Royal Mail to pioneer a “third method” pension program – a “win-win” for savers
The government will open a survey on a new way of saving for retirement on Monday, bringing a pension revolution closer.
Savings have been robbed of clarity about their retirement incomes as employers throughout the UK have closed final salary pension systems, but the Royal Mail is about to pioneer a new model that will bring greater security and stability. The Collective Defined Contribution (CDC) plan is intended to give more protection against economic shocks, such as a pandemic, while also assisting people in saving toward a specific income goal.
“This new ‘third method’ for employer pensions is a win-win for savers – they’ll have the security of an income in retirement while also getting a better return on investment – it’s the best of both worlds,” a government source said.
Due to the widespread disappearance of final salary pensions, many people are forced to rely on Defined Contribution (DC) plans, which provide no income stability and can be ruined by inflation and bad investment performance.
The goal of CDC plans is to provide a fresh path ahead. The government is optimistic that the new model will result in better incomes for the same amount of money invested as individual DC pensions.
The consultation will iron out the last aspects of the new pensions program, opening the way for employers across the country to offer them to their employees.
The fact that both employers and savers will contribute to a pooled fund that will give members with a regular income is a fundamental difference with DC plans.
Employers are also likely to benefit from CDC programs, as they will have more clarity about their expenses and duties.
The Royal Mail is expected to lead the way in implementing a CDC program for over 100,000 employees. In Denmark and the Netherlands, such programs are well-established.
“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 better retirement outcome for members, and can be resilient to market shocks like the pandemic,” said pensions minister Guy Opperman.
Savers should not have to choose between “security and cost,” according to Mr. Opperman.
Labour’s shadow pensions minister, Matt Rodda, called the new concept “potentially intriguing.”
“Pensioner poverty has been.” Brinkwire Summary News, he remarked.