The Department for Work and Pensions will consult on multi-employer collective defined contribution schemes before the end of 2022, according to a senior civil servant.
Speaking at the Pensions and Lifetime Savings Association’s annual conference on October 13, DWP head of CDC policy Julian Barker told attendees that the department had been engaging with “a number of organisations” that are looking to set up multi-employer CDC schemes.
Royal Mail appears set to become the first CDC scheme next year, having now submitted its application for authorisation, Barker confirmed. The authorisation process is capped at six months.
The civil servant predicted the founding of more CDC schemes next year, suggesting that there could be four to six new schemes by the end of 2023.
We are currently, and have been for a quite a while now, engaged with a number of organisations and their advisers who are looking at developing multi-employer schemes
Julian Barker, DWP
DWP is talking to providers about multi-employer CDC
In August, providers in Great Britain became able to apply to launch CDC schemes. Under these schemes, employers and employees pay a fixed rate of contributions, collected in a manner similar to defined contribution schemes.
Benefits are paid with a target in mind, similar to defined benefit schemes, but with the prospect of variable increases — and the possibility of decreases.
Barker highlighted that, within the legislation, the DWP made sure that powers contained to adapt the rules through secondary legislation so that it could provide a route to CDC for multi-employer schemes and master trusts.
In December 2021, former pensions minister Guy Opperman confirmed that preliminary work had begun on the creation of multi-employer CDC schemes.
“We are currently, and have been for a quite a while now, engaged with a number of organisations and their advisers who are looking at developing multi-employer schemes,” Barker said.
“We’re currently aiming to consult before the end of this year on policy proposals, [specifically] on how to tackle some of the things that are a bit different about multi-employer schemes,” he added.
Barker observed that Royal Mail has a largely homogenous workforce, whereas in a multi-employer scheme there are likely to be “different populations, with different demographics, different wages, different contribution rates”.
More CDC schemes to come
The DWP is therefore looking at how it can adapt the legislation so that members and employers can contribute different amounts, “but members still get the right outcome”.
The governance and sustainability of multi-employer schemes may be different to “a more monolithic organisation like Royal Mail”, Barker added. The authorisation criteria may therefore need to be amended to reflect these differences.
The consultation will also address other policy areas, such as decumulation in CDC.
Pensions Expert reported back in 2019 that several master trusts would welcome the ability to offer a CDC solution for their members in decumulation.
Barker told attendees that he would not expect “many more Royal Mails”, as the current regime works most effectively for large, single employers.
Collective defined contribution schemes launch in Great Britain
Providers in Great Britain are now able to apply to launch collective defined contribution schemes, a development hailed by former pensions minister Guy Opperman for their potential to “transform the UK pensions landscape”.
“One thing that is very clear is that there are quite a range of organisations very actively engaged with their advisers around […] the multi-employer space,” he continued.
“Smaller employers can club together, or industries can deliver this, or master trusts can deliver this, once we bring forwards the next phase of the legislation.”
Once this has happened, Barker said that he “would be very surprised if there wasn’t very quickly another four, five, six schemes around”.
