UK government launches consultation on multi-employer CDC schemes

The UK government has today published a consultation on extending collective defined contribution (CDC) pension provision to whole-life unconnected multiple employer schemes and other related provisions.

The consultation follows the launch of the Royal Mail CDC scheme yesterday, which was branded as a “significant milestone” for the future of pensions and the development of CDC.

Building on the “significant appetite” from the UK pensions industry for extending CDC provision, the government is now seeking to broaden access further by allowing unconnected multiple employer schemes – making this pension model more accessible to a wider range of businesses and employees.

The government believes CDC schemes “have the potential to deliver reliable returns for savers, while ensuring more predictable costs for employers” and form part of wider plans for the future of workplace pensions.

The government is seeking industry views on new proposals to extend the current offering of CDC pension schemes to more employers, delivering better value for money for future pensioners and unlocking huge investment potential, it announced.

It pointed out that in Canada, the funds from pooled pension contributions are invested into a wider range of assets such as infrastructure, startups and private equity – which can benefit the wider economy and boost returns.

It believes that extending CDCs could similarly allow for greater return on investment for those saving into the schemes and allow for larger investment in the UK – supporting the government’s growth mission to boost the economy.

The consultation – which will run for six weeks until 19 November 2024 – seeks views from employers, industry experts, pension providers and the public on draft regulations and their potential impact.

Minister for pensions Emma Reynolds said: “We are seizing this exciting opportunity to modernise our pensions market to deliver better outcomes for millions of workers.

“People work hard to put money aside for their pension with every pay cheque. This significant innovation will offer a more predictable income and greater finance security for future pensioners.”

Nausicaa Delfas, chief executive officer of The Pensions Regulator, said that multi-employer CDC pension schemes offer the potential to deliver better outcomes for thousands of UK pension savers, turning a pension pot into a retirement income.

She said: “I encourage industry to take part in the consultation and we look forward to working with Government to develop an appropriate regulatory regime.”

Hari Mann, co-chair of the CDC working forum at the Royal Society of Arts, said the launch of the consultation today is “really good” news showing the government’s commitment to creating momentum for CDC in the UK.

“We strongly believe that the consultation will allow for many more organisations to set up CDC schemes and pave the way for this becoming the third pillar of the British Pension system,” he said.

He added that it is “helpful” that the government has included some discussion of decumulation CDC which will help in speeding up the process of setting up legislation for decumulation CDC to happen.

He said: “This is a really important next step in the journey and evolution for UK CDC.”

Expressing interest

Church of England Pensions Board (CEPB) has already expressed interest in seeing how the arrangement might transform the retirement plans for those who work for the Church.

John Ball, CEO of the CEPB, said: “We welcome the publication today of draft regulations that support the creation of multi-employer CDC pension schemes. We look forward to scrutinising the detail, and to seeing how in due course, such an arrangement might transform retirement plans for those who work for the Church.”

LCP, which is working with CEPB to explore how CDC might work for its scheme members, said the announcement brought “helpful clarity” about how such schemes could work and prompt many of the UK’s largest groups to think seriously about opening up fresh pension options for millions more employees across the UK.

Helen Draper, partner at LCP, said the release of the consultation following the launch of the first UK CDC scheme earlier this week adds further momentum to the UK’s developing CDC market.

“These regulations have been eagerly awaited by many in the industry, who want to harness the advantages of CDC to benefit their membership”

Helen Draper, partner at LCP

She said: “These regulations have been eagerly awaited by many in the industry, who want to harness the advantages of CDC to benefit their membership.

“This consultation gives some much-needed certainty and should enable them to progress with developing their multi-employer CDC schemes. We will work with our clients and DWP to respond to this and finalise the regulations and look forward to making the benefits of CDC accessible to a wider audience.”

According to Andy O’Regan, client and strategic partnership director at TPT Retirement Solutions, said the new rules will make it possible for all employers to provide their staff with a CDC pension scheme, disclosing that the firm has already been speaking to around 200 employers who have expressed interest in CDC.

He said: “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.”

However, while the CDC could be an answer to many of the issues in the current pension system, David Brooks, head of policy at Broadstone, warned that if CDC is to gain a foothold in the UK’s pension provision, then there would have to be an allowance for unconnected employers to work together or CDC would 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,” said O’Regan.

“The design, regulation and authorisation of these schemes will also need to be implemented correctly, and the current consultation will form the bedrock of this,” he added.

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