On Tuesday 8 October 2024, the Department for Work and Pensions (DWP) published their consultation which puts forward draft regulations to allow CDC schemes to be set up on either a multi-employer or master trust basis, with a view to this legislation coming into force in 2025.
The draft regulations build on the existing single employer CDC regulations, adapting these to allow greater flexibility in scheme design – including designs where accrual rates and contributions would not have to be the same for all members. This flexibility would help to better manage the risk of cross-subsidies between employers, as well as between older and younger generations with the same employer. It would also enable employers to determine the level and cost of benefits they wish to provide to their own workforce, which could vary between employers in the same scheme. New actuarial tests would apply to ensure these new CDC scheme designs continued to be “sound”.
The draft regulations introduce a number of new roles in relation to multi-employer CDC schemes. These include a ‘Scheme Proprietor’ responsible for the scheme’s business strategy and financial sustainability, a possible ‘Chief Financial Officer’ and a ‘Chief Investment Officer’.
Recognising the potentially more commercial nature of multi-employer schemes, the draft regulations also introduce new criterion to ensure that the promotion or marketing of the scheme is not unclear or misleading and that there are adequate systems in place for ensuring this.
The consultation also proposes a threshold for benefit increases that can be applied annually; any further increase to member benefits beyond this point would need to be allocated as a one-off increase in a single year.
The consultation will run for six weeks, with responses due by 19 November 2024. WTW will be responding to the consultation.
On Monday 7 October 2024, Royal Mail launched their CDC scheme, making it the first Collective DC scheme in the UK. It will pool members' contributions and provide over 100,000 members with an income for life and a cash lump sum in retirement. WTW have been named as the Scheme Actuary to the scheme.
On Wednesday 9 October, WTW released a white paper contending that defined contribution (DC) is broken in its current form, and urging employers to engage on two questions: “can we do DC better?” and “can we do better than DC?”. In the paper, WTW set out four alternative pension designs which are distinctly different to current DC schemes. Each proposed design provides an income for life and seeks to improve expected member outcomes through risk-sharing in ways that enables higher returns. Two of the proposed designs are forms of CDC. The paper is intended to provoke debate around the issue of retirement inadequacy.
