UK pensions minister Torsten Bell has confirmed that regulations allowing for multi-employer collective defined contribution (CDC) pension funds will be laid in the autumn of 2025.
According to the minister, “several organisations are actively looking to set up an unconnected multiple CDC scheme” at the moment, he said while speaking at an LCP conference in London yesterday.
While praising the success of automatic enrolment, with £28bn more saved in 2020 than in 2012, the Department for Work and Pensions (DWP) said that lack of innovation and reform of the DC savings landscape risks some future pensioners bearing large risks, in terms of the value of their investments and whether their savings will provide an income throughout their retirement.
The government believes that due to their size, CDCs can be a more efficient vehicle for economic growth, with similar collective funds in Canada and Australia having proved an efficient way of supporting economic growth, investing in a wider range of sectors and assets.
It added that CDC schemes can invest in illiquid and more productive investments over the long term, including in UK businesses and infrastructure projects, supporting the government’s growth mission while providing employers with greater freedoms as well as reducing the risks of over- or underspending in retirement by paying pensioners based on life expectancy.
In the UK, Royal Mail has already launched a CDC scheme for its employees, which has more than 100,000 members who are offered a combination of a cash lump sum and an income for life in retirement.
The government launched a consultation on multi-employer CDC schemes in October 2024.
“Success in the world of pensions isn’t just about getting people saving, it’s ensuring their savings work as hard as possible for them”
UK pensions minister Torsten Bell
Bell said: “Success in the world of pensions isn’t just about getting people saving, it’s ensuring their savings work as hard as possible for them. Making sure more employers and savers have the option of an innovative Collective Defined Contribution Pension scheme is an important part of making that happen.”
He added: “Too often at present, we are leaving individuals to face significant risks about how their investments perform and how long their retirements last. Pooling some of those risks will drive higher incomes for pensioners and greater investments in productive assets across the economy.”
LCP head of CDC Steven Taylor said: “It was brilliant to hear the minister’s vision for how new CDC schemes can significantly improve member outcomes, unlock productive investment and come at no extra cost to employers.”
Taylor “couldn’t agree more” noting that multiemployer CDC can improve retirement incomes by up to 50% compared to traditional annuities. “This really could be a case of ‘better for members, better for sponsors and better for society’,” he added.
LCP partner Helen Draper commented: “For some, continued improvements to drawdown will make these solutions compelling. But for many large groups of members, we believe the improved potential outcomes and member experience of CDC mean trustees and sponsors will now need to think about how to incorporate CDC into their strategies.”
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