The industry has welcomed the DWP’s consultation on draft regulations for whole-life multi-employer collective defined contribution (CDC) schemes, highlighting their potential to improve pension outcomes for many workers while stressing the need for regulatory guidance for successful implementation.
The consultation, which closes November 19, seeks feedback on new draft legislation that would allow multiple unconnected employer CDC schemes to operate under existing rules. It outlines the requirements for these schemes to gain authorisation and run effectively.
Minister for Pensions Emma Reynolds says: “This is a truly landmark moment for the UK pension landscape and this consultation now builds on the momentum in this area. Acknowledging the strong industry and Parliamentary support for broadening CDC provision further, I intend to deliver it to ensure as many savers as possible can take advantage of the numerous benefits of CDC.
“My officials have been engaging extensively with a range of industry stakeholders to finalise the legislative framework needed to accommodate whole-life CDC schemes with multiple unconnected employers, including Master Trusts.”
This comes as WTW is named as the scheme actuary to the new Royal Mail collective pension plan with Redington advising on its investment strategy.
Aon partner and head of collective DC Chintan Gandhi says: “This long-awaited consultation is the next big step for CDC. Opening up to multi-employer CDC schemes, including those provided by master trusts, will meet the needs of employers and the self-employed. We believe these have the potential to help over 30 million UK workers build up a pension.
“However, looking beyond the regulations, we ask for the swift extension of The Pension Regulator’s CDC guidance – this is of equal importance. It is only with visibility of the entire regulatory regime that providers can judge whether they can introduce multi-employer whole-life CDC schemes to the masses – and in a way that is commercially viable.”
Gandhi adds: “Multi-employer whole-life CDC schemes – perhaps delivered by master trusts – will allow sharing investment and longevity risks across the entire scheme membership, while providing better pension outcomes in retirement, on average, than might otherwise be available. Whole-life CDC would provide employees with an income for life in retirement – an income that is expected to keep pace with the cost of living and without individual members needing to make complex decisions.”
Aon partner and head of UK retirement policy Matthew Arends says: “This type of multi-employer whole-life CDC scheme should then be of interest to all employers, including those in sectors where workforces are transient in nature, or where they typically move around between a group of employers.
“Using the launch of the new Royal Mail scheme as a stepping-stone, we see tremendous value in the Government moving on to the swift introduction of scalable whole-life multi-employer CDC schemes.”
The Pensions Regulator chief executive Nausicaa Delfas says: “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.”
TPT Retirement Solutions client & strategic partnerships director Andy O’Regan says: “The introduction of multi-employer whole-of-life CDC scheme regulations will be a landmark moment for UK pensions. Previously, CDC schemes had only been viable for the largest employers. These new rules will make it possible for all employers to provide their staff with a CDC pension scheme. We’ve already been speaking to around 200 employers who have expressed interest in how a CDC scheme could be delivered for their employees.
“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. An added benefit is the removal of some of the complex financial decisions pension savers are required to make under DC. CDC schemes may also be more likely to invest in productive assets which could encourage economic growth and generate higher long-term returns for scheme members.
“This consultation will open the door to CDC for all employers regardless of size, with the first multi-employer CDC scheme potentially launching within a couple of years. We believe many employers, pension savers, and the wider economy could benefit from the introduction of these schemes. We look forward to responding to this consultation in due course.”
Broadstone head of policy at leading independent consultancy David Brooks says: “Today’s consultation and the rhetoric from the Pensions Minister suggests CDC will be a core pension policy for the current Government. They seem clear that CDC could be an answer to many of the issues in the current pension system – including greater investment in the UK economy – and are looking to replace the reliance on individual Defined Contribution pots with pooling of Collective pots
“However, if CDC is to gain a foothold in the UK’s pension provision, then there has to be an allowance for unconnected employers to work together. If not, CDC will remain the domain of only the very largest employers. 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.
“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.”
LCP partner Helen Draper says: “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.”
LCP head of CDC and partner Steven Taylor says: “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 per cent 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.”
WTW plan head of the executive Emma Weston-Green says: “The launch of the collective plan is a very exciting moment for Royal Mail and their people. The team at WTW have been at the centre of the design of collective defined contribution schemes for the UK from the beginning, and together with their extensive Defined Benefit experience, are ideally placed to provide Scheme Actuary services to the Plan.”
WTW scheme actuary to the Royal Mail collective pension plan Simon Eagle says: “We are thrilled to have been appointed Scheme Actuary to The Royal Mail collective pension plan. It is a truly innovative development in the pensions industry, changing decades of design practices, which needed a lot of effort to bring to fruition. We look forward to working with the Trustees to enable security in retirement for the Plan’s members.”
Redington managing director Carolyn Schuster-Woldan says: “Royal Mail has been a true pioneer in making CDC a reality in the UK. We couldn’t be more delighted to see the collective pension plan launching, having supported the Trustee since 2021 to design an investment strategy that embeds sustainable investment priorities alongside the wider goal of targeting higher returns for better long-term outcomes.
“This important milestone marks a positive step in addressing the challenges posed by DC for individual members. We’re thrilled to have played a part in this and look forward to supporting the Trustee on the next phase of its journey.”
