Steven Taylor

TPR seeks views regarding amends to the CDC code to cover the authorisation and supervision of unconnected multiple employer schemes providing CDC benefits.

It’s an important consultation. With a group of colleagues we have separately made a response and I will refer to it in weeks and months to go. The key dates for this consultation are 31st July when TPR must respond and August 3rd which is the first day that it can receive applications for CDC for authorisation and six months after receipt the deadline by which time the authorisation will be made or rejected.

In short we are in a period similar to the authorisation of DC workplace master trusts and the uncertainty about the numbers of trustees applying (with proprietors) this year is uncertain.

This is the background to the responses by the consultancies and trade bodies who are advising the Pensions Regulator of their views. You can read them , collected by Holly Roach of Prof Pens on this link

One of those remarked on , is Lane Clark and Pensions and this blog ends with its consultation response, as they were kind enough to send it me. I hope that it will influence regulation following the commencement of CDC UMES regulation at the height of summer!

You can download it from this link, below my comments

Non commercial models need space

Too right. It’s well known that LCP have been helping the Church of England for some time to simplify the labyrinth of pension schemes for clergy, other staff and companies whose pension affairs they look after. I wrote about this a couple of weekends ago to celebrate the arrival of a new archbishop.

Steve Taylor of LCP broadly welcomes the regulator’s consultation as an “important step forwards” but LCP’s response says the draft code

“implicitly assumes all multi-employer CDC schemes will be commercial entities. Key non-commercial models are “overlooked”.

A key model for a traditional employer group to set up a CDC scheme is as a new section to an existing trust, potentially using an existing surplus to provide the contingent financial resources that the CDC section may need in the future.

Importantly, this means that these resources would already be held by the scheme, rather than need to be supplied by a commercial entity, the scheme proprietor.  We look forward to continuing to engage with TPR and helping our clients navigate exciting upcoming approvals processes over the coming months.”

Put another way, there needs to be a way for organisations having a DB scheme with a surplus to run a CDC from it it. The efficiencies are obvious though there are other ways for employers to operate including the use of mutuals where the employers own the proprietor and get dividends and/or benefit from patronage from excess revenues generated by the CDC.

Clarity on  what constitutes a section and when you must divide a scheme into multiple sections

There are options within the CDC Code for sections of the scheme to exist to ensure that fairness is maintained between employers. There may be reasons for some employers to have their own scheme, there may be schemes – such as TPT are suggesting there’s will be , which will run without sections.

There are ways for employers to have their own section (with the benefits of “own scheme”) while sharing one proprietor who takes care that the scheme is well governed, invested and fairly run for members. UMES is likely to deliver new structures and TPR must be flexible – appears to be LCP’s main suggestion.

There is need for clarification about paying a price for separation in a sector of a multi-employer scheme or setting up a single employer CDC scheme in an existing DB scheme (using the surplus). There does not seem to be space for UMES legislation to apply for the latter and the question is whether a CDC scheme can operate using the same code whether  a single or a multi-employer scheme.

Mixed benefit schemes

Given that an UMES scheme is envisaged as having a proprietor and the capacity to take multiple employers with a trust that masters all the benefits of all the employers, it becomes difficult to consider a CDC scheme as a section of a DB scheme – thus as a “mixed benefit scheme”.

I can see why consultants like LCP who have as clients both the schemes and the sponsors of DB schemes see CDC as an extension of this work. However the majority of the impetus for CDC is to allow employers to offer better pensions than can be achieved from a DC scheme and I hope that there does not creep into the CDC code a large section driven by advisers for a few employers like Church of England for whom a mixed benefit scheme might have a marginal advantage.

We do have a very complicated pension system as it is and we do not want a half way house between a scheme like Royal Mail’s (a single employer CDC) and a multi-employer CDC scheme (as envisaged by TPT).

In the end , mass-market CDC will only succeed if it is commercially viable

It is inevitable that LCP will argue the need for DB trusts and non-commercial sponsors to be catered for in the CDC code and it is right that they do. But the difficulty that CDC has had in moving forward is a lack of enthusiasm among employers for further bother from pensions. DC and workplace pensions have removed a lot of the trouble for employers.

It is now possible for employers to see pensions as worth troubling themselves with and we are seeing many large employers seeing the opportunity to be part of mutual arrangements where they can add real value to their staff’s long-term pensions through CDC.

The non-commercial end of the CDC market has so far amounted to Royal Mail who embraced CDC because it brought together staff , their unions and a Government looking for a better way than could be offered 130,000 posties through DC.

This combination is not being repeated elsewhere, there are no other pension strikes. But we do have a need for better than DC and employers, both those with DG and those with DC see pensions as part of their commercial strategy once again.

LCP are right to promote a non-commercial CDC scheme, the Church of England, but it is no more a model for employers than Royal Mail, the model that is needed must be commercial and commercial not just for a proprietor but for the employers who participate. By making pensions commercially attractive for employers, we may seem contributions to member return to the levels we know that they should be.