Pensions - Articles - Comments on Collective Defined Contribution regulations

 Andy O’Regan, Chief Client Strategy Officer at TPT Retirement Solutions, said: “The publication of multi-employer Collective Defined Contributions (CDC) regulations marks a major leap forward for the UK pensions industry. For the first time, employers of all sizes will be able to access the benefits of Collective DC provision, paving the way for better outcomes for members and greater scale in this new model. The new rules will allow more workers to receive incomes for life in retirement, avoiding the need to make difficult decisions, while employers will maintain the cost certainty they have with DC provision. Earlier this year, we announced our intention to launch a multi-employer CDC scheme – just days after Pensions Minister Torsten Bell set out the timeline for this new legislation, so we’re proud to be leading the next wave of pension innovation in the UK. We are also pleased to see that government has today published its plans on retirement CDC for consultation. Unlike the whole-life model, CDC in decumulation does not pool investment risk in accumulation, but it does take advantage of longevity pooling in a similar way, to provide a lifelong income in retirement. As such, this model could be of particular interest to DC schemes which will be required to offer members a ‘guided retirement default’ in future years. We will continue to engage with government to help shape the regime for this model."

 Mark Futcher, Partner and Head of DC Pensions at Barnett Waddingham (BW): “Following the Pensions Commission launch earlier this year, a green light on CDCs reinforces the Government’s ambition to drive reform that delivers better retirement outcomes. But while this momentum is encouraging, good reform should be about cultivation, not upheaval. CDC offers potential, but much of what it seeks to fix can already be addressed within the existing DC system if providers are simply given the room to innovate. Any development that supports stronger retirement futures should be welcomed, but the challenge will be achieving progress without adding unnecessary complexity.”

 Lynne Rawcliffe, Pensions Trustee Director at Law Debenture, commented: “New regulations for Collective Defined Contribution (CDC) schemes mark a seminal moment in the pensions industry. These changes are a sign of real progress as savers are truly placed at the heart of a member-first approach, and could see material benefits in comparison to typical DC schemes. This will also be good news for employers, who can use CDCs without being exposed to the financial risk associated with traditional defined benefit pensions and maintain a fixed contribution structure akin to a DC arrangement. While this is positive news, it is going to require a collaborative approach across the pensions landscape. It’s vital that trustees are involved early in the process, and play a key role in shaping member expectations and providing crystal-clear communication on CDC benefits."

 Jon Hatchett, Senior Partner, Hyman Robertson says: “Today’s regulations are the final piece of the jigsaw needed for CDC to take off in the UK. Our research and work with employers has shown that multi-employer CDC master trusts are the vehicle that the vast majority of employers want for CDC. This is not a surprise when you consider the success and popularity of DC master trusts. We now have the regulatory certainty needed for providers to design and launch CDC schemes. The benefits of CDC are clear from our research – a higher pension and a secure income for life. It’s good to see the focus on retirement CDC with the announcement of today’s consultation. Retirement CDC has an important role to play in the drive for greater adequacy, particularly for existing older DC members who will not be able to have the benefit of decades of saving into a whole of life CDC scheme. This would be a welcome new option at retirement for schemes that will be complementary to DC and able to fit around the existing workplace DC framework. The benefits of pooling longevity risk are especially important for pensioners, as for the typical person those risks are intractable in drawdown. With the Pensions Schemes Bill including provisions for a default retirement approach that includes a degree of longevity protection, we expect it to play a prominent role as an ideal solution. It’s great that the Government is building on all the progress and effort that has gone into developing whole of life regulations; it means we should see retirement CDC come to life much more quickly. With the Pension Commission working on how to improve retirement adequacy across the UK, CDC has a valuable role to play. It gives another option over and above just putting more money into a pension through increased contributions. Both are important and can work together. In our ‘Untapped Potential of Pensions’ paper we advocated for an increase auto enrolment minimum savings rate of 12% of pay, but noted that CDC schemes may be able to deliver a higher level of benefit. CDC could operate at 1% or 2% below this 12% rate and still deliver more for members. We’d love to see the Commission explore the role that CDC can play here and how ideas like this could provide a win for members, employers and government.”