Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. DEFINED CONTRIBUTION
December 10, 2018 12:00 AM

Legal upgrade needed for U.K. collective DC plans

Paulina Pielichata
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Lane Clark & Peacock's Steven Taylor

    A lack of appropriate legislation might halt the adoption of collective defined contribution plans in the U.K.

    The CDC structure is a halfway house between defined benefit plans, where risk is shouldered purely by employers, and pure DC plans, where participants take on all of the investment risk. Collective DC plans allow pooling of assets and sharing of risks.

    In efforts to allow a CDC model in the U.K., where sponsors now can only offer DB or pure DC plans, the government launched a consultation in November to gauge interest from pension funds. If successful, the proposal would become effective under a new pensions bill next year.

    One employer isn't waiting for Parliament. Royal Mail Group, London, this year began developing a CDC plan to replace the £9.6 billion ($12 billion) Royal Mail Pension Plan. That cash balance plan already replaced a frozen DB fund earlier this year.

    "Royal Mail and the Communication Workers Union want to see CDC become a reality in the U.K., and we hope the required legislation will be introduced at the earliest opportunity," a Royal Mail Group spokesman said in an email.

    Royal Mail officials and the CWU hope their proposed arrangement will give participants a better income throughout their retirement than they would otherwise get through a defined contribution annuity purchase. The plan will be open to all employees at the postal group, according to the spokesman.

    Under the design, Royal Mail's contribution to the CDC would be around 13.6%, while an employee will contribute 6%, Royal Mail said. This compares to a contribution amounting to about 30% of salaries that sponsoring employers typically pay into open defined benefit funds.

    "We believe that CDC schemes can deliver on these objectives, but without placing volatile and unsustainable liabilities on the employer's balance sheet," the spokesman said.

    But sources said that without legislation, sponsors like Royal Mail that are further along in their journey toward a CDC arrangement cannot take the final step.

    "The legislation needs to exist for it to work," said Steven Taylor, partner at Lane Clark & Peacock LLP in London. "Existing legislation doesn't work for what Royal Mail is trying to do."

    Despite anecdotal evidence of collective DC being considered by some employers, sources said there are very few DB plans in the U.K. that are still open to new participants that could adopt CDC. Many defined benefit plans already have closed their DB plans and moved to pure DC plans, noted Kevin Wesbroom, principal consultant at Aon in London.

    There were 661 open defined benefit plans in the U.K. in 2018, compared with 2,126 in 2008, according to the Pensions Universe Risk Profile — known as "The Purple Book" — a joint annual publication by the Pension Protection Fund, London, and The Pensions Regulator.

    To be able to leverage scale when pooling risk under a CDC arrangement, pension funds need to be sizable, Mr. Wesbroom said. According to data from The Pensions Regulator and the Pension Protection Fund, London, only 20% of these open funds have the minimum size — in terms of assets and participants — to benefit from the pooling of risks CDC brings.

    Other challenges

    Lane Clark's Mr. Taylor noted there are other challenges to CDC plan design. "The pension fund can't have a deficit; it is crucial," he said. "If there is a deficit, it is pension increases, and ultimately benefits, that are reduced."

    Simon Eagle, consultant at Willis Towers Watson PLC in London who assisted Royal Mail officials with their CDC modeling, sees challenges in getting legislation passed that will serve such a small segment of defined benefit plans. Even if the government introduces the legislation, under the current proposal only defined benefit funds will be able to move to a collective DC plan.

    Other plans, such as the DC master trusts, would not be able to benefit from the legislation as it now is written.

    While Mr. Eagle thinks there are other corporate defined benefit plan executives watching the developments with the Royal Mail model, he expects "the takeup (by other employers) will be slow."

    In order for CDC to really catch on in the U.K., multiemployer plans need access via a separate set of rules, said Mr. Eagle.

    "It is hard to see industrywide plans come to the market. (They) would need funding (and the right level of) governance," he said. But master trusts would have the right scale to do CDC, he added.

    Other sources think a CDC arrangement has a useful application for the decumulation phase of individual defined contribution plans, too. But separate legislation would be needed to provide for the plans that might want to use it, noted Marian Elliott, managing director, integrated actuarial, at consultant Redington in London.

    Related Articles
    U.K. seeks input on proposal to allow employers to create collective DC plans
    Managers see retail channel as next growth opportunity
    U.K. proposal for collective DC differs from Dutch model
    U.K. proposal for collective DC differs from Dutch model
    52% of U.K. pension professionals think multiemployer superfunds will be common…
    U.K.'s Department for Work and Pensions says collective DC plans should be allo…
    Recommended for You
    ONLINE_180109908_AR_0_OXQTDCTVBIGZ.jpg
    Inadvertent error in SECURE 2.0 legislation prevents 401(k) catch-up contributions
    ONLINE_170809948_AR_-1_TIYUNLNPIEDC.jpg
    DC rollovers fuel IRA growth to $13.9 trillion, largest part of retirement market
    retirement income senior desk money_1550-main_i.jpg
    Non-qualified deferred compensation plans used to draw top talent, survey says
    Research for Institutional Money Management
    Sponsored Content: Research for Institutional Money Management

    Reader Poll

    January 25, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    The Future of Infrastructure: Building a Better Tomorrow
    Fulcrum Issues: Equity Returns and Inflation — Choose Your Own Adventure
    What Matters Most in Considering a Private Debt Strategy
    Why pursue direct lending in the core middle market?
    Research for Institutional Money Management
    Are Factors a Thing of the Past?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing