For reasons that I do not understand, the government currently proposes that master trusts will be specifically excluded from operating CDC schemes. So, for now at least, there’s no point in small employers planning to club together into one multi-employer CDC scheme.
The DWP has now thrown its full weight behind CDCs – producing a detailed consultation paper framing the legislation needed for CDC and in particular the new Royal Mail scheme.
They are clearly staking an early claim for space in the post-Brexit legislative calendar. Insiders suggest we could even make the first CDC scheme live in 2020.
So, if a new type of workplace pension is being introduced into the UK, why is this still needed now that we have the freedom to move between Defined Benefit (DB) and Defined Contribution (DC) schemes, especially as auto-enrolment is such a success in getting nearly 10m people saving, albeit largely at the prescribed minimum contribution levels and investing in low-risk default funds?
Is the emerging CDC a response to:
- Declining access to (and number of) DB pension schemes?
- Desire by employers to reduce or eliminate large long-term pension liabilities implied by running final salary pensions as a growing negative balance sheet item?
- Concern that DC pensions open less engaged savers to the prospect of under-saving for retirement?
The answer could be Yes to all of the above. But nevertheless, despite the fact that CDCs are already in quite wide use in Denmark (enrolment into a CDC is compulsory there for employees) and the Netherlands (it has 260 CDC schemes operating today), the concept might not have made it over the North Sea but for The Royal Mail working in close concert with the Communication Workers Union to create the necessity for it.
Royal Mail Pension Plan
Let me explain. Like many large DB schemes, the Royal Mail Pension Plan closed to new members in 2008 as the firm detected that rising DB liabilities were looking unaffordable longer term.
By April 2012, the company managed to pass responsibility for historic pension liabilities from the RMPP to the Government.
Then, following consultation with RMPP members in early 2017, it announced its decision to close the RMPP to future accruals in March 2018.
Following this announcement from October 2017, The Royal Mail and the CWU began negotiating on behalf of postal workers for future pensions, pay and conditions, all mediated by The Advisory, Conciliation and Arbitration Service.
