The Collective Defined Contribution (CDC) schemes will mean that employees will pay into a collective pot, potentially with up to thousands of other employees.
By reducing the need to administer separate pensions schemes for individual members, it is hoped the cost of running the programmes will be reduced, thus increasing the return on investment. The plans could be rolled out as early as 2016.
Pensions minister Steve Webb said there are “strong claims” that the plans could increase people’s pensions pots by up to 30%.
"You might, you might not, but clearly it is pretty unambiguous that you will get a more certain outcome and potentially a better one,” he said.
However, Hargreaves Landsdown head of pensions research Tom McPhail told HR magazine people in CDCs would risk missing out on new freedoms to take their savings in one lump sum, as announced in the Budget.
McPhail added that as the new schemes would not be subject to the new 0.75% charge cap, also announced in the Budget, perceived advantages might not be available to members.
“The only real justification of CDC schemes is that the certainty of returns may encourage investors to commit more money into them in the first place,” he said. “Even that seems redundant, given the upsurge in interest following the Budget.”
