Pensions Regulator lays CDC code of practice before parliament

[RobertT]

https://www.pensionsage.com/pa/TPR-lays ... iament.php

The Pensions Regulator (TPR) has laid its new code of practice for the authorisation and supervision of collective defined contribution (CDC) schemes before parliament.

This should allow the code to complete its legislative passage through parliament in time for trustees to apply for authorisation to operate a CDC scheme from 1 August, as set out in the consultation launched in January.

The code is expected to be made after it has laid in parliament for 40 days.

It sets out how trustees can apply for authorisation and how TPR will assess schemes against the statutory authorisation criteria, and reflects governmental regulations for CDC schemes.

Royal Mail is expected to have the first CDC scheme to apply for authorisation, with the company and its unions aiming to launch a new CDC scheme by the end of 2022 or early 2023.

CDC schemes will initially be limited to single employer or connected employer set ups, with Pensions Minister, Guy Opperman, confirming plans to move to the draft regulations for multi-employer CDC schemes in “the latter part of this year, going into next year”.

Indeed, the Pension Schemes Act 2021 contains powers to enable further developments of the CDC market, such as multi-employer schemes, with TPR noting that it will be working with the Department for Work and Pensions (DWP) to expand CDC schemes to a wider range of users.

In its feedback to TPR’s CDC code consultation, the pensions industry had warned that the proposals could be too onerous and set a disproportionately high bar, especially for single employers.

In its response, TPR said that while it understood that the code may appear too onerous, it believed this level of detail was necessary and useful to any employer considering a CDC scheme and to the trustees of a CDC scheme applying for authorisation.

“We’ve amended the code to better explain its role in the context of the legislative framework it sits in,” the regulator added.

“We also want to thank respondents for their suggestions for future guidance which we will consider as we work with the DWP and industry to move forwards with the expansion of CDC.

“In the meantime, we will look to publish guidance on the fitness and propriety criteria and on how fees are to be calculated for authorisation of additional sections of a CDC scheme.”

Commenting on the code being laid before parliament, Pensions Minister, Guy Opperman, said: “CDC pension schemes have the potential to transform the UK pensions landscape and deliver better retirement outcomes for millions of pension savers.

“I therefore welcome the laying of TPR’s code before parliament. We have seen the positive effect of CDC schemes in other countries and this code brings us one step closer to making them a reality here at home.”

TPR executive director of regulatory policy, David Fairs, added: “Laying our CDC code in parliament is a significant step as we prepare for a new type of scheme that paves the way for an alternative and innovative pension saving solution to traditional defined benefit and defined contribution arrangements.

“Our focus is on protecting savers, and while the code now clarifies a number of points raised during our consultation to explain how it reflects legislation, it continues to set the right bar for the authorisation and supervision of CDC schemes.

“We are confident the code clearly shows trustees how to meet the legislative requirements in their application and satisfy us they meet the authorisation criteria.”

[Jaggs]

A question regarding CDC pensions that perhaps RobertT might have seen the answer to somewhere but I haven't.

How will the scheme operate in terms of lifetime allowance and money purchase annual allowance?

I've consolidated some old pensions into a SIPP and my current planning might see me start drawing from that while still working at Royal Mail. This would trigger the MPAA and I would assume that would mean I could have a maximum of £4,000 paid into any DC scheme each year at that point. The proposed employer and employee contributions for the RMCPP would breach that if my maths is right. Would I then be restricted to £4,000 total contributions or would it just lead to a tax charge to have the full employee and employer contributions paid into the RMCPP?

[RobertT]

Firstly, it's worth pointing out the MPAA only applies to Defined Contribution(DC), or sometimes known as money purchase schemes. So that doesn't include NRA60, NRA65 or DBCBS benefits, as they are Defined Benefit(DB).
But it would effect the RMDCP, plus potentially any excess AVC(Bonusplan & Flexiplan) cash once it's been used to fund the 25% tax free lump sum with NRA60/65 benefits.

The RMCPP aims to provide similar benefits to a DB scheme, in as much as it's going to give a lump sum upfront and hopefully an index linked pension for life. But the nature of the pension element(it can go down) means it's not DB. Infact it's specifically been defined as money purchase in the legislation.

The lump sum element will be known as the Defined Benefit Lump Sum Scheme and will be very similar to the current DBCBS. Therefore I believe the contributions into that can be discounted in terms of the MPAA.

The anticipated CDC design booklet says the contribution levels will be:

Pension - 11.2% from RM and 4% from the employee
Lump sum – 2.4% from RM and 2% from the employee

You might be able to dodge the MPAA by just taking the tax free lump sum from your DC pension/s, and not drawing down the remainder. More in depth MPAA rules can be found here: https://www.moneyhelper.org.uk/en/pensi ... wance-mpaa

However, if you do breach the MPAA, then tax is payable on the amount over the limit of £4,000 and that does include employer contributions as well!

DB schemes are usually valued for Lifetime Allowance purposes by simply multiplying by 20 and adding any lump sum. DC schemes are just how much is in the pot, as is the DBCBS.

We don't yet know how CDC schemes will be valued, or at least I don't. But back in 2018, the CWU's pension guru Hillary Sault, suggested a multiple of 15 or 16 could be used, due to the un-guaranteed nature of the benefits.

Either way, with a current Lifetime Allowance of over £1 million, I don't think many posties will be troubled by it.

[Jaggs]

Thanks Robert