A new type of pension scheme is moving a step closer, with more than 100,000 Royal Mail postal workers being first in the queue to sign up, the Government has said.
The new collective defined contribution (CDC) schemes will work by both employers and employees paying into a central pool of cash.
When people retire, they will draw an income from the collective fund.
The new scheme has been made possible following the creation of the Pension Schemes Act earlier this year.
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 better retirement outcome for members, and can be resilient to market shocks such as the pandemic.”
Launching a consultation on the new workplace pensions on Tuesday, the Department for Work and Pensions (DWP) will be seeking views on the draft regulations.
The rules are designed to enable the launch of single or multi-employer schemes, which will also accommodate the launch of the new scheme that Royal Mail and the Communication Workers Union aim to deliver.
CDC schemes will be subject to authorisation and a supervision regime to make sure they are well run, the Government said.
Currently, many workers are saving into defined contribution (DC) pensions, whereby they bear the risk of how well their investments will perform and how big their pension pot will eventually be.
Other types of workplace pensions may be based on the size of people’s salaries, but many employers have closed these schemes, as they have become expensive to run with people living for longer.
The CDC schemes are seen as a type of “middle ground” option, where the risks are more evenly spread.
Sir Steve Webb, a former pensions minister who is now a partner at pension consultants LCP (Lane Clark & Peacock), said: “Collective pensions could offer a positive ‘middle way’ between old-style final salary pensions where the employer took on all the risk, and more modern ‘pot of money’ pensions which have to be managed by the individual.
“If employers are willing to operate such schemes, they have the potential to generate better pension outcomes for employees, and the Government needs to press on with making them more widely available.”