Government plans to extend collective defined contribution (CDC) schemes have received widespread support from the pensions industry, with the Association of Consulting Actuaries calling for this to be a legislative priority over the next year.
The Department of Work & Pensions has published plans on extending CDC, to offer multi-employer and master trust options as well as decumulation-only CDC. The consultation on these different options closed today.
These the ACA said these plans should ensure a wider range of savers benefit from CDC pensions. However it has said it would like to see a number of amendments to the current proposals.
The ACA says application of the charge cap should be more closely aligned with DC. In addition it calls for the existing legislation to be made more flexible, saying designs which can vary accrual rates or contribution levels should be allowable within a single section, as long as actuarial consistency is maintained.
The ACA has also called for the winding-up process should be simplified, with its preferred approach would be for this to be based upon members’ benefits being de-collectivised as the point that wind-up commences.
ACA honorary secretary, Chintan Gandhi says: “We strongly support the DWP’s plans to legislate for both whole-life multi-employer CDC schemes and decumulation-only CDC solutions. This will bring CDC to the masses.”
Meanwhile its chair Steven Taylor adds: “Timing is now of the essence to build up critical mass for CDC. This means that in bringing its plans to fruition, Government should take great care take not to impede timely development of multi-employer models that are very similar in nature to schemes now possible under the single employer model and so would require only minor regulatory change.”
The Society of Pension Professionals said it welcomed the DWP consultation, and was supportive of its intention to extend the regulations to allow more flexible designs, multi-employer and master trust vehicles as well a decumulation-only options. However it said these new pension models required an enhanced regulatory regime.
The SPP says: “ We believe there is a real interest from employers, providers and individuals for each of these different developments. We believe it will be important to ensure that the regulatory environment is supportive of sensible member decision making, given the additional challenges introduced by multi-employer and commercial offerings. This is likely to encompass some level of regulatory oversight of marketing communications, member charging structures and actuarial conversion or pricing terms, as a minimum. Such an approach may require the existing supervisory regime to be enhanced, which could require additional expertise and resource within TPR.”
Pension providers also welcomed these proposals. Standard Life managing director of individual retirement Claire Altman says the company supported the government’s desire to extend CDC to multi-employer arrangements.
“Opening up space to allow schemes and providers to innovate more generally on behalf of their savers is clearly welcome.
“We think that the government is right to tread cautiously, not least to ensure that 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.”
Altman says it was important to look at CDC in the context of wider retirement options. She pointed out that the end of historically low interest rates has made annuities a more attractive options for those looking to secure a guaranteed income. She adds: “Thinking has moved on in favour of a more blended approach that allows people to achieve the best of an annuity and drawdown. We expect to see significant innovation and product development over the next couple of years, and welcome CDC being part of the pensions saving toolkit.”