The pensions industry has broadly welcomed The Pensions Regulator’s (TPR) proposals for a revised collective defined contribution (CDC) code of practice, but called for further consideration on marketing and investment strategy rules.

In December, TPR published a consultation on the CDC code to allow for the introduction of multi-employer CDC schemes, outlining the criteria for authorisation, TPR’s expectations of multi-employer CDC schemes, and how it will use its powers to support this new innovation to market.

Investment rules

Hymans Robertson partner and head of DC markets, Paul Waters, welcomed TPR’s move to a single code of practice for CDC, emphasising that it was good to see the regulator providing a significant level of detail to help proprietors prepare for authorisation.

However, he warned that clarity and proportionality would be critical, especially around investment strategy, sectionalisation, and what constitutes a ‘significant event’.

The Association of Consulting Actuaries (ACA) added that the draft code appeared to be more restrictive than the legislation and would effectively mean it was not possible to amend the investment strategy relating to existing benefits.

It suggested that the code should mirror the legislation more closely to avoid the over-sectionalisation of schemes, which it argued would negate the benefits of pooling in CDC.

TPT Retirement Solutions said it was encouraged by the draft code, stating that it struck a pragmatic balance in most parts between authorisation requirements and practicality for providers.

However, it also called for greater clarity around investment rules, including on what constituted a notifiable change to investment strategy and how this would interact with changes to member benefits.

“As CDC schemes grow and mature, asset allocations are likely to evolve, for instance to include more private assets; however, such a change should not necessarily require regulatory interactions,” TPT said.

Marketing rules

The pensions industry also highlighted rules around promotion and marketing for CDC schemes as an area that needed further consideration.

Waters stated that the intent to ensure accurate promotion was “absolutely right”, but warned that the current approach risked being too strict in practice.

“This could cause problems, particularly around trustee engagement with prospective employers,” he continued.

“With a new form of pension scaling up in the UK it is really important employees receive clear, straightforward communications. There is a risk that the draft code is a barrier rather than an aid to that.”

TPT also argued that some of the proposals around fit and proper tests needed further consideration to make the rules workable for schemes, especially in relation to those marketing schemes.

These sentiments were echoed by ACA honorary secretary, Chintan Gandhi, who said: “We agree with the code’s statement that it is 'highly likely' that promotional activities will take place between the scheme and (prospective) employers to induce them to into joining or remaining in the scheme.

“We cannot envisage circumstances in which a multi-employer scheme could operate without promotion and/or marketing.

“We suggest that the code should require that any scheme which intends to make use of the legislative carve out from the requirements for promotion and marketing - on the grounds that no promotion or marketing will be carried out - must make this clear in its application for authorisation and explain how it can operate without any promotion or marketing to employers.”

The ACA added that it did not think the ‘competence of persons who promote or market the scheme’ should focus on experience in a regulated environment, and it should be possible for CDC schemes to be set up and marketed by those with suitable experience advising employers on occupational schemes.

Approach

In terms of the approach to CDC’s future development, Waters called for a phased approach.

“CDC should be established as a solid workplace product first,” he said. “We are also keen to see a continuation to a future phase of longevity pooling giving providers wider freedoms to create overall retirement income products that meet member needs.

“Ultimately, we should move on to open up access to the whole population in retail versions in a safe and controlled way.

“Trying to offer a retail version from day one risks customer detriment and would considerably delay the launch, so we are supportive of the current approach which does not allow for retail CDC.”

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