The Department for Work & Pensions’ initial set of CDC regulations and The Pensions Regulator’s CDC Code & Guidance both come into effect today, the first significant legislative step in what could be a ground-breaking change for the UK pensions industry.
Chintan Gandhi, partner and head of Collective DC at Aon in the UK, said: “This is ‘CDC Day’ – the day that CDC schemes become part of mainstream pensions in the UK. It’s a big moment in what has already been an almost 10-year process – and it’s the direct result of the incredible thinking and work that’s taken place in the industry. In my opinion, this is the biggest innovation for UK pensions in a generation.
“It is, of course, just the start - there is much more to come over the next few years. Beyond the single-employer designs permitted by today’s new regulations, there are the perhaps even more significant innovations that are likely to emerge and to have a real impact on employers and pension savers. These include introducing multi-employer, industry-wide and commercial master trust CDC solutions that will allow employers of all sizes and pension contribution budgets to pool risk together and provide CDC pensions. This would expand the accessibility of CDC schemes to millions more people and offer them access to an income for life in retirement, without having to buy an annuity, as they seek to make better financial decisions.”
Chintan Gandhi continued: When commercial master trusts are able to offer decumulation-only CDC solutions, there is the prospect of anyone – in whatever way they have built their pensions pot – having the option to buy a CDC pension at retirement with some or all of those savings. This would be a huge change in the UK pensions landscape.
“However, further expansion of the CDC regulations introduced today will be needed to unlock these possibilities. The Government has committed to consulting by the end of this year on the principles on which they intend to regulate, followed by the final regulations.
“The next key date is likely to be in 2024, when CDC is fully opened up for non-connected employers and commercial master trusts. But today is when all this starts. Aon has always been enthusiastic about the potential of CDC but we can now be excited by the reality and the positive impact that all these changes look set to have on the UK’s pensions savers.”
More information about Aon’s CDC research is available here.
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