CDC schemes are common in the Netherlands and Denmark, but are not usual in the UK. They have fixed contribution rates from the employer and members, but pool investment and longevity risk between members. The Pension Schemes Act 2015 introduced by the coalition government classed ‘shared risk/defined ambition' or CDC as a distinct pension category, but regulations to bring them into force have not yet been introduced.

Now the government has indicated it is considering bringing forward legislation on CDC in its response to an inquiry by the work and pensions select committee report on the topic.

Frank Field, chair of the work and pensions committee, said: ‘This is a great response and a great news story for everyone, a real win-win situation. I applaud the government for the approach it is taking. The historic deal struck between Royal Mail and CWU, combined with the government’s ready willingness to make CDC pensions a reality, mean a huge change is coming to the UK pensions landscape, offering a new and different kind of “pension choice”’.

In his letter to the committee, Guy Opperman, minister for pensions, says the consultation will consider risk-sharing; the appropriate methodology for calculating cash-equivalent transfer values for CDC members in the accumulation stage, and whether transfer out of a CDC should be subject to a financial advice requirement.

It will also look at whether CDC members should be allowed to transfer out in the decumulation stage and, if so what methodology should be used to calculate transfer values to balance individual rights against collective longevity pooling benefits.

It will consider how to ensure effective communication so that CDC members have a clear understanding of the benefits and risks involved in a CDC before joining, and how CDCs should publish their rules for calculating and distributing member benefits and report their funding position and strategy.

Finally, the consultation will look at whether a specific qualification should be required for trustees of a CDC and their advisers, and how to develop a framework to identify trustees who exemplify best practice in this emergent field.

Field said the ‘extremely positive’ government response failed to address just one of the committee’s recommendations: that any consultation on CDC pensions should include consideration of the Pensions Regulator’s ‘suitability and readiness to regulate CDC schemes’.

Work and pensions committee Collective defined contribution pension schemes inquiry is here.

Government letter in response to recommendations is here.

Report by Pat Sweet