an annual, independent valuation to "protect savers”
•Protect members from ‘excessive fees’ through the ‘Defined Contribution charge cap’
Pensions Minister Guy Opperman MP announced the Collective Defined Contribution (CDC) pensions today. However, critics have already warned it could take years for CDCs to arrive and they may risk fluctuating income for members in retirement because of their structure.
The DWP says that in a CDC scheme members will invest in a collective pot, sharing investment risk.
This should lead to “more stable pension incomes”, says the DWP, at lower cost than current Defined Contribution pension schemes.
Officials at the Department for Work and Pensions have been working closely with Royal Mail and the Communication Workers Union (CWU) to develop the proposals.
Mr Opperman, minister for pensions and financial inclusion, said: “Collective Defined Contribution pension schemes are an important innovation which will provide more choice and flexibility for pension scheme members and employers.
“I’m grateful to Royal Mail and the Communication Workers Union for their assistance in getting us to this point.
“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.”
Under the proposals CDC schemes will be required to undertake annual independent valuations once they have been authorised to ensure that members are protected and schemes are sustainable, with CDC Trustees subject to fit and proper persons test.
The consultation will gather views from across industry to ensure CDCs “deliver for both employers and employees.”
Jon Millidge, chief governance & risk officer, Royal Mail Group, said: “We are delighted that the Government has launched a formal consultation on enabling Collective Defined Contribution (CDC) pensions in the UK.
Earlier this year, Royal Mail and the CWU reached agreement to introduce a CDC scheme subject to the necessary legislative and regulatory changes being made. The consultation launched today is a major step forward in our campaign to allow us to offer a CDC scheme for our 141,000 employees as soon as possible.”