First CDC authorisation a ‘landmark moment’ for UK pensions

The authorisation of the UK’s first collective defined contribution (CDC) has been highlighted as a “landmark moment” for UK pensions, with industry experts suggesting that this could be “just the beginning”.

The Pensions Regulator (TPR) confirmed yesterday (13 April) that the Royal Mail Collective Pension Plan (RMCPP) successfully passed TPR’s assessment process, after applications initially opened in August 2022.

Commenting on the news, Aon partner and head of CDC, Chintan Gandhi, stated: “All those involved in helping the RMCPP reach this milestone really deserve congratulations.

“In my view, CDC is the greatest innovation we have seen in UK pensions in a generation – and it’s inspiring to see what the industry can achieve when it works together towards a common goal.

“We wholeheartedly agree with Laura Trott’s comments that the authorisation of the first CDC scheme, the RMCPP, is a landmark moment for UK pensions, and that this is just the beginning.”

Aon also highlighted recent industry research around CDC, revealing that 10 per cent of employers polled are already pursuing CDC, with a further 14 per cent considering CDC as part of their next benefits review.

Further updates in this area also could be in store, as while CDC schemes can only currently be set up by single employers, the government recently consulted on plans to extend CDC to accommodate multi-employer schemes, also considering the potential for CDC as a decumulation only option.

Aon associate partner, Madalena Cain, welcomed these plans, in particular to introduce legislation covering both whole-life multi-employer CDC schemes and decumulation-only CDC solutions.

“This will bring CDC to the masses, and we urge the government to commit to ensuring the regulations are in place for these wider forms of CDC by the end of 2024,” she stated.

This is also in line with Aon’s poll findings, as 75 per cent of respondents thought that whole-life CDC is of most interest for their circumstances, while 25 per cent believe decumulation-only CDC will be of most interest.

In addition to this, 73 percent of attendees thought that CDC will be a valuable option alongside drawdown at retirement, while a further 18 per cent predicted that CDC will replace drawdown as the primary decumulation option at retirement.

Also commenting on the news of the first authorisation, Standard Life managing director of individual retirement, Claire Altman, agreed that CDCs could prove a “useful part of the toolkit” in industry efforts to deliver better outcomes for savers.

“For those employers who still offer defined benefit (DB) schemes, CDCs could provide a half-way house between defined benefit and defined contribution arrangements, particularly as it reduces costs and risk for the employer,” she continued.

“For employees, CDCs can potentially offer more certainty of outcome than that provided through defined contribution schemes.”

However, Altman also emphasised the need to ensure CDC schemes will be sustainable and that proper protections are in place if things don’t go as expected, given the expectations CDC schemes could raise with savers.

“It’s important to think about CDC in the context of the wider range of options and what these can achieve,” she stated.

“There is a lot happening in the retirement space, and while it is great that CDC will be an option, we shouldn’t forget that other solutions are available to savers.”