The government will lay regulations to allow unconnected multiple employer collective defined contribution schemes (UMES) in parliament and also launch a consultation on policy for retirement CDC schemes.
The Department for Work and Pensions (DWP) said the new regulations, to be laid in parliament tomorrow (23 October), will allow the expansion of CDC to more employers and will address a "growing demand among workers to receive a more secure retirement income".
it said it would additionally publish the government's response to its consultation on unconnected multiple employer CDC schemes.
The DWP said CDC schemes could boost retirement incomes by up to 60% at the same time as providing more security – adding that pooling funds could also enable schemes to make bigger investments in assets such as UK businesses and infrastructure projects.
The government said its consultation on retirement CDC - which will be launched today (22 October) - aims to allow people who have saved into a DC scheme to transfer their pension pot into a CDC scheme at retirement – a move it said that would be an additional innovation allowing more people to enjoy the perks of CDC.
The DWP said it anticipated that the framework for retirement CDC would be built on the UMES framework, which it said had been developed over time through multiple consultations, with broad support.
It said much of the policy consultation will therefore focus on the mechanisms by which members would join retirement CDC schemes – ensuring they are told the right information, at the right time, and are priced fairly and in a way which ensures the stability of the overall scheme.
The moves on multi-employer and retirement CDC build on the progress made by the UK's first single-employer CDC scheme, the Royal Mail Collective Pension Plan, which was launched last October and now has over 100,000 members and reflects growing demand for pensions that deliver a lifelong income.
The government said single employer CDC regulations were a "landmark moment" in the UK pensions market – saying the government was now "taking decisive action" on calls from the industry to expand CDC to more employers with the view that millions of workers will be able to access the many benefits CDC offers.
Ahead of the regulations being laid tomorrow, pensions minister Torsten Bell will be delivering a speech at an event at Aon's London offices today for the CDC Forum launch – setting out the benefits of CDC and outlining the next steps to implementing them.
Bell said: "Too often people approaching retirement are left navigating complex choices and shoulder risks they shouldn't have to face alone.
"Collective pensions offer a better deal, one where risks are shared, returns are smoothed and retirement incomes are stronger and paid for life."
He added: "By expanding CDC to more employers and consulting on retirement CDC, we are helping build a fairer pensions system that gives people confidence their hard-earned savings will last and they can enjoy their retirement."
A 'major step forward' for pension provision
CDC Forum director David Pitt-Watson commented on the government moves on CDC. He said: "This is a major step forward for pension provision in Britain. If employers who sponsor pensions follow through, it will mean private sector workers, as well as those in the public sector, have an effective pension which will last them until the day they die."
Aon partner and head of CDC Chintan Gandhi agreed: "These regulations are a huge step for UK CDC. They will open up the market to multi-employer whole-life CDC schemes, including those provided by master trusts, enabling them to meet the needs of all employers and the self-employed – regardless of the size of their workforce or their contribution budgets.
"In offering employees whole-life CDC, employers' and employees' defined contributions can be pooled, together with investment and longevity risks being shared across the entire scheme membership. Crucially, whole-life CDC provides employees with an income for life in retirement that is expected to keep pace with the cost of living, and without individual employees needing to make complex decisions. It's also exciting to see the emergence of a vision for retirement CDC which paves the way for all retirees – regardless of how they've built up their pension saving – to access the benefits of CDC when they retire."
Pensions UK executive director of policy and advocacy Zoe Alexander added: "Multi-employer CDC schemes have the potential to boost retirement savings by sharing risks between savers. Success depends on striking the right balance between strong protections for members, simplicity and fairness of scheme design.
"We agree with government that innovation in CDC carries huge promise for savers and are pleased that this Government is supporting the development of both multi-employer and at-retirement CDCs."
The Pensions Regulator chief executive Nausicaa Delfas urged the industry to "get involved" with the forthcoming consultation.
She said: "We are all working towards turning a savings system into a pensions system which provides a sustainable income through later life. Innovative solutions like retirement-only CDC schemes could play a part in this, and I'd encourage people to get involved with the upcoming consultation to ensure their ideas are heard."
New market entrants
TPT Retirement Solutions announced its intention to enter the multi-employer CDC pensions market in May – becoming the first to declare it would enter the multi-employer CDC market after pensions minister Torsten Bell set out the timeline for the legislation.
TPT is currently designing its multi-employer CDC scheme, with plans to complete authorisation by the end of 2026.
Commenting on the government's move to lay regulations, TPT Retirement Solutions chief client strategy officer Andy O'Regan said: "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."
He added: "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."
