Pensions Insight: 7 to 15 October 2024

This insight covers the DWP consultation on extending the CDC scheme and two further sets of LTA abolition amending regulations.

DWP consultation on extending CDC regime to unconnected multiple employer schemes

On 8 October 2024, the Department for Work and Pensions (DWP) published a consultation on extending the whole-life collective money purchase scheme (CDC) regime to unconnected multiple employer schemes including master trusts (UMES).

This will be done through regulatory powers contained in the Pension Schemes Act 2021, which include the power to introduce both primary and secondary legislative changes to expand the CDC framework. The consultation includes the two sets of draft regulations which will achieve this (see here and here) together with other supporting documents.

The consultation follows the previous government’s Mansion House reforms call for evidence and the July 2023 consultation outcome on expanding the CDC market. At present, CDC schemes are restricted to single and connected employers and there has only been one set up in the UK so far. However, both the former and current government wish to see CDC provision rolled out on a wider basis, as the consultation outcome put it, to “allow more employers of all sizes to offer CDC schemes, and to allow more flexibility in design”.

The current legislative framework (with small changes) in the CDC regulations 2022 will still apply to single or connected CDC schemes and the new regulations will introduce a corresponding regime for UMES. In summary, the changes will be effected by amendments to the 2021 Act, a standalone set of regulations and another set which make amendments to three existing regulations. Many of the current parts of the CDC regulations 2022 are regarded as being equally applicable to UMES and so have been ‘replicated’. The consultation provides relevant detail of the main parts of the regulations alongside policy intent information where applicable.

Next steps: The Government wishes to introduce the expanded framework as soon as it can. As well as laying and obtaining parliamentary approval of the regulations (expected to be in 2025), a revised Pensions Regulator (TPR) CDC code of practice will be required. TPR will be responsible for authorising and supervising UMES.

Decumulation-only CDC: The consultation also explains that the Government is still looking into how trust-based decumulation-only CDC can be provided – this includes liaising with the pensions industry and regulators.

This is an interesting development in the pensions sector, albeit a long time in the making. To what extent the UMES market will take off and how quickly remains to be seen. The CDC consultation outcome referred to the Government seeing the “appetite for extending CDC provision to UMES and Master Trusts grow and grow”, so if that is anything to go by, there may be quite a lot of interest.

Second set of LTA abolition amending regulations published

Two further sets of regulations, The Pensions (Abolition of Lifetime Allowance Charge etc) (No. 2) Regulations 2024 and The Pensions (Abolition of Lifetime Allowance Charge etc) (No. 3) Regulations, which will make technical amendments to the lifetime allowance abolition regime have now been laid before the House of Commons, will come into force on 18 November 2024 and will have effect from the tax year 2024-25 onwards. The explanatory memoranda (see here and here) detail the changes made.