The pensions industry has welcomed the Pensions Regulator’s (TPR) new proposed code for collective defined contribution (CDC) schemes, but urged further work ahead of full implementation.
TPR’s consultation on a combined code of conduct for single-employer and multi-employer CDC schemes closes this week, a move that commentators said should be more manageable and straightforward than separate codes.
Paul Waters partner and head of DC markets at Hymans Robertson, said: “A unified code covering both single‑employer and multi‑employer CDC should be easier to maintain over time and provides a clearer framework as the market develops.
“It’s also good to see TPR provide a significant level of detail that will enable proprietors to prepare in earnest for authorisation.”
Keith McInally, chair of the Society of Pension Professionals’ CDC committee, added: “Proportionate implementation will be important to ensure that TPR is clear regarding its expectations for CDC schemes, whilst also avoiding unnecessary regulatory burdens.”
However, several areas require further clarification, experts said.
Communication clarity required
Several responses to the consultation highlighted how the code regulates promotional materials and communications. Currently, TPR expects CDC scheme trustees to have oversight of promotional materials and the ability to review and challenge them.
The Association of Professional Pension Trustees (APPT) argued that this was not within the role of trustees and “does not feel practical”. It should instead be left to the “scheme proprietor” as the commercial entity responsible for promoting the scheme.
The association stated in its response: “We would expect trustees to agree the core messages within a policy and then the proprietor to have the requirement to ensure the marketing material aligns with this and the systems and processes associated with promotion and marketing to be overseen.”
It also called for “more robust guidelines” around the information trustees were permitted to provide to prospective or existing employers “to ensure this does not inadvertently form any sort of promotion or marketing”.
Hymans Robertson’s Waters said TPR’s approach to promotional communications “risks being too strict in practice”.
“This could cause problems, particularly around trustee engagement with prospective employers,” he explained. “With a new form of pension scaling up in the UK it is really important employees receive clear, straightforward communications. There is a risk that the draft code is a barrier rather than an aid to that.”
SPP urges robust authorisation process
CDC schemes will need to be authorised by TPR, with the process currently expected to take around six months.
In its response, the SPP said new entrants to the market “should not face undue barriers”, adding: “Measures perceived as disproportionate or overly prescriptive may limit uptake, especially for emerging providers.”
However, the society also urged the regulator to ensure that it “has the capabilities to fully assess a scheme’s internal controls during the authorisation process or whether they will need to seek independent assurance”.
It recommended that the authorisation process could include “scenario-based testing, simulated market shocks, multi-year projection testing, and reconciliation of collective asset pools, rather than relying on generic IT audits and the like”.
“With further changes likely on the horizon to accommodate retirement-only CDC schemes, it is reassuring that TPR plans to evolve its approach to keep pace with the changing market.”
Andrew Worthington, Sackers
Separately, Sackers partner Andrew Worthington highlighted the need for TPR to ensure that the CDC code did not conflict with existing master trust rules, as CDC plans were likely to be set up by existing master trust providers.
“As master trusts look to be the most likely vehicle for the first wave of multi-employer CDC sections, it is important to consider how the master trust and CDC authorisation and supervision regimes will function together,” he said. “We believe more guidance would be beneficial to help schemes manage these ‘mixed benefit’ arrangements.
“With further changes likely on the horizon to accommodate retirement-only CDC schemes, it is reassuring that TPR plans to evolve its approach to keep pace with the changing market.”
