The UK government has launched a consultation regarding the introduction of collective defined contribution (CDC) schemes.

After months of discussions, led by Royal Mail and the Communication Workers’ Union (CWU), the Department for Work and Pensions (DWP) has set out a series of questions for the industry in an attempt to set out what a CDC regime would look like.

The government would legislate for CDC schemes “as soon as parliamentary time allows”, the consultation paper said. The rulebook would be initially designed to allow Royal Mail’s scheme design to be established, but could be adapted if other employers came forward with alternative models.

Announcing the consultation at a Royal Mail sorting office yesterday, pensions minister Guy Opperman said: “CDC pension schemes are an important innovation that will provide more choice and flexibility for pension scheme members and employers. I’m grateful to Royal Mail and the CWU 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.”

“The CWU and Royal Mail Group are ready to lead for others to follow should they choose… Give us our moment and we will make a very important development in our social history.”

Terry Pullinger, Communication Workers’ Union

The 53-page document outlined several challenges to be addressed in any future legislative framework, including communication with members, intergenerational fairness, and equality laws.

The DWP also stated that the new rules, as planned, would require fresh primary and secondary legislation to be taken through the UK parliament, as Royal Mail’s scheme design did not fit with any existing rules.

The UK previously introduced an outline for a form of CDC plan in 2015, but this was abandoned due to a lack of support from the industry. The DWP said that this framework would not be suitable for the structure planned by Royal Mail.

Royal Mail planned to publish more details of its proposal during the consultation process, the DWP said.

The consultation closes on 16 January 2019. 


Jon Millidge, chief governance and risk officer at Royal Mail Group, described the consultation as “a major step forward” in the company’s campaign to be able to offer its employees a CDC plan.

“We believe CDC is a progressive option which meets our objectives of providing sustainable, affordable and secure future retirement arrangements,” Millidge said. “Royal Mail and the CWU want to see CDC become a reality in the UK, and we hope the required legislation will be introduced at the earliest opportunity.”

Terry Pullinger, deputy general secretary for postal at the CWU, added: “We absolutely believe that retirement dignity and security will be swept aside for working people unless this important innovation in pension choice is enabled.

“The CWU and Royal Mail Group are ready to lead and illuminate a path for others to follow should they choose… Give us our moment and we will make a very important development in our social history.”

Kevin Wesbroom, senior partner at Aon and a vocal supporter of the CDC concept, said the consultation was “a sound, proportionate approach to introducing new legislation that can improve retirement outcomes for many”.

He added: “The approach taken to legislation is welcome, since it has clearly taken on board that the UK can learn from overseas CDC schemes, but does not have to slavishly follow them.”

Simon Eagle, director at Willis Towers Watson’s retirement business and a CDC specialist, said other employers would begin looking at CDC plans following the government’s statement of support.

“The next movers are likely to be other companies who, like Royal Mail, find the costs of their defined benefit pension schemes becoming unaffordable, but who believe their employees would prefer a collective arrangement providing them with pensions in retirement to individual DC pots,” Eagle said.

Royal Mail


However, several commentators highlighted potential limitations to the introduction of CDC schemes.

Rob Harper, partner at consultancy firm Hymans Robertson, said there was a “clear benefit” to pooling risk in a CDC structure, but warned that “the scale of assets and membership required to pool risk safely will limit this option to only the very largest schemes”.

Steve Webb, director of policy at Royal London – and an advocate of “defined ambition” during his period as pensions minister – said the open-ended timetable for legislation meant it could take years for the first CDC scheme to become operational.

He added: “Designing the legislation specifically around the needs of the Royal Mail is understandable, but probably also limits the potential for other employers to implement variations on the Royal Mail model.

“One of the attractions of CDC for members is the smoothing out of the ups and downs of the stock market, but in the Royal Mail’s model there is no ‘buffer’ to cushion the impact of such changes on member benefits. This could mean pensioners seeing their pensions in payment cut from one year to the next, which will present a massive communications challenge.”

In his foreword to the consultation paper, Opperman acknowledged that CDC schemes would face “some communication challenges for schemes, employers and the government”, but maintained that these could be met.

“The UK has a world-class occupational pension system – but I believe that there are always opportunities for further innovation which can be made for the benefit of savers and business alike,” Opperman stated. “A robustly designed and appropriately regulated CDC regime is one such opportunity.”