Proposed regulations for Collective Defined Contribution (CDC) schemes could make it difficult for smaller schemes to offer these new pension arrangements, according to Aon.
It says the high bar needed for authorisation would make it “tough” for smaller schemes. However Aon says the proposed regime from TPR could pave the way for a swifter introduction of other forms of CDC, including commercial master trusts, multi-employer schemes and decumulation-only solutions.
Aon partner and head of CDC Chintan Gandhi says: “It’s hard to over-state the significance that the new CDC framework could have within the UK pensions industry. When further regulations from the Department for Work and Pensions (DWP) are finalised and introduced, it will mean the option of a CDC scheme is available to all employers and millions of currently under-served savers.
“CDC schemes are a valuable new way for employers and employees to enable saving for retirement, building a more resilient workforce and stronger financial wellbeing. CDC combines fixed contributions for the employer with a clear and targeted pension income for the member – and without individuals having to make complex decisions on investment and decumulation. The progress made over the last few years on CDC’s development has been a terrific example of the pensions industry working together and constructively.”
Gandhi adds: “This latest consultation from TPR has further progressed CDC’s emergence into the UK pensions market, but it does set what could be a disproportionately high bar for single-employer schemes.”
He said research by Aon last year found that 36 percent of respondents said they saw the benefit of setting up a single-employer CDC scheme to support their workforce. However, a further 51 percent indicated a preference for a multi-employer CDC scheme, or one set up by a commercial master trust. This would include a decumulation solution where they could provide an option for employees to buy a CDC pension at retirement.
Gandhi adds: “We know therefore that the appetite for wider forms of CDC is out there – but further work is required for this to be satisfied.”
Aon head of technical support and research Peter Williams says: “The proposed regulatory regime for single-employer CDC schemes is most likely to be of interest to large employers, but an extension to associated employer, commercial master trust and decumulation CDC arrangements is essential to open up the option for medium-sized and small employers, and even to individuals, too.
“We would urge both the DWP and TPR to move ahead with the amendments to both existing regulations and the Code to accommodate wider forms of CDC.”
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