Church of England eyes CDC as consultation launches – Law & Regulation

The Department for Work and Pensions (DWP) is seeking feedback on the proposals until 19 November as it aims to “modernise” the pension system and build on the launch of Royal Mail’s CDC plan, which opened to members yesterday (8 October).

The consultation is focused on rules for multi-employer CDC arrangements, as the current rules only relate to single employer plans such as Royal Mail’s.

Emma Reynolds, the pensions minister, said: “We are seizing this exciting opportunity to modernise our pensions market to deliver better outcomes for millions of workers.

“People work hard to put money aside for their pension with every pay cheque. This significant innovation will offer a more predictable income and greater finance security for future pensioners.

“Currently only single or connected employers can set up CDC schemes, with the first scheme launched by the Royal Mail yesterday.

“Building on the significant appetite from industry for extending CDC provision, the government is now seeking to broaden access further by allowing unconnected multiple employer schemes – making this pension model more accessible to a wider range of businesses and employees.”

In a statement announcing the consultation, the DWP said it believed CDC schemes could “deliver reliable returns for savers, while ensuring more predictable costs for employers”.

Large-scale funds could also further the government’s aim to increase investment in UK assets, helped by their size and long-term nature. CDC funds as designed for the UK market transition members from accumulation to decumulation seamlessly, removing the requirement for an at-retirement choice to be made.

Church of England and TPT support proposals

The Church of England Pension Board and TPT Retirement Solutions were quoted in the DWP’s press release, confirming their interest in the new model.

John Ball, chief executive of the Church of England Pensions Board, said: “We welcome the publication today of draft regulations that support the creation of multi-employer CDC pension schemes.

“We look forward to scrutinising the detail, and to seeing how in due course, such an arrangement might transform retirement plans for those who work for the Church.”

TPT operates multi-employer defined benefit and defined contribution (DC) arrangements, and announced its interest in the CDC model last year.

Andy O’Regan, client and strategic partnerships director at the company, said the proposed regulations signified “a landmark moment for UK pensions”, and predicted the first multi-employer fund could launch “within a couple of years”.

“We’ve already been speaking to around 200 employers who have expressed interest in how a CDC scheme could be delivered for their employees,” he said.

“Multi-employer CDC schemes have the potential to bring a host of advantages to pension savers when compared to traditional DC schemes.

“CDC schemes pool longevity and investment risk. This means that, compared to DC, they are expected to achieve higher benefits as well as provide members with an income for life.”

Implementation

The draft regulations published by the DWP include details of the authorisation requirements for CDC funds. The government plans to introduce legislation in 2025, and following parliamentary approval will look to implement it alongside an updated regulatory code.

Nausicaa Delfas, chief executive of the Pensions Regulator, said: “Multi-employer CDC pension schemes offer the potential to deliver better outcomes for thousands of UK pension savers, turning a pension pot into a retirement income.

“I encourage industry to take part in the consultation and we look forward to working with government to develop an appropriate regulatory regime.”

Consultancy group LCP said it was working with “several” schemes interested in the CDC approach, including the Church of England.

Steven Taylor, head of CDC and partner at LCP, cited previous research by the firm that estimated CDC could provide better member outcomes, such as up to 50% higher expected pensions per pound contributed than traditional DC schemes that annuitise.

“For sponsors, and like-minded groups of employers, these characteristics also make CDC a potentially very attractive way to provide good quality pensions for the next generation of savers,” Taylor said.

David Brooks, head of policy at Broadstone, said allowing unconnected employers to work together to establish CDC schemes was important to ensure the model made an impact on UK pension provision.

“Embarking on another new model of pension saving will be an operational, accounting and financial challenge for many smaller employers who have just recently gone through the auto-enrolment reforms and there is uncertainty over how the partnership ‘club’ approach would work in reality,” Brooks continued.

“The design, regulation and authorisation of these schemes will also need to be implemented correctly, and the current consultation will form the bed rock of this.”