The Pensions Regulator (TPR) has authorised the Royal Mail Collective Pension Plan, the first collective defined contribution (CDC) pension scheme in the UK.
The Pension Schemes Act 2021 established a framework for the authorisation and oversight of CDC schemes and stipulates strict requirements for them, including the propriety and competence of those in charge, the use of reliable systems and procedures, financial stability, and member communications. The right to intervene has been given to TPR.
Currently, employers can create CDC schemes specifically for their own staff or for employers belonging to the same group of companies.
The Act does, however, also include clauses that will allow for future CDC market expansions, like plans for networks of businesses without a formal connection. TPR is closely collaborating with the Department for Work and Pensions (DWP) on this issue, and a response is anticipated soon. The DWP has requested advice on expanding options for CDC schemes.
Standard Life, part of Phoenix Group managing director of individual retirement Claire Altmaat says: “The industry is thinking carefully about how we can deliver better outcomes for savers and CDCs could prove to be a useful part of the toolkit. For those employers who still offer defined benefit schemes, CDCs could provide a half-way house between defined benefit and defined contribution arrangements, particularly as it reduces costs and risk for the employer.
“For employees, CDCs can potentially offer more certainty of outcome than that provided through defined contribution schemes. However, it’s important to ensure CDC schemes will be sustainable and that proper protections are in place if things don’t go as expected, given the expectations CDC schemes could raise with savers.
“It’s important to think about CDC in the context of the wider range of options and what these can achieve. There is a lot happening in the retirement space, and while it is great that CDC will be an option, we shouldn’t forget that other solutions are available to savers. In particular, the end of the era of low interest rates has made annuities a more attractive option for those looking to secure a guaranteed income and this is a welcome development, since over three quarters (78 per cent) of people tell us they want income certainty in retirement.
“Furthermore, thinking has moved on in favour of a more blended approach that allows people to achieve the best of an annuity and drawdown. We expect to see significant innovation and product development over the next couple of years, and welcome CDC being part of the pensions saving toolkit.”
Aon in the UK partner and head of collective DC Chintan Gandhi says: “All those involved in helping the Royal Mail Collective Pension Plan (RMCPP) reach this milestone really deserve congratulations. In my view, CDC is the greatest innovation we have seen in UK pensions in a generation – and it’s inspiring to see what the industry can achieve when it works together towards a common goal.
“We wholeheartedly agree with Laura Trott’s comments that the authorisation of the first CDC scheme, the RMCPP, is a landmark moment for UK pensions, and that this is just the beginning.”
Aon associate partner Madalena Cain says: “In efforts that stretch back over 10 years, Aon has done considerable work in preparing the way for CDC and in supporting employers and providers in developing their CDC vision. It’s clear to us that more CDC schemes will be established in future.
“We strongly support the DWP’s plans to legislate for wider forms of CDC schemes to exist, in particular to introduce legislation covering both whole-life multi-employer CDC schemes and decumulation-only CDC solutions. This will bring CDC to the masses, and we urge the government to commit to ensuring the regulations are in place for these wider forms of CDC by the end of 2024.”
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