MPs on the Work and Pensions Select Committee have launched an inquiry into collective defined contribution (CDC) schemes.
CDCs are similar to the defined ambition concept developed when Steve Webb was the pensions minister. The idea sets a target for how much a pension scheme will pay out to an individual based on the long-term risk of an investment plan.
CDCs, which are currently in place in the Netherlands and Denmark, also see individual pension pots combined into larger collective pots.
The concept is popular with the chairman of the Work and Pensions Select Committee Frank Field (pictured), who told New Model Adviser® in August he wanted the committee to be looking at the CDC idea in order to cut costs and maximise returns.
It is also popular with Labour’s shadow pensions minister Alex Cunningham who said it was disappointing the Autumn Budget this week did not bring forward proposals for CDCs.
‘It is important that the government enables the creation of a proper pension system for this country in which the saver is at the centre, costs are driven down through greater transparency and the creation of CDCs and other products thus maximising the value of people's investments,’ Cunningham told New Model Adviser® earlier this week.
In announcing the CDC inquiry, the Committee said it wants to address some of the concerns raised within its pension freedoms work.
‘The committee's ongoing inquiry into pension freedoms has highlighted the general level of mistrust and disengagement with pension plans, and it is well known that policy makers are keenly looking for ways to get people to plan and save much more for their retirement,’ the committee said.
'Advocates of CDC schemes argue that they provide greater assurance of retirement income and more efficient pooling of costs and risks among members than traditional DC, but do not impose the burden of underwriting an onerous pension promise on employers.'