On 25 May 2024 UK prime minister Rishi Sunak declared that the nation’s general election would take place on 4 July 2024, officially starting a pre-election period preventing central and local government from making any announcements about government initiatives.
A number of pension reforms were, however, expected to be finalised this summer, had the election not been called – one being for Collective Defined Contribution (CDC) schemes.
In November last year the Department for Work and Pensions (DWP) delayed the CDC consultation to early 2024 after its consultation on decumulation found the views on CDC were divided, with even those supporting the emergence of CDC schemes in the decumulation market, acknowledging that to facilitate it, the government would need robust legislation.
The DWP found that there was also need for a framework that would enable savers to not only compare CDC schemes but also compare annuities or drawdowns.
In particular, the DWP found that some respondents suggested that the cost of offering a CDC in decumulation would be higher than any of the other currently available products.
Hari Mann, co-chair of the CDC working forum at Royal Society of Arts, said the industry was hoping to see a consultation earlier in the year.
He said the consultation was going to be a “pivotal moment” presenting opportunity for schemes that were working on CDC behind the scenes to come forward and do it.
However, all of this has now been put “on hold” during the election period as a new government and a new timetable is awaited.
Mann expects the consultation is likely to now come in around autumn. However, he believes this delay should not affect the end point and legislation should still come in next year, before being tabled and come into force.
Cross-party support
He said that CDC reforms had cross-party support “for some time now”, despite being absent from the Labour Party’s manifesto.
“This might trigger people into thinking: ‘It’s not in the manifesto – are they going to do it?’,” he said, adding that the previous shadow pensions minister Liz Kendall – before resigning on 30 May 2024 — had stressed that CDC was still very much part of Labour’s agenda and trajectory.
“Of course Labour doesn’t have a shadow pensions minister at the moment; that does mean that there isn’t anyone to take that mantle on. But it has had cross-party support for quite some time and nothing has been said that would suggest that that cross-party support has been withdrawn from either political party,” Mann continued.
He added that with government trying to boost pension investment in UK growth, CDC should be a priority for whichever party that forms the new government.
“CDC could be a really important part of the Mansion House illiquid investment debate, and if that is the case, then any government should say: ‘If these are my priorities, I should make CDC happen sooner rather than later’,” he said.
Steven Taylor, partner at LCP, agreed that CDC should be a priority for any government looking to push forward the Mansion House agenda.
He said that CDC is “the easiest way” to help “get as much growth assets as possible into UK pensions”, adding: “CDC schemes will pretty much invest 100% in equities and other growth assets to start with and potentially in very, very large amounts.”
He stated that, therefore, whatever party forms the new government and for it to remain growth-focused, CDC should take priority as “some very large organisations” are currently interested in CDC and are just waiting for the legislation to come out.
Taylor said the industry was confident in the upcoming CDC reform and the work the DWP had been doing around it. He said the Department had been “quite open” in drafting the regulation; LCP has had “various discussions” with the regulator as to what it will look like.
Chintan Gandhi, head of CDC at Aon, noted a “very strong demand” for CDC schemes and expects the regulation to be extended to accommodate multi-employer whole life schemes, adding that a blueprint for these schemes was already published in January 2023.
He acknowledged the reforms could be delayed but said Aon would continue to support the DWP and other stakeholders in introducing CDC “as quickly as possible”.
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