DWP to consult on new types of CDC schemes late this year

Speaking yesterday (28 March) at a Royal Society of Arts (RSA) CDC forum, pensions and financial inclusion minister Guy Opperman said he was keen to “capitalise on the enthusiasm” around CDC.

Regulations which came into play under the Pension Schemes Act 2021 provide for single and connected employer schemes, which trustees can apply for authorisation to run from August of this year.

Extending this framework to include multi-employer CDC schemes as well as proposals for master trust models which are ‘decumulation only’ have long also been on the government’s radar.

“I am keen to move quickly, but we must get this right if it is to work,” Opperman said. “That is why I am calling on all those who are seeking to deliver the full benefits of CDC to work with us to help make this a reality.

“CDC schemes have the potential to transform the UK pensions landscape and deliver better retirement outcomes for millions of pension savers.”

RSA CDC forum co-chairs David Pitt-Watson and Hari Mann yesterday said the government must be “congratulated in creating regulations which allow everyone to benefit from well-managed CDC schemes”.

“People who save for a pension typically want to secure an income which will last them until they die, not just to be presented with a cheque when they retire,” they said. “That is what CDC pensions are designed to do. The evidence suggests this can transform retirement for millions of people.”

The Institute and Faculty of Actuaries (IFoA) CDC working party chair Simon Eagle yesterday confirmed that the institute – itself a member of the RSA CDC forum – was “investigating CDC pensions as a potential solution”.

“With the IFoA’s support, fundamental steps have already been taken to enable CDC in the UK [and] what is clear now is that there are further questions to answer in terms of broadening scheme design and facilitating adoption for willing employers and employee,” Eagle added.

“We see this as only the beginning and are pleased to see the pensions minister is keen to move quickly on the introduction of multi-employer and master trust CDC schemes. Better options could be made available for some groups.”

Areas of concern

However, Hymans Robertson partner Kathryn Fleming said there “are still a number of areas of concern” despite the “compelling case” for CDC.

Uncertainty around whether good member outcomes can be achieved for those in CDC schemes in the early years of their establishment is top on that list.

Fleming said there was also an issue around the cost and scale of investment required for setting up schemes that would meet The Pension Regulator’s draft code of practice.

Many other firms, as well as industry bodies, have raised concerns about the draft code, which closed for feedback last week.

However, given the scale of investment and innovation already underway in defined contribution master trusts, Fleming said “being patient and taking advantage of those improvements” could be “the most realistic and straightforward course of action”.

“CDC has the scope to add value, and ultimately improve outcomes through greater education and better decision making,” she added. “The appeal of CDC is best suited for a niche group of employers and arrangements such as master trusts.”

To make CDC schemes more appealing, Lane Clark & Peacock partner Steven Taylor has said the government could consider allowing flexible measures, for example ‘age-related contributions’.

“Allowing schemes to make age-related contributions would be a game-changer and will make it fairer for younger people. We believe there are ways that this can be achieved without introducing new risks to schemes,” he said.

Taylor said the current design of CDC remained too closely linked with the planned Royal Mail Collective Pension Plan – the Royal Mail scheme set to be the industry’s first following a 2018 agreement with the Communication Workers Union.

“This means regulations may not currently be flexible enough for schemes that are run in a different way,” he continued. “This is the first time that the pensions minister has explicitly asked for help to make sure that the structure is user friendly to a more schemes.”