Workplace pensions must evolve in a way that is sustainable
3 min read
Ahead of his Ten-Minute Rule Bill on Collective Defined Contribution Pension Schemes, Paul Masterton MP says that although CDCs may not be a silver bullet, they are still worth serious consideration.
On Wednesday I will introduce a Ten-Minute Rule Bill to the House which to enable the introduction of Collective Defined Contribution Pension Schemes.
Prior to being elected to represent East Renfrewshire in 2017, I spent the best part of a decade working as a solicitor specialising in pensions law. Our pensions system is one of this country’s great achievements and ensuring people can live a good retirement is rightly a priority for this Government. As economic and social change continues, its vital that workplace pensions evolve in a way that is sustainable and provides good outcomes for employees.
Ultimately, this Bill is about the dry business of reform of private pensions and fiscal stability in a globalised complex business environment, but it is also about the 140,000 men and women working for the Royal Mail across the U.K., including the 143 in East Renfrewshire who serve over 30,000 households from delivery offices in Barrhead, Clarkston and Newton Mearns.
The Royal Mail currently operates a defined benefit scheme. But as life expectancies have risen, and the regulatory burden has increased, the risks and volatility inherent to a defined benefit scheme, which provides a guaranteed level of benefits on retirement, are increasingly unaffordable. At the same time, defined contribution schemes, where the level of retirement provision is linked to the ‘pot’ saved during the accumulation phase, shift pretty much the entire burden of risk towards the employee. That is why Royal Mail and the Communication Workers Union (CWU) have agreed in principle to introduce a new kind of pension scheme for the first time in the U.K - a collective defined contribution scheme, or CDC.
Supporters of CDC argue that it can deliver higher returns than traditional money purchase schemes for the same level of contributions, partly because CDC pension pots would not need to take as cautious an investment approach as those in more conventional defined contribution schemes. The need to de-risk in the years leading up to retirement to protect against a sudden drop in pot value is removed in a collective scheme, for example.
CDC’s are not a silver bullet and there are various questions and considerations in terms of practical operation and in scheme design and the Association of British Insurers have stressed that considerations surrounding definition, strategy and regulation have to be recognised, but that is not in my view a reason to simply sit on our hands when employers and employee representative bodies wish to look seriously at this option for workplace pension saving.
As a Scottish Conservative, I do not believe we should allow the state and regulation to get in the way of employers and employees working together to develop an innovative solution that works to their mutual benefit. We need to institute this common sense, free market reform so that this union-backed solution to a 21st century business problem can progress.
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