I will be affected by the new pension Royal Mail proposes to start in 2022. I have worked there for many years and am now in my thirties.

Royal Mail will be the first to adopt a ‘collective defined contributor’ pension plan, if it is implemented. However, the system has been used in the Netherlands.

I have done some research on CDC pensions as they are something that interests my. Which leaves me leaning towards a view of them being less than our current plan.

Retirement planning: Will the Royal Mail's new collective pension benefit me?

Retirement planning: Will the Royal Mail’s new collective pension offer me any benefits?

They favor the older generation of workers (those who plan to retire in 10 years), which leaves my age group (those who have 25-plus years of work) worse off.

According to what I’ve read, it will be difficult to recoup the amount that people like me have paid into this plan. It also makes it unpredictable as to potential returns.

Another concern is that Royal Mail is investing heavily in high-risk assets with the “pot”, which I understand will be 100% in equities.

Currently, the maximum amount we can pay in as employees for is 6 percent of salary. Unless we top up with voluntary donations, Royal Mail inputs 9 percent which I’m more than happy.

Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below

Steve Webb: Ask the former Pensions Minister about your retirement savings in this box

Royal Mail, which is trying to make the new CDC scheme more appealing, announced that it will increase its input to 13.6% on people who pay 6%.

It states that upon the death of an employee/ex-employee, their spouse will continue receiving their benefits out the CDC pot at the cost of current Royal Mail employees.

My personal pension pot is now worth roughly £50,000.

My question is: Would I be better off leaving the CDC plan to join another pension provider that I can transfer the pot I have already built up, but to which Royal Mail only contributes 3%?

I can then decide how much investment risk to take throughout my working career and will have my own personal pension when I retire.


Steve Webb replies: The Royal Mail is leading the charge with a new type of pension arrangement that is not only common elsewhere in the world, but is also quite unique for the UK.

This model is also being considered by other employers, so it could be of interest to others as well as the Royal Mail.

The background is that up until now, there have been only two main types pensions.

The traditional ‘defined benefits’ arrangement is the first. This is where the amount you receive is guaranteed. It simply depends on how much you earn and how long you work.

You can get a pension provided your employer does not go bankrupt.

Another type of pension you can choose is the ‘defined contribution’, or ‘pot-of-money’. This is where you and your employer pay money into a pot that is invested until your retirement.

You have your own ring-fenced, separate pot.

Only the amount paid in can be ‘pre-determined’. How well the money was invested, how annuity rates have changed, and so forth will all affect your final pension.

How will new ‘collective pensions’ work? 

Royal Mail plans to be the first to introduce a scheme where income is cut if things don’t go according to plan. This is Money guide is available here.

A DB Pension is very attractive to a member.

The member pays in at the rate required and the employer covers the cost of providing the promised pension.

All additional costs incurred by employers if investments fail to perform or members live longer than anticipated are borne by the employer.

For this reason, many firms – including the Royal Mail – have decided that they can no longer offer this type of provision.

There are many drawbacks to an individual DC pension pot.

If you choose to purchase an annuity, you will not know the size of your event pension pot or how much retirement pension it will provide.

You can also put your pot in a drawdown fund for retirement. However, this will expose you to all the risks mentioned above and make it difficult to manage the funds over a long life span.

Many firms are not willing to offer DB plans anymore, but some members may feel they must take too much risk with a particular DC scheme.

The Royal Mail and Communications Workers Union worked together to reach a compromise, known as ‘Collective DC’ (or CDC for short).

You mentioned the Netherlands, which is a country that has had collective pension arrangements over many years. But what the Royal Mail proposes is very different.



In simple terms, each employer and employee will contribute a specific amount to the pension system.

Although the payout cannot be guaranteed, there is a target retirement pension that you should aim to get. If things turn out badly – for example if the investment returns seriously under-perform – then benefits can be scaled back.

But the ‘pain’ is felt by all members – whilst future pensions may be reduced, those in retirement could see their annual increases scaled back, for example – in order to get the scheme back on track.

Some pension schemes that are ‘collective’ have been accused of favoritism towards older members. 

However, a lot depends upon the design of the plan. The trustees responsible for overseeing the scheme have a responsibility towards all members. If the fund fails, both workers and pensioners would feel the pain.

Opinions on the merits or otherwise of CDC schemes of this nature vary greatly. A member would likely prefer a DB program, but it may not be available.

A ‘collective DC scheme’ may offer greater predictability than an individual DC scheme, which places all the risk on the individual.

One important advantage is that in a CDC scheme your pension lasts as long as you do – the scheme deals with the issue of your uncertain life expectancy by ‘pooling’ the risk of you outliving your money across all scheme members.

You might ask if you should opt-out of this arrangement and instead select one with a different provider where the employer will only pay 3%.

While I can’t give you financial advice, I will point out that you would do much better in a scheme where the employer pays in only 3% of your salary than in a scheme like the CDC where the employer is paying in more than 13.3%.

It is not clear if CDC schemes will succeed in the UK, as they have in a number other countries. However, they may be a valuable ‘third-way’ to provide pensions that is both affordable for the employer and still valuable for the member.

Ask Steve Webb a pension question

Steve Webb, a former Minister for Pensions, is This Is Money’s Agony Uncle.

He is available to answer all your questions, no matter if you are still saving, going out of work, or trying to manage your finances in retirement.

After the May 2015 election, Steve left the Department of Work and Pensions. He is now a partner at actuary and consulting firm Lane Clark & Peacock.

If you would like to ask Steve a question about pensions, please email him at pensionquestions@thisismoney.co.uk.

Steve will try his best to respond to your message in a future column, but he may not be able answer all questions or communicate privately with readers. His replies do not constitute regulated financial advice. Sometimes, questions published are edited for clarity or other reasons.

Include a contact number for a daytime in your message. This will be kept private and not used to market.

If Steve is unable or unwilling to answer your question you can contact The Pensions Advisory Service. It is a government-funded organisation that provides free help to the general public. TPAS can be found here and its number is 0800 011 3797.

Steve receives many questions about state pension forecasts and COPE – the Contracted Out Pension Equivalent. Steve will answer a typical question from a reader if you write to him on this topic. Here. It includes links that will take you to Steve’s previous columns about state pension forecasts or contracting out.  


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