A new pension scheme has been announced by the government.
The Collective Defined Contribution pension will see both the employer and employee pay into a collective fund, with pensions paid out from this shared pot.
According to the government, this is better for the employer as it offers predictable costs for the employer. It is also better for the recipient as it is more resilient against economic shocks.
Minister for Pensions, Guy Opperman, said: “We have seen the positive effect of these schemes in other countries – and it is abundantly clear that when they are well-designed and well-run they have the potential to provide a positive outcome for savers, and can be resilient to market shocks.”
Currently all pensions are either Defined Benefit, linked to salary or length of service, or Defined Contribution where pensions are based on how much you pay in.
The move also paves the way for the launch of the CDC scheme that Royal Mail and the Communication Workers Union aim to introduce.
Regulations laid before Parliament will provide the foundation for CDCschemes to be introduced in Great Britain.
The regulations will help ensure that CDC schemes are set up and run well by providing clear criteria for the Pensions Regulator to authorise and supervise them.
The department will now continue to engage with a wide range of interested parties on how CDCs can be extended further.
Guy Opperman added: “I have no doubt that millions of pension savers will benefit from CDCs in the years to come.”
Pension age review
Meanwhile, a government review on the state pension age could see retirement start at 68 instead of 66.
The state pension age is currently 66 but there are two increases currently set out in legislation. One is a gradual rise to 67 for those born on or after April 1960. The other is a gradual rise to 68 between 2044 and 2046 for those born on or after April 1977.
The review will decide whether bringing forward that change by eight years will be beneficial to the public – the age rise would then happen between 2037 and 2039.
What the review will look at
The review will also look at the way the pension age is set, and also it would look at what should be taken into account – such as life expectancy – when deciding on a fair retirement age.
Pension from the government goes to anyone who has made at least 10 years’ worth of national insurance contributions during their working lifetime.
The maximum payment is £179.60 a week, but this depends on your years of contribution. Most people have other pension pots to rely on.
The government must publish the results of the latest review by 7 May 2023.
It said Britain’s ageing population meant it needed to make sure decisions on how to manage the cost of the state pension system were “robust, fair and transparent for taxpayers now and
What happens elsewhere
According to the OECD, the future normal retirement age is 69 years or more in Denmark, Estonia, Italy and the Netherlands. In Luxembourg and Slovenia men can retire at 62.
The UK government says that as the number of people over State Pension age increases, it needs to make decisions that are transparent for taxpayers now and in the future.
One of the aspects the review will also consider are labour market changes and people’s ability and opportunities to work over State Pension age.
The government says it has commissioned two independent reports to contribute to the evidence considered during the review. It also plans to look at all the countries and regions in the UK before making its decisions.