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Retirement Plans

U.K.’s Department for Work and Pensions says collective DC plans should be allowed

The U.K.'s Department for Work and Pensions recommended Monday that collective defined contribution plans be permitted in the U.K.

Committed to allowing sponsoring employers to opt for an alternative to traditional defined benefit or traditional DC arrangements, the DWP wants to activate a CDC option. Such an alternative does not promise a specific benefit like in DB arrangements but has a target payout amount.

Following a consultation into how CDC arrangements should be defined in the U.K. law, the DWP said in a response to the feedback it received: "We intend to legislate as soon as parliamentary time allows for the CDC model set out in our consultation paper, but aim to do so in a way that can quickly accommodate other models of CDC if appropriate in the future."

The DWP also said: "We intend that CDC benefits will be a type of money purchase benefit so that employers have clarity about their liabilities to the scheme," adding that "detailed provisions related to valuation, adjustment of benefits, transfers, windup, disclosure and other technical requirements will be provided through secondary legislation."

Following the DWP's announcement, Royal Mail PLC, London, said it will update its employees on progress as it moves toward implementation of a CDC section within the £9.6 billion ($12.8 billion) Royal Mail Pension Plan. Royal Mail said it "will write to participants with more plan details in due course." Royal Mail and its trade union, the Communication Workers Union, agreed to pursue a CDC option in February 2018 but have been waiting for legislation that permits the arrangement.

"Royal Mail and CWU have been campaigning together to bring about this legislation, building a cross-party alliance of supporters in both houses of parliament as well as working with government," said Jon Millidge, chief risk and governance officer at Royal Mail, in a news release. "We now look ahead to the next stage and, ultimately, delivering the U.K.'s first CDC pension."

However, the U.K. government will not immediately allow other retirement arrangements such multiemployer DC plans, known in the U.K. as master trusts, to adopt a CDC option.

"We are extremely heartened by the number of consultation responses arguing that the legislation should be widened to provide for other CDC models, including multiemployer schemes ... and commercial master trusts. Decumulation-only vehicles were also raised by several respondents," the DWP said.

"We will begin working with interested parties to shape out legislation for wider models once the Royal Mail plan has been established," the DWP said.