Collective defined contribution schemes launched in Great Britain – DC and auto-enrollment

Under CDC plans, employers and employees pay a fixed rate of contribution, which is collected in a manner similar to defined contribution plans. Benefits are paid out with a goal in mind, similar to defined benefit plans, but with the potential for variable increases – and the potential for decreases.

It aims to provide pension with cost certainty, with no potential for losses in DB arrangements, while providing a higher average pension in retirement than is usually available from DCs.

CDC plans operate as collective investment funds, thus reducing volatility and stabilizing member pension levels, while freeing members from the need to make complicated individual investment decisions and removing the risk that they Can run out of money in retirement.

The pension regulator began a consultation in January into the code governing single-employer CDC arrangements, and the current regime is limited to that type of arrangement.

Although the Department of Work and Pensions has confirmed that work has begun on expanding CDC to cover multi-employer arrangements, the TPR’s single-employer code could potentially expand CDC’s scope of future regulations. serving as a basis.

DWP plans to consult later in the year on potential design principles to accommodate the new types of CDC plans.

The trustees of CDC plans will be responsible for oversight, ensuring that the plans are viable and legal requirements and members are able to meet their duties.

“We have seen the positive impact of these plans in other countries and it is abundantly clear that, when well designed and well run, they have the potential to provide better retirement outcomes for members and Markets can be resilient to shocks,” Opperman said. ,

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“I have no doubt that millions of pension savers will benefit from CDC in the years to come.”

Nigel People, director of policy and advocacy at the Pension and Lifetime Savings Association, said: “PLSA supports innovation within the pension sector where it improves people’s retirement. CDC blends some of the desirable elements of DB, such as Clear target results for the saver, and projected contributions for DCs, such as employer and member.

“By combining longevity risk and the ability to invest money over the long term, CDC has the potential to provide new and improved approaches to profit provision.”

People acknowledged that there will be “challenges”, such as “how to ensure savers understand the variability of benefits, and ensure that new models can deliver in practice once reservations and regulation are in place”.

However, he added that he is “confident that this ambitious proposal will provide the impetus and impetus for them to overcome”.

CDC authorization and supervision will be administered by TPR. The Pension Specialist understands that the CDC will be made available in Northern Ireland once the parallel rule is in place.