The government says it will legislate to facilitate master trust and decumulation-only collective DC (CDC) schemes as it today publishes draft rules for single employer and connected multi-employer arrangements.
Pensions minister Guy Opperman says interest in CDC ‘is growing day by day’ and says he has ‘no doubt collective provision can benefit millions’ when its full potential is realised.
Today the Department for Work and Pensions has published a consultation on draft rules that will facilitate single employer CDC arrangements such as that being developed for Royal Mail. Features include a 0.75 per cent charge cap and the ability to accommodate performance fees, including structures to allow smoothing of performance fees to encourage investment in illiquids. Transfers in and out of the scheme will be permitted, and transfers out will be subject to a three-week cooling off period.
Opperman MP says: “One of the benefits of offering CDC benefits is that members do not have to make once and done decisions about what to do with their pension pot as by default a CDC scheme will deliver a pension in-house. CDC schemes also have greater potential than individual defined contribution schemes to invest in illiquid assets such as infrastructure.
“When I published the government’s response to our consultation on CDC benefits in 2019, I welcomed the growing interest in CDC provision. That interest is growing day by day as the legislative framework for CDC benefits becomes clear, and many employers, pension providers and unions can see the advantages it can bring. These draft regulations are a huge step towards fulfilling our commitment to legislate for single employer and connected multi-employer CDC schemes. But I know that this is a job half done. Many want to see non-connected multi-employer CDC schemes, Master Trusts and decumulation only CDC schemes. That interest is very welcome. I have no doubt collective provision can benefit millions of pension scheme members when its full potential is realised.
“Right now our priority is to ensure the full framework for single employers and connected multi-employer CDC schemes is in place as soon as we can, and this consultation is rightly focused on delivering that. But we are not deaf to calls from those who wish us to go further. Once this first step is done we will turn our attention to the growing demand for these other types of provision.”
Aon partner and head of CDC Chintan Gandhi says: “This has been a long road, so it’s great to see this much-anticipated first set of draft regulations on CDC. For employers who are looking to follow Royal Mail’s lead by establishing their own CDC scheme, this provides first sight of the regulations they will need to operate under.
“While these employers are still awaiting – hopefully later this year – the Pension Regulator’s guidance and code of practice, including details of their proposed authorisation and supervision regime, this is the first necessary step on the journey to widen out CDC provision for all savers in the UK.
“We were also pleased to hear the Pensions Minister, Guy Opperman’s recent commitment to engaging, this autumn or winter, with employers which are looking to join with others to establish multi-employer and/or industry-wide CDC schemes. We believe that this would be a hugely positive step both in establishing CDC but also for providing good pension benefits for workforces up and down the UK.
“We therefore urge the government to press ahead with drafting its proposed regulations covering multi-employer CDC schemes, and also those provided through commercial master trusts. That is especially so given that two-thirds of those who responded to the RSA CDC Forum’s recent survey said that these approaches to CDC would actually work better for them. Given satisfactory legislation, 25 per cent of the respondents said they would be likely or very likely to set up a CDC scheme within the next five years.”