Pensions - Articles - Proposed CDC regulations make it tough for small pensions


Aon has said that while the proposed new Code of Practice on Collective Defined Contribution (CDC) pension arrangements from the UK’s Pensions Regulator (TPR) sets a high bar for the approval of individual employer schemes, it could pave the way for swifter introduction of other forms of CDC. These could include multi-employer schemes, commercial master trusts and decumulation-only solutions.

 Chintan Gandhi, partner and head of CDC at Aon, said: “It’s hard to over-state the significance that the new CDC framework could have within the UK pensions industry. When further regulations from the Department for Work and Pensions (DWP) are finalised and introduced, it will mean the option of a CDC scheme is available to all employers and millions of currently under-served savers.

 “CDC schemes are a valuable new way for employers and employees to enable saving for retirement, building a more resilient workforce and stronger financial wellbeing. CDC combines fixed contributions for the employer with a clear and targeted pension income for the member – and without individuals having to make complex decisions on investment and decumulation. The progress made over the last few years on CDC’s development has been a terrific example of the pensions industry working together and constructively.”

 Chintan Gandhi continued: “This latest consultation from TPR has further progressed CDC’s emergence into the UK pensions market, but it does set what could be a disproportionately high bar for single-employer schemes. In research last year by Aon, 36 percent of respondents said they saw the benefit of setting up a single-employer CDC scheme to support their workforce. However, a further 51 percent indicated a preference for a multi-employer CDC scheme, or one set up by a commercial master trust. This would include a decumulation solution where they could provide an option for employees to buy a CDC pension at retirement. We know therefore that the appetite for wider forms of CDC is out there – but further work is required for this to be satisfied.”

 Peter Williams, head of Technical Support and Research at Aon, said: “The proposed regulatory regime for single-employer CDC schemes is most likely to be of interest to large employers, but an extension to associated employer, commercial master trust and decumulation CDC arrangements is essential to open up the option for medium-sized and small employers, and even to individuals, too. We would urge both the DWP and TPR to move ahead with the amendments to both existing regulations and the Code to accommodate wider forms of CDC.”
  

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