Collective pensions a step closer
that multi-employer CDC schemes will open to members in 2027.
New Collective Defined Contribution (CDC) workplace pensions could be operational by mid-2027, offering family businesses a new way of rewarding their employees after a lifetime of service. At the end of last year, a new code of practice that funds will be expected to follow was published by the Government and the Pensions Regulator, paving the way for the new schemes. This is great news, because we don’t just want the better pension outcomes that CDC pensions will bring to employees; we also want safe and well-run pensions. Background Discussions about CDC schemes first arose in the 2010s. Successfully operated in countries like Canada and the Netherlands, they offer a third way for pensions. Sitting between a Defined Benefit (DB) and Defined Contribution (DC) scheme, they enable employers and employees to make fixed contributions into a shared fund. The Royal Mail pension scheme became the first (and only) UK authorised CDC scheme when the Royal Mail could no longer afford its legacy DB scheme and the Communication Workers Union refused to accept a replacement DC scheme. CDC pensions are one of those rare beasts that enjoy political consensus. First introduced by a Liberal Democrat minister in the coalition government, the Royal Mail CDC happened under a Conservative government, and it will be under this Labour government
I welcome this rare show of unity because any family adopting CDC for their business will want to feel confident that this is a plan that is here to stay for the long term. Benefits of CDC schemes These new schemes will operate on a “master trust” principle. It is not one scheme for each employer; it’s several like-minded employers each participating in a single trust through a deed of adherence. This enables real long-term investment and brings great economies of scale. Several studies suggest that, by operating collectively, CDC pensions are expected to deliver higher retirement incomes. These studies, which have been done independently by actuaries and academics, show that when members collectively invest, the results are superior to the individual “every person for themself” basis of many of today’s DC workplace pensions. Between a quarter and half as much more income could be delivered using a collective framework. Unsurprisingly, CDC pensions are getting quite a few followers. A recent informal meeting with the Pension Regulator confirmed that it is seeing several prospective CDC scheme proprietors trek down to its Brighton offices to begin staking their claim to a piece of the action. Due diligence
Adrian Boulding CDC Specialist, Western Pensions Solutions
Not everyone will be able to set up a
FBUK Issue 6 26
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