The government has cemented its commitment to overhauling the at-retirement market and enabling collective defined contribution (CDC) schemes in the Queen’s Speech delivered today.
The Queen used her address to Parliament to confirm measures announced in the Budget to allow members of defined contribution (DC) plans to take as much of their fund as they like as cash at retirement and that the government will enable the introduction of Dutch-style risk sharing schemes in the UK.
Addressing the proposals to end compulsory annuitisation – announced in March’s Budget by Chancellor George Osborne – she said: “Legislation will be brought forward to give those who have saved discretion over the use of their retirement funds.”
And elsewhere, while not mentioning CDC explicitly, the Queen said: “My government’s pension reforms will also allow for innovation in the private pensions market to give greater control to employees.”
The briefing notes published following the speech clarified that the purpose of this part of the Private Pensions Bill was to “provide wider choice, with defined ambition pensions encouraging greater risk sharing between parties and allowing savers to have greater certainty about their retirement savings”.
It added the Bill would “enable ‘collective schemes’ that pool risk between members and potentially allow for more stability around pension outcomes in retirement”.
However, industry figures have observed a conflict between the two elements of the Private Pensions Bill.
TUC general secretary Frances O’Grady said: “The two Pensions Bills announced today pull in opposite directions. The pooling and risk sharing in Dutch-style not-for-profit pensions offer a better and more predictable retirement income.
“But the Chancellor’s ill-thought through Budget proposals take the collective out of pensions and turn them into individual savings pots, not the regular income that most people want when they retire. It is no surprise that those who think they will make money from this free-for-all are the biggest critics of the new pooled pensions.”
Elsewhere, Society of Pension Consultants president Duncan Buchanan said: “The new freedom for members of DC schemes to access their retirement savings in lump sum rather than pension form as announced in George Osborne’s recent Budget means that existing DC schemes have become far more attractive to pension savers. It is, therefore, unlikely that employers will feel pressure from employees to establish or contribute to new style ‘risk sharing defined ambition schemes.
“Dutch style CDC schemes which will be introduced to the UK require a critical mass of investments to make the risk sharing between younger and older members work fairly and without large numbers of members these collective schemes might not be able to get off the ground.”
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