The government has given the green light on regulations for multi-employer collective defined contribution (CDC) pension schemes, estimating that millions of people across the UK could see their pensions increase by up to 60 per cent under the new savings vehicle.

The regulations, which are set to be laid in parliament tomorrow (23 October), are intended to allow the expansion of CDCs to more employers and address a growing demand among workers to receive a more secure retirement income.

This comes after research revealed that almost three-quarters of people with defined contribution (DC) schemes want a guaranteed income from their pension, despite 50 per cent of pots currently being taken out as a lump sum.

In addition to improving member outcomes, the government said that pooling funds through CDC is intended to enable schemes to make bigger investments in assets such as UK businesses and infrastructure projects.

This is expected to help support the government's plan for change, by driving economic growth and improving retirement outcomes for "millions of savers".

Alongside the news of the new CDC regulations, the government has launched a consultation on retirement CDC, which would allow people who have saved into a DC scheme to transfer their pension pot into a CDC scheme at retirement.

The aim of this is to see more people receive a regular income for life which aims to keep up with rising prices without having to worry about managing their retirement money themselves or working out how long their savings need to last.

Much of this consultation is set to 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 latest updates around CDC build on the previous progress made by the UK’s first CDC scheme, the Royal Mail Collective Pension Plan, which was highlighted at the time as the start of a "new pensions era".

Commenting on the news, Pension Minister, Torsten 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.

“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.”

CDC Forum director, David Pitt-Watson, also described the news as 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," he added.

The news has been broadly welcomed by industry experts, as Pensions UK executive director of policy and advocacy, Zoe Alexander, said that 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," she continued.

"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.”

Adding to this, The Pensions Regulator CEO, Nausicaa Delfas, 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.”

Aon partner and head of collective DC, Chintan Gandhi, also highlighted the regulations as a "huge step" for UK CDC, while TPT Retirement Solutions chief strategy officer, Andy O’Regan, described the news as a "major leap forward for the UK pensions industry".

"For the first time, employers of all sizes will be able to access the benefits of CDC provision, paving the way for better outcomes for members and greater scale in this new model," O'Regan continued.

"Earlier this year, we announced our intention to launch a multi-employer CDC scheme – just days after Pensions Minister Torsten Bell set out the timeline for this new legislation."

He also welcomed the consultation on retirement CDC, pointing out that while CDC in decumulation does not pool investment risk in accumulation, 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," he stated. "We will continue to engage with government to help shape the regime for this model.”

 

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