Pensions minister Guy Opperman has called on the industry to work with government on expanding the collective defined contribution market.
Speaking at a Royal Society of Arts CDC forum yesterday (March 28), Opperman expanded on the draft regulations due to come into force on August 1, and expressed his support for the expansion of CDC beyond the single-employer arrangements currently allowed for.
“CDC schemes have the potential to transform the UK pensions landscape and deliver better retirement outcomes for millions of pension savers,” he told the forum.
“I firmly believe that we should capitalise on the enthusiasm that is building for extending CDC to other types of pension scheme, such as multi-employer schemes and master trusts.
“I am keen to move quickly, but we must get this right if it is to work. That is why I am calling on all those who are seeking to deliver the full benefits of CDC to work with us to help make this a reality.”
The Pensions Regulator’s consultation into the code of practice governing CDC schemes closed on March 22, and various industry bodies expressed their concerns that the requirements set out were so strict as to risk strangling the sector at birth, with the Society of Pensions Professionals in particular calling measures in the draft code “significantly too onerous”.
Bodies including the SPP and the Pensions and Lifetime Savings Association criticised provisions in the draft code relating to application fees - said to be too expensive -, authorisation requirements - deemed "excessive” - and member communications requirements - considered “disproportionate”-, warning that they could stymie interest in single-employer arrangements.
The Association of Consulting Actuaries also warned that the draft code could lead to trustees taking an overly cautious approach in their investment strategies.
It was suggested that the regulator should look to review the code - which could form the basis for the future introduction of multi-employer arrangements - once the first few single-employer schemes are established, with a view to easing several of these requirements.
The Department for Work and Pensions has already begun engagement activities relating to the introduction of multi-employer CDC schemes, while TPR hopes to begin processing applications for single-employer schemes from August.
Responding to Opperman’s comments, Simon Eagle, chair of the Institute and Faculty of Actuaries’ CDC working party, cautioned that there are “further questions to answer in terms of broadening scheme design and facilitating adoption for willing employers and employees in the UK”.
“We see this as only the beginning and are pleased to see the pensions minister is keen to move quickly on the introduction of multi-employer and master trust CDC schemes in order to provide wider access to CDC including for employees of smaller organisations,” he said.
“We look forward to further DWP consultations on a package of prospective design principles and approaches to accommodate new types of CDC schemes later this year.”
LCP partner Steven Taylor, meanwhile, highlighted the strictness of existing regulations as a barrier to be overcome, and called for age-related contributions to be allowed in order to attract a wider range of schemes and members.
“It‘s been a concern that the scheme designs available are currently very restrictive and linked heavily to the Royal Mail design. This means regulations may not currently be flexible enough for schemes that are run in a different way. This is the first time that the pensions minister has explicitly asked for help to make sure that the structure is user friendly to more schemes,” he explained.
Royal Mail has been seen as the test case for CDC, since it is furthest along in the development of such a scheme. It launched a consultation in September 2021, and has since struck an agreement with the Communication Workers Union and Unite to continue with the planned roll-out of its new scheme, the hope being that it will launch in late 2022 or early 2023.
“The regulations now in place provide key groundwork for multi-employer CDC schemes, but some adjustments are likely to be needed to prove attractive to large employer groups and their employees,” Taylor continued.
“Allowing schemes to make age related contributions would be a game changer and will make it fairer for younger people. We believe there are ways that this can be achieved without introducing new risks to schemes."
Benjamin Mercer is a senior reporter at FTAdviser's sister publication Pension Expert
