Millions Of Workers To Benefit From Modernised New Pensions System

9th October 2024

Millions of workers stand to benefit from greater financial security in later life following a consultation launched today.

Government unveils plans to modernise pensions and give workers greater security in retirement.

Consultation launched to extend Collective Defined Contribution (CDC) pension provision, helping support the Government's growth mission.

Regulations form part of wider plans for future of workplace pensions to help increase returns for more people and ensuring greater value for money.

Following the Chancellor’s recent visit to Canada to see how retirement schemes successfully pool contributions from employees into larger funds that are managed by investors, the UK government is fast-tracking plans to modernise its own pensions system by broadening access to Collective Defined Contribution schemes.

Collective Defined Contribution (CDC) pension schemes, first introduced to the UK in 2022, have the potential to deliver reliable returns for savers, while ensuring more predictable costs for employers.

Today, industry experts, savers and pension providers can have their say on new proposals to extend the current offering of CDC pension schemes to more employers, delivering better value for money for future pensioners and unlocking huge investment potential.

In Canada, the funds from pooled pension contributions are invested into a wider range of assets like infrastructure, startups and private equity - which can benefit the wider economy and boost returns.

Extending CDCs could similarly allow for greater return on investment for those saving into the schemes and allow for larger investment in the UK – supporting the Government’s growth mission to boost the economy.

Minister for Pensions, Emma Reynolds, said, "We are seizing this exciting opportunity to modernise our pensions market to deliver better outcomes for millions of workers.

People work hard to put money aside for their pension with every pay cheque. This significant innovation will offer a more predictable income and greater finance security for future pensioners.

Currently only single or connected employers can set up CDC schemes, with the first scheme launched by the Royal Mail yesterday.

Building on the significant appetite from industry for extending CDC provision, the Government is now seeking to broaden access further by allowing unconnected multiple employer schemes – making this pension model more accessible to a wider range of businesses and employees.

This work builds on plans to review our pensions landscape as well as our new Pension Schemes Bill which could boost pension pots – with further consolidation and broader investment strategies to possibly deliver higher returns for pensioners.

The consultation seeks views from employers, industry experts, pension providers and the public on draft regulations and their potential impact.

The consultation will run for six weeks – opening today and running until 19 November 2024.

John Ball, Chief Executive of the Church of England Pensions Board said, "We welcome the publication today of draft regulations that support the creation of multi-employer CDC pension schemes. We look forward to scrutinising the detail, and to seeing how in due course, such an arrangement might transform retirement plans for those who work for the Church.

Andy O’Regan, Client & Strategic Partnerships Director at TPT Retirement Solutions, said, "The introduction of multi-employer whole-of-life CDC scheme regulations will be a landmark moment for UK pensions. Previously, CDC schemes had only been viable for the largest employers. These new rules will make it possible for all employers to provide their staff with a CDC pension scheme. We’ve already been speaking to around 200 employers who have expressed interest in how a CDC scheme could be delivered for their employees.

Multi-employer CDC schemes have the potential to bring a host of advantages to pension savers when compared to traditional DC schemes. CDC schemes pool longevity and investment risk. This means that, compared to DC, they are expected to achieve higher benefits as well as provide members with an income for life. An added benefit is the removal of some of the complex financial decisions pension savers are required to make under DC. CDC schemes may also be more likely to invest in productive assets which could encourage economic growth and generate higher long-term returns for scheme members.

This consultation will open the door to CDC for all employers regardless of size, with the first multi-employer CDC scheme potentially launching within a couple of years. We believe many employers, pension savers, and the wider economy could benefit from the introduction of these schemes. We look forward to responding to this consultation in due course.

The consultation has been published on gov.uk: The Occupational Pension Schemes (Collective Money Purchase Schemes) (Extension to Unconnected Multiple Employer Schemes and Miscellaneous Provisions) Regulations 2025 - GOV.UK (www.gov.uk)].

This consultation launch follows the official launch of the UK’s first CDC scheme, the Royal Mail Collective Pension Plan which is a truly landmark moment for the UK pension landscape.

The draft regulations amend the Pension Schemes Act 2021 to remove the exclusion of whole-life unconnected multiple employer CDC schemes from operating.

The draft regulations set out what unconnected multiple employer CDC schemes must do to become authorised, to operate effectively under regulatory oversight, and what should happen if changes need to be made to these schemes.

The authorisation regime is designed to protect members and to build confidence in this new type of CDC provision by ensuring only soundly designed and well-run schemes can operate.

We plan to introduce legislation in 2025, and subject to parliamentary approval, we intend to bring the legislation and an updated Regulator’s Code into force as soon as practicable after that.

CDC pension schemes – where employer and employee contributions are pooled into a single fund - spread risk and smooths the impact of any market volatility to provide a more predictable pension income based on collective investment performance.

Pooling risk also means that schemes can invest more in growth assets, including in the UK, and for longer than an average defined contribution (DC) scheme, supporting the Governments’ growth mission.

CDC schemes offer members a seamless transition to a regular retirement income without the need to make complex financial decisions.