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Parliamentary review to examine collective DC options

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  • Parliamentary review to examine collective DC options

UK - A UK parliamentary committee is set to investigate the potential "scope" for collective defined contribution (CDC) schemes, as it conducts a review of aspects of workplace pension reform ranging from risk-sharing to governance.

The Work and Pensions select committee said in a statement that several of the issues it was looking to address in the new consultation arose out of a recent investigation of auto-enrolment reforms, for which it said it would shortly publish findings.

The Committee said proposed changes to the state pension system and the launch of soft compulsion were "significant steps" in addressing what it deemed "inadequate" retirement benefits.

"But it is clear," it added, "that further steps are needed to encourage people to increase their retirement saving and to ensure the quality of pension provision."

It said it would examine how defined contribution (DC) schemes would seek to deliver good outcomes for members, including the levels of transparency of charges and fees, as well as managing the risk of returns.

It further asked whether economies of scale could be beneficial and if they could lead to better value for money "and if so, how this can be achieved".

In the same vein, the Committee said the scope for CDC, already widespread in the Netherlands, should be explored, as well as any other method of allowing for greater risk-sharing - with the statement noting the "implications of the changing balance" between defined benefit (DB) and DC schemes.

The Committee echoed comments made by pensions minister Steve Webb, who has spoken of the need to find an approach that allows for a degree of risk-sharing at a time when DB schemes are declining.

The minister recently announced plans for a "frank and open" debate on the introduction of a third approach - which he called "defined aspiration", echoing terminology to come out of the Netherlands.

Similarly, the Committee said it would examine the extent of regulation surrounding the existing DB schemes, following on from an announcement by the National Association of Pension Funds to launch a "red-tape challenge", as it asked members to list regulations they deemed superfluous in the current environment.

The consultation's deadline for written submissions is 13 April.

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