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DWP launches CDC consultation
The Department for Work and Pensions has today launched a consultation on draft legislation needed to extend Collective Defined Contribution (CDC) pension schemes.
The DWP said the consultation “asks specific questions about some elements of the draft regulations and would also welcome broader views on whether the regulations effectively deliver our intended outcomes.”
The draft legislation seeks to extend CDC provision to whole-life unconnected multiple employer schemes and other related provisions.
The DWP said: “It removes the exclusion of unconnected multiple employer CDC schemes from operating under the existing CDC provisions and sets out what CDC schemes that are whole-life unconnected multiple employer schemes must do to become authorised and to operate effectively under regulatory oversight.”
The deadline for responses is 11:59pm on 19 November.
The launch of the consultation was largely welcomed by industry experts.
Nausicaa Delfas, chief executive of The Pensions Regulator, said: “Multi-employer CDC pension schemes offer the potential to deliver better outcomes for thousands of UK pension savers, turning a pension pot into a retirement income. I encourage industry to take part in the consultation and we look forward to working with Government to develop an appropriate regulatory regime.”
Chintan Gandhi, partner and head of collective DC at Aon in the UK, said: “This long-awaited consultation is the next big step for CDC. Opening up to multi-employer CDC schemes, including those provided by master trusts, will meet the needs of employers and the self-employed. We believe these have the potential to help over 30 million UK workers build up a pension.”
He also asked for the extension of The Pension Regulator’s CDC guidance , which he said was of equal importance. “It is only with visibility of the entire regulatory regime that providers can judge whether they can introduce multi-employer whole-life CDC scheme to the masses - and in a way that is commercially viable.”
He added: “Multi-employer whole-life CDC schemes - perhaps delivered by master trusts - will allow sharing investment and longevity risks across the entire scheme membership, while providing better pension outcomes in retirement, on average, than might otherwise be available. Whole-life CDC would provide employees with an income for life in retirement – an income that is expected to keep pace with the cost of living and without individual members needing to make complex decisions.”
David Brooks, head of policy at consultancy Broadstone, said: “Today’s consultation and the rhetoric from the Pensions Minister suggests CDC will be a core pension policy for the current Government. They seem clear that CDC could be an answer to many of the issues in the current pension system – including greater investment in the UK economy – and are looking to replace the reliance on individual defined contribution pots with pooling of collective pots.
“However, if CDC is to gain a foothold in the UK’s pension provision, then there has to be an allowance for unconnected employers to work together. If not, CDC will remain the domain of only the very largest employers. Embarking on another new model of pension saving will be an operational, accounting and financial challenge for many smaller employers who have just recently gone through the auto-enrolment reforms and there is uncertainty over how the partnership ‘club’ approach would work in reality."