KNOWLEDGE

New type of pension & state pension age review

Morton Fraser Partner Innes Clark
Author
Innes Clark
Partner
PUBLISHED:
05 January 2022
Audience:
Business
category:
Article

Collective Defined Contribution ("CDC") scheme is entirely new to the UK

Currently in the UK, pensions are either defined benefit, such as final salary schemes which can be prohibitively expensive for employers, or individual defined contribution schemes where the risk lies with the scheme member. Regulations recently laid before Parliament provide the foundation for Collective Defined Contribution ("CDC") schemes to be introduced in the UK.

CDC schemes are trust based occupational pension schemes with some similarities to current defined contribution schemes, including that there is no guaranteed level of benefit. However, higher pension benefits are expected than under traditional defined contribution schemes. 

CDC schemes will see both employer and employee pay into a collective fund, the assets of which are then invested on a collective basis.  Pensions are then paid out from this shared pot.  According to the UK Government, benefits of the new scheme include more predictable costs for the employer and better resilience against economic shocks, such as those caused by the pandemic.        

Meanwhile the second state pension age review was launched in December 2021.  The review will consider whether the rules around state pension age are appropriate, based on life expectancy data and other evidence.  The outcome of this latest review must, by law, be published by 7 May 2023.  State pension age is currently 66.  A rise to 67 is already legislated for, for those born on or after 1960, as has a rise to 68 between 2044 and 2046 for those born on or after 1977.

While the review is set to decide whether to bring forward the pensionable age increases, calls have been made to delay the rises.  A new report by consultant LCP has found that life expectancy has stalled (even prior to the pandemic) meaning pensionable age should remain at 66 until 2051, with the rise to 68 not occurring until the mid 2060s.

 

 

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