David Brooks, Head of Policy at leading independent consultancy Broadstone, commented: “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.”
Chintan Gandhi, partner and head of Collective DC at Aon in the UK, said: “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.” “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.”
Matthew Arends, partner and head of UK Retirement Policy at Aon, said: “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.”
Andy O'Regan, Client & Strategic Partnerships Director at TPT Retirement Solutions, said: “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.”
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