DWP retirement collective defined contribution (R-CDC) draft legislation consultation, Digi Mart USA News: The Department for Work and Pensions (DWP) has published a consultation on draft legislation for the introduction of retirement collective defined contribution (R-CDC) schemes, alongside its response to an initial consultation on R-CDC pensions.
The draft regulations aim to set out what R-CDC providers must do to become authorised, how the schemes can be accessed, and how they will operate effectively under regulatory oversight. R-CDC schemes are aimed at members who had retired or were about to retire when they joined, and ongoing contributions from employment cannot be paid into an R-CDC scheme.
The authorisation regime will use the existing CDC regulations as a foundation, although an amendment has been proposed to the way unconnected multi-employer schemes (UMES) operate to ensure transfers are actuarially equivalent. The DWP said it believes R-CDC should be aligned with the UMES regime as closely as possible.
The DWP added that R-CDC schemes will be closely connected to the new guided retirement regime, which the government and regulators are also consulting on, as this was intended to be the primary route to access R-CDC. The consultation noted that R-CDC should only be established within schemes already subject to an authorisation framework and close oversight by The Pensions Regulator (TPR), meaning master trusts and UMES are expected to be well placed to operate an R-CDC scheme.
As part of the consultation, the DWP is seeking views on whether the proposals provide sufficient flexibility for members to enter an R-CDC scheme from the same provider, another occupational scheme, or a contract-based provider. Under the authorisation policy, the DWP proposes amending the first gateway test to replace references to contributions with references to transfers, and does not consider the second gateway test and live running test necessary for R-CDC.
In its initial consultation, the DWP proposed that R-CDC scheme cohorts should target at least CPI inflation. This target was absent from the latest consultation, and the government is seeking views on whether it would be prudent.
The consultation also seeks feedback on communications, disclosures, charges, regulatory oversight and member protections, with the DWP proposing that bulk transfers without consent should not be permitted into R-CDC schemes.
Pensions Minister Torsten Bell said: “By pooling longevity risk, retirement collective pension schemes (RCPS) can provide an income that is designed to last for life. They are intended to target inflation-adjusted increases, helping members maintain their purchasing power over time.”
Bell added: “They do not rely on individuals making ongoing investment decisions throughout retirement. And because assets remain invested within a collective fund, members can continue to benefit from long-term investment returns.”
He concluded: “RCPS therefore have the potential to combine many of the features that pension savers value: a regular income, protection against longevity risk, the prospect of maintaining living standards over time and freedom from the burden of managing investments throughout retirement.”
