Royal Mail plans to offers its employees a Collective Defined Contribution (CDC) pensions scheme risk undermining recently-gained pensions freedoms.
‘A Risk Too Far’ also cautions against CDC schemes because of the system risks creating irreversible intergenerational injustice by overpaying pensioners at the expense of current and future employees, and there’s no commitment to put in place the necessary pre-funding to counter this risk.
Furthermore, they have an unclear position within the UK’s regulatory framework. Current legislation does not provide enough clarity on multiple aspects of pensions administration – including what the risk allocation would be between employer and employee – leading to potential pitfalls if legislation did change in future or the fund ran in to difficulty.
Instead of offering its members a scheme that evidence shows has mixed results in the Netherlands, Canada, and Germany, Michael Johnson proposes Royal Mail use the size of its workforce to negotiate access to low cost with-profit funds, overseen by an independent body.
Michael Johnson, report author, said:
“Personal pensions freedoms have been central to the recent reform agenda and have proved very popular.
“CDC pensions schemes are incompatible with these freedoms without compromises which add additional cost and complexity.
“Royal Mail should move away from their planned CDC scheme and instead adopt a system where each employee has their own, personalised, savings pot.”