New CDC regulations could open up fresh pension options for millions of people

Following the launch earlier this week of the Royal Mail Collective Pension Plan, the first UK Collective Defined Contribution “CDC” scheme, the Government has today released the much-anticipated consultation on draft “multiple employer” regulations that would enable a much wider group of members to access CDC. This is a vital next step in the evolution of the UK CDC market.

In key developments that will be of interest to all sponsors and trustees that have been monitoring CDC:

• The draft regulations open CDC up to all “multiple employer” groups. This makes CDC a realistic possibility for more complex group of employers or collections of like-minded “industry wide” companies that between them may currently employ many millions of people.
• To facilitate this, the regulations allow new scheme designs to manage the risk of intergenerational (or inter-employer) cross-subsidies, for example by allowing “age related” build-up of pensions;

• There is flexibility around scheme designs, for example to allow different employers in the same scheme to set their own contribution rates, for example to match existing DC contribution rates; and
• Regulations will introduce a new “Scheme Proprietor” and other central management roles that are distinct from, and balance the role of the Trustees.

LCP is working with several multi-employer occupational schemes, such as the Church of England Pensions Board, to explore how CDC might transform retirement outcomes for scheme members. We hope that today’s announcement will bring helpful clarity about how such schemes could work and prompt many of the UK’s largest groups to think seriously about opening up fresh pensions options for millions more employees across the UK.

Helen Draper, Partner at LCP, commented:

“The release of the consultation on multi-employer CDC regulations following the launch of the first UK CDC scheme earlier this week adds further momentum to the UK’s developing CDC market. These regulations have been eagerly awaited by many in the industry, who want to harness the advantages of CDC to benefit their membership. This consultation gives some much needed certainty and should enable them to progress with developing their multi-employer CDC schemes. We will work with our clients and DWP to respond to this and finalise the regulations and look forward to making the benefits of CDC accessible to a wider audience.”

Steven Taylor, Head of CDC and Partner at LCP, added:

“We agree with the Minister that, for members, CDC offer the potential for a “seamless transition” to a regular retirement income and without need for complex financial decisions. Previous LCP research has also estimated CDC can provide better member outcomes, with up to 50% higher expected pensions per £ contributed than traditional DC schemes that annuitise. For sponsors, and like-minded groups of employers these characteristics also makes CDC a potentially very attractive way to provide good quality pensions for the next generation of savers.

“There is much to admire in today’s consultation, which has already had significant input from the industry. Today’s announcements gives CDC a real chance to succeed and we look forward to working with our clients and DWP to open up CDC for many more employees across the UK.”