We welcome the Government’s consultation response and final regulations on unconnected multi-employer CDC schemes. After years of build-up, they’ve rung the bell for the final lap on the race to be in the first wave of authorised schemes. CDC promises much for employees and employers, and with authorisation timetabled to start on 31 July 2026 we can start to realise that promise in 2027. For providers who will be committing multi-million pounds in spend to formally open their doors to people, this gives welcome certainty.
And yet, the devil is in the details still to come. The Pensions Regulator’s code of practice is yet to be consulted on (at the time of writing), and that will affect the costs, risks and practicalities of setting up a new unconnected employer CDC master trust. Finding ways to “tranche” by employer has proved just too difficult to get over the line for now, so more hard thinking on that lies ahead. But in all this we welcome the Government’s pragmatism and drive to help the industry get moving.
In a few places there’s a definite tilt to flexibility and influence of trustees. For example, being clear a CIO isn’t mandatory; removing the need for the scheme proprietor to sign off the viability report on an ongoing basis; and giving them the final say in the actuarial equivalence test.
There will be some important debates to be had in finalising the design of these schemes. While no one would argue against “fairness” or “excessive” cross subsidies in principle, how they operate in practice will require judgement and wisdom. As one example, the industry looks to be trending towards offering equal pension amounts for equal contributions for men and women. We support that, and given the scale of gender pension gaps, it definitely feels like the right approach. Yet through one lens, that means men are on average paying more for their pensions – some would argue this is not fair. For simplicity and practicality, a number of schemes will offer the same accrual rate for the typically shorter lived lower sociodemographic groups as for the typically longer lived higher sociodemographic groups. This would tend to lead to a cross subsidy from lower earners to higher earners. This is often the way DB schemes are run, but generally not how DC works where those cross subsidies don’t happen with each member having their own pot.
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