The shot is of Terry Pullinger speaking at a First Actuarial Conference many years ago. He , one company (Royal Mail),  and a few enlightened advisers got CDC going. This blog is a reminder of where what we are enjoying now and a thank you to Terry, Hilary and Derek who are often forgotten.

I have been enjoying re-reading the DWP’s consultation on part three of the planned implementation of CDC into the UK’s pension system. Part one brought us Royal Mail and not much else by way of single customer schemes. It is hard to think of another company in the UK with a workforce like Royal Mail’s. We should not forget the effort it took on behalf of that firm to get a lasting solution to a pension problem that was not get sorting out with a DC plan and has been sorted by a scheme that is providing something like a DB scheme without the cost to the company and its owners.

Good to get back a big picture from the DWP

It will be worth going back to stage one, the 2021 legislation that enabled Royal Mail to launch its CDC.  I enjoyed meeting the Proprietor of its CDC at the launch of stage 2, the whole of life or “UMES” , Royal Mail were recognised with an opportunity to update us at Aon’s offices.

But good as 2021 was for Royal Mail, it did not give the pension industry the opportunity to advance DC or find a way forward to the private market still wanting to provide pensions but not with the difficulties of DB. That step had to wait over four years till October 2025 and the multi-employer scheme legislation that is with us, little modified from that put forward by the DWP.

What it introduces is a way to build a pension with regular savings using auto-enrolment. It’s a step change for employers and providers prepared to move from a unit linked savings plan (which is DC) to a way of providing pensions (which is whole of life CDC or UMES).

The next (and it is not the final) stage in the CDC project is now under consultation and it is called Retirement CDC by DWP (decumulation CDC to consultants and actuaries). It is a transition project allowing those who have used a savings plan to switch to a CDC pension when they reach a point when they want to or when their savings plan runs out and into a spending plan! This is the most urgent matter on the desk, we have only till December to get answers to DWP and frankly most of my response is affirmative, the DWP has a plan to manage a transition.

There is a fourth stage, it is not yet on the table and it may not happen, it is probably with the people running the pension commission because it looks beyond workplace pensions and employers and towards people outside the employed workplace. This means people who have retired from work , are self-employed or who have a wish to do their own things – it might even include those who have opted out of “workplace pensions” but have the means to buy back into pensions independently. Can you see what I mean about this stage, 45% of UK adults are not catered for by auto-enrolment but that does not mean that they should be excluded from a pension purchased with their or other’s money.

A plan behind the scenes that fits with the Pension Schemes Bill

It is not an entirely aligned four stage project, aligned that is with the Pension Schemes Bill by way of Roadmap and I am blogging elsewhere about the misalignment that means some awkwardness in 2027 and 2028.

But it is clear that the DWP has it in mind that as well as guaranteed funded DB plans (of which there are few left accruing), there will be master trusts accruing DC pensions which will end in annuity closure (Nest is the biggest candidate for this with 14m savers, many of whom will be in Nest and something else). I expect a lot of master trusts will “flex and fix” and operate drawdown and then take savers into individual or a bulk annuity. They may follow Nest and provide increases to protect against inflation eating away the pension, using a CDC style of distribution of fund for extra drawdown which looks (as Paul Todd tells us) like CDC.

To say that Nest is a CDC plan is wrong but to say that it pays a pension that feels like a CDC pension is right. There are large master trusts that could follow Nest or go back CDC, think first of People’s (a private answer to Nest and then a range of similar schemes some of which are underwritten (the insured plans) and many of which took any employer who asked. These plans may decide to offer a decumulation CDC, some may partner with a CDC plan (some CDC plans may be set up as standalone retirement or decumulation plans). But many will avoid CDC.

There will be a few DC workplace pensions (both trust based and group personal pensions) which will have to either sell out (Cushon are on the market, there are other master trusts that may have to convert to CDC as TPT will). The workplace GPPs may find a way to continue if they can create Scale, using their legacy but we don’t see a GPP CDC Retirement plan. Theirs will be a radical journey from freedom to retirement guidance ending in some form of pension.

The critical question will be for employers. By and large they will be in multi-employer DC plans right now and they will do nothing but await the proprietor of the master trust’s decision. Those schemes with Trustees will implement through the trust, those which are contract based will implement using secondary legislation we are yet to see which will give contract proprietors the opportunity to mutate to CDC ,  integrate with a DC master trust or partner or use “equivalence”.

Employers will follow these bewildering changes and do what they are told or they will take control of the situation either with their own scheme (DC , CDC or DB). All of these opportunities will be feasible but there will be nuance, some multi-employer CDC schemes will look obvious to join because employers will club together to work with similar companies in trade based multi-employer schemes. This is what the Church of England employer umbrella is likely to do, I know of other trade-based pension plans which want to hatch a new pension. Employers ought to take charge and this is where the unions have a part to play.

A plan that needs hard work

The Pension Commission is due to deliver in 2028 and that will be thinking about CDC, DC and DB for the disconnected, filling in the areas that the Pension Schemes Bill cannot cover and offering hope to the 45% of us not in a private pension or any kind of pension (at any one time).

I have said throughout the past few months that I want to focus my thinking on the Pension Schemes Bill and get what can be done, done. PC2 (pension commission #2) is in the hands of others and cannot distract, there is quite enough with the Pension Schemes Bill to occupy by night my blogging fingers and by day my plans to make better pensions and to grow AgeWage (a transactional business).