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CDC pension schemes given go-ahead

CDC pension schemes given go-ahead

Category: Retirement
Author: Derin Clark
Date: 19/03/2019

The Government has confirmed it will be moving ahead with its plan to introduce collective defined contribution (CDC) pension schemes, which pool savers' risks and aim to provide more stability in retirement.

CDC pension schemes were spearheaded by the Royal Mail and backed by the Communication Workers Union, who had campaigned to implement a scheme for its 140,000 employees. Such schemes are based on similar systems that are popular in the Netherlands and Denmark.

While supporters of these schemes believe they provide less risk and more stability for both employees and employers, critics have said that the target benefits of the pension are too complex to explain to savers and are not guaranteed, which makes retirement planning difficult. As well as this, they argue that the scheme is incompatible with pension freedoms.

Pension confusion

Making the pension system more complicated could make those saving for their retirement even more confused than they already are. Recent research carried out by Portafina, a pensions advice specialist, found that four in five (81%) of those surveyed don't understand exactly what a pension is, while almost a third (31%) had no idea when their pension would be taxed and 72% didn't know when they would be able to take money from a private pension.

The research also found that a simple way to bridge the gap between people and pensions could be with straightforward communication, as 85% of respondents said that receiving simple and clear information on their pension in plain language/graphics would help them to make more informed decisions about their pension and their future.

Michelle Monck, head of Digital at Moneyfacts.co.uk, said: "Pensions remain a difficult and tricky subject for the majority of the public – often shrouded in technical language and usually not a topic of conversation in the pub. The new CDC pension does add another scheme (subject to it entering into law) into the pensions market. While this could be perceived as adding more complexity into a market that is already confusing 81% of the population, what is most important is how pensions and their workings are explained.

"The number one reason given for not understanding pensions is a lack of education at school (cited by 40% of Portafina's respondents) and while financial education became part of the primary and secondary school curriculum in 2014, it unfortunately came too late for many young working adults. The use of plain English and graphical information is essential to help boost understanding of what is usually the most important long-term savings product of a person's life."

The good news for those confused about pensions is that it is never too late to learn; you can find useful information in our guides to pensions and
retirement, and by visiting https://www.pensionwise.gov.uk/en.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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