Five things to know about the big pension change in August

The MASSIVE pension change will affect some savers when it rolls out in August this year – here are five ways it will affect you and your money.

The UK’s first Collectively Determined (CDC) pension scheme will launch later this year and will be another workplace pension option to choose from.

Here are five things to know about the new CDC pension scheme - including how much more cash you'll get


Here are five things to know about the new CDC pension scheme – including how much more cash you’ll getCredit: Alamy

CDC retirement plans are where employer and member contributions are pooled together into a collective fund and invested.

Then the worker receives a pension income when they retire.

It marks a big change for workers who currently have only two types of pension to choose from.

The pension is either a Defined Benefit (DB) pension, or a Defined Contribution (DC) Pension.

DB pensions are where what you get in retirement is decided based on your salary and you will be paid a certain amount each year in retirement – but these are not usually offered by employers again.

You will most likely have a DC pension instead, which is where you are automatically enrolled pension scheme at work when you join.

That means you save money each month, and the amount you have to retire is based on how much you’ve spent and how active your investments are.

Here are five things to know about the new program, including whether you can get more money when you retire.

You don’t have your own pot

The most common workplace pension on offer today – the DC pension – shows both you and your employer contributing a minimum amount to your own pension fund.

Total must pay a minimum of 8% into your pension – you must contribute at least 5% and your employer at least 3%.

But with the CDC pension, you don’t get your own money.

Instead, workers in your business will put their money in a common pot – with your employer contributing as well.

This pot is “shared” among workers, with each worker drawing an income from this large fund when they reach retirement age.

Can I get more money?

In theory, you could get more money in retirement under the CDC program.

This is because workers of different ages will be investing in a pool of money, said Helen Morrissey, retirement analyst at Hargreaves Lansdown.

This allows cash to be invested in “higher-risk investments that older workers may not be able to make,” she said.

This is because there is a much larger amount to invest, than your personal amount.

The larger the amount you invest, the more profit you can generate – but you have no way of guaranteeing a profit.

“If times are tough in the stock market, or people – especially those in poor health – move out, then the program may have to reduce the income it’s aiming to pay,” she said.

Younger workers may lose

Because older workers can access these higher-risk investments — and boost their cash — because younger workers are adding to the pot, some argue that the This plan may not be fair.

Tom Selby, AJ Bell’s head of retirement policy, said experts have argued that the CDC plan “risks becoming a next-generation albatross, with sons and daughters. were asked to contribute more to pay their parents’ pension”.

Although the government is consulting on how to implement CDC programs that benefit both young and older workers, Mr Selby said “it remains to be seen” whether this will happen. and whether there was a need for the program in the first place.

It has never been tried before in the UK

This will be the first time the CDC pension scheme has been launched in the UK before.

However, The Royal Mail tried with its 140,000 employees to see how the plan worked – and whether it was worth it.

The Netherlands is best known for its use of CDC programs – but it’s worth noting that the country is said to be moving away from this. Financial Times, and use more DC retirement plans instead.

Mr Selby added that this was because retirement income was cut when investments failed to deliver expected returns.

“People just need to be realistic about what the CDC pensions can provide and their limitations,” he said.

How can I register?

Your employer will have to set up a CDC program before you can apply for it.

This means they may not want to – and you wouldn’t be able to invest your pension this way otherwise.

Employers will be able to set up their own CDC program from August this year.

You should contact your company to see if they plan to offer this option.

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