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CDC is coming faster than we may have thought
Author Henry Tapper for AgeWage Posted on July 14, 2021 18:50
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The Minister tweets woke us up this morning

Guy Opperman this morning announced on twitter the timeline for the development of CDC as a viable third way for British workplace pensions. The thread of tweets was posted prior to a CDC forum organised by the Royal Society of the Arts which features the Pensions Minister

Today I will be with @theRSAorg as part of their Collective Defined Contributions (CDC) Forum, that we agreed to set up following the passage of the Pensions Schemes Act in January 1/ https://t.co/DDyV69BCWq
— Guy Opperman (@GuyOpperman) July 7, 2021

As Pensions Minister I have championed #CDCs to provide a third way between DB and DC. This clearly fills a gap and a need in the world of occupational pensions, and our innovative approach was welcomed cross party, as it was passed in @HouseofCommons 2/ https://t.co/dexeC2TsQw
— Guy Opperman (@GuyOpperman) July 7, 2021

I am certain other employers will follow and I am publishing the regulations within a fortnight or so. We will then move on to multi employer CDCs as we widen the scope of our offer. That process will involve extensive multi employer engagement this autumn / winter 4/
— Guy Opperman (@GuyOpperman) July 7, 2021

CDCs are the third way forward for many employers, employees, unions and stakeholders ... and I am sure ...#ifyoubuildittheywillcome 5/ pic.twitter.com/okaPu81JkQ
— Guy Opperman (@GuyOpperman) July 7, 2021

This is a tangible step forward. It should be part of the consolidation agenda for large multi-employer DC schemes are most in need of a default means to pay a wage in retirement to their millions of members.

Investment pathways work for those who are keen to engage in their financial planning but for those who aren't, CDC looks the way forward.

CDC Forum kicked off bright and early

Speaking at the RSA CDC forum , Opperman repeated the timetable laid out on twitter and insisted that the consultation on the forthcoming detailed regulations will be brief. He apologised to the audience that he couldn't bring the regulations with him but promised us them within two weeks.

The minister and his team will be spending the latter half of the year engaging with multi-employer schemes on what secondary regulations should look like. The regulations making CDC "amenable" to master trusts will come n 2022.

He concluded by saying that pension policy should be designed to last at least 30-40 years. He added that CDC would last a great deal of time, will be "great" and will "transform pensions".

This final sentiment was echoed by Matt Rodda, the shadow pension minister who followed David Lynden, the SNP pension spokesperson who also expressed support, pointing out the role of CDC in investing in the wider economy through its capacity to adopt more ambitious investment strategies.

RSA Survey results were revealed by David Pitt-Watson

The RSA published a survey of employers , the results of which were displayed in the following slides

The respondents were drawn from a wide range of employers

There was a clear consensus that the purpose of a pension scheme should provide a wage for life solution (aka - a pension)

The vast majority of respondents thought multi-employer scheme worked better for this than single employer schemes

A majority of respondents that expressed an opinion saw CDC as a way or buying a wage for life , rather than a whole of life pension scheme

The majority of respondents did not see their employer as providing a CDC pension . Only a quarter did see this as likely ,even if legislation permitted.

There remain a lot of barriers to employers providing CDC pensions, it would be interesting to see the response if this question was asked of individuals making decisions to transfer their pot(s) into a CDC scheme without the need for an employer to make that scheme available.

Panel Session

The panel session that followed displayed a variety of views from actuaries and lawyers. It might have been helpful to have had a couple of employers and maybe some savers on the panel to balance things out.

Thankfully, Jo Cumbo as chair did a good job of raising concerns

Perhaps the most interesting area of discussion was around the transfer-in of DC pots to a DC scheme. Derek Benstead was clear that actuarial factors could be devised to ensure that this could happen where CDC accumulation was going on. This is a highly contentious area and I have heard from Derek's colleague Mark Rowlinson and from Con Keating, concerns about how this might work and reservations regarding intergenerational fairness.

From the social stable!

Meanwhile, Damian Stancombe was busy stoking the fires of debate on linked in with this interesting chart

What kind of an employer would accumulate and decumulate with CDC?

Derek Benstead made the point this morning that there are some large employers with DB schemes with DC sections / separate DC schemes.

Here the DB spend is disproportionate and where it is possible to provide a one size fits all solution (as Royal Mail did) then CDC offers a third way for accumulation and decumulation. I am sure we can all think of candidates.

This seems the most obvious reason for a single employer to use CDC (though you might argue that USS, Railways, LGPS are all multi-employer DB master trusts - which narrows the field down a little!)

Derek says First Actuarial have clients who think this way, so do WTW and Aon. Will we hear more from them once the regulations are published in the next couple of weeks?

The debate I'd like to see next...

For me, the key question that needs to be debated is "how important is an employer to CDC?"