The lawyers think that 2024 will be their CDC’s year.

As a partner at Slaughter & May, Chris Sharpe is not eligible for a workplace pension , but he’s keen that those who choose workplace pensions, are legally advised on CDC.  I assume that’s who his article is written for

So let’s ask ourselves how the two amendments to the CDC regs will land with the common or garden CFO/CEO of a client of Slaughter and May

The first amendment is expected to come into force no earlier than April this year and clarifies (in a way which is more closely aligned with the policy intent) what can happen where the actuary has been required to reduce benefits due to a drop in asset values, with the reduction spread over up to three years, but asset values subsequently rebound meaning subsequent “cuts” are no longer needed (referred to as the “multi-annual reduction” provisions).

This demonstrates just how far CDC has been captured by the legal profession. Actuaries have become agents of the law – they are required to pay benefits in a certain way and this legal amendment extends these requirements so that the scheme has rules about how cuts in pension are or aren’t administered. There are no need for rules on this, actuaries don’t decide how a CDC scheme delivers benefits, CDC schemes are run by trustees for the benefit of members on a mutual basis (or at least so I was told when we started this “journey”.

The second amendment allows transfer to a wider category of arrangements permitted or to be permitted under tax legislation during the wind-up of a CDC scheme, including a dependant’s or successor’s flexi-access drawdown fund. This amendment will not come into force until 1 October 2024, allowing HMRC time to lay the draft regulations needed to amend the tax legislation.

While the first amendment rules with how to deal with a deficit, the second rules how to deal with a closure of CDC. We can breathe easier that we do not have all the detail till October 2024, in the knowledge that – to date – no CDC scheme has opened.

Legislation on how CDC schemes are closed outpaces legislation on how they are run. In the legislative capture of what was an idea to free-up pensions, we are asked only to consider how to return a CDC pension to “flexi-access pension” pots.

This is hardly a legislative platform to inspire Slaughter & May’s clients to convert to CDC. Whatever policy intention for CDC was originally conceived for CDC has now been overtaken by the cold reality that there will be zero interest amongst large employers in complying with the CDC code , the CDC regulations and establishing either under trust or master trust, a benefit for staff if it has become a lawyer’s benefit.

It is true that the government wants current small pots to be collectivised by a carousel, that they want future pots to become lifetime pots and that Government want DC schemes to become “full-service” offering either by conversion or partnership, scheme pensions (whether guaranteed or not).

Within this policy agenda, CDC plays a vanishingly small part – at least as far as employers are concerned. To suggest that employers, let alone savers, are going to get excited about consultations on multi-employer and decumulation only CDC schemes that are likely to kick off in 2024 is implausible. As far as 2024 is concerned, the pension saver is nowhere.

What ordinary people want right now is a way to convert pots to pensions. They do not want to wait another three years till multi-employer CDC regs are laid before parliament not another five years till they could join a CDC decumulation scheme. These terms are quite meaningless to the person in the street.

The year of CDC should have been 2004 (when GAD were busy dissing Derek Benstead’s risk-sharing proposals) or 2014 when Steve Webb was considering Defined Ambition. CDC as an occupational whole of life workplace pension has only ever had one serious proposal – that of Royal Mail.

If we are look to innovation in pensions, it can no longer be through CDC – it has been captured by lawyers (with the support of actuaries). Innovation must now happen where innovation always happens, from public demand for change. People are fed up with not having innovation. This headline is from when the Daily Express still costed  60p

Not a penny has been paid out of the “revolutionary pension shake-up” promised us. The headline was five years back, a year when we had been promised  pension dashboards .  Dashboards too have been kicked into the long-grass by lawyers terrified that a free flow of information will lead to a proliferation of pension scamming and other imagined consumer detriment.

What remains of the CDC pension is now suffering death by 100o cuts as lawyers pick over its still-born body. Lawyers are now telling us that 2024 will be the year of the CDC pension , I say it will be another “year of the lawyer”.

CDC – by lawyers – for lawyers

It’s time for the “friends of CDC” to move on and accept defeat ,  “What chance had we got against a tie and a crest” – Paul Weller sang as he contemplated the Eton Rifles. We should have recognised that we never had a chance against the legal and actuarial profession.

Lawyers can continue to advise each other on future consultations and regulations, I’m heading  back to from where we came, a world where employers worked with trustees to use their best endeavours to get pensions paid to staff who’d grown out of work.

Those staff are now arriving at that stage of life when they want to convert pots  and get their pension savings paid as pensions.  They want more than annuities give them and less than the ultimate gold-plated CDC scheme that promises much but delivers nothing.

Chris Sharpe reminds us that there may yet be rules to require trustees to offer something, though what the average employer let alone saver would make of this, I don’t know

DWP did propose measures to place duties on all defined contribution (DC) occupational pension scheme trustees to offer a decumulation service with products to members at the point of access and require schemes to devise a backstop default decumulation solution, based on the general profile of their members.

Pragmatic solutions with defined ambition beat legal constructs that have no sponsor and no future. CDC can be left to the lawyers, we want pensions from our workplace pensions.