The Pensions Regulator (TPR) has assessed and authorised the UK’s first collective defined contribution (CDC) pension scheme.
TPR has now published a list of authorised CDC schemes on its website.
The authorisation is a milestone for TPR and shows how the regulator is pursuing its strategy to embrace innovation to help meet pension savers’ needs.
TPR’s Executive Director of Frontline Regulation, Nicola Parish, said: “I am delighted that we have authorised the first CDC scheme, which is a clear demonstration that we are serious about embracing innovative approaches to deliver the pensions of tomorrow.”
Minister for Pensions, Laura Trott, said: “TPR authorising the first CDC scheme is a landmark moment, and this is just the beginning. We have seen the positive effect of these schemes in other countries and our plans to extend our CDC framework will enable more pensioner savers to achieve the retirements they want.”
The Pension Schemes Act 2021 introduced an authorisation and supervision regime for CDC schemes. They must show they meet stringent criteria including that those who run the scheme meet fitness and propriety requirements, have the right systems and processes in place, can show the scheme is financially sustainable and have robust member communications. TPR has powers to intervene when necessary.
Currently, CDC schemes can be set up by single employers, for that employer only, or for employers in the same group of companies.
The Act also contains powers to enable further developments of the CDC market, such as schemes for groups of employers who aren’t legally connected. Earlier this year, DWP consulted on extending opportunities for CDC schemes and will respond in due course. TPR is working closely with the DWP in this area.
Notes for editors
- TPR has published guidance for CDC schemes explaining how they are assessed for authorisation and then supervised.
- CDC schemes provide an innovative alternative to traditional defined benefit (DB) and defined contribution (DC) pension schemes. In CDC schemes, member and employer contributions are pooled in a collective fund from which an aspired to pension income for life is drawn.
The pooling of longevity and investment risks makes CDC schemes more resilient to market shocks. In addition, unlike DB schemes, the pension benefits are not guaranteed in CDC schemes, so they provide employers with predictable costs. External modelling suggests that they can also provide, on average, better returns for members than traditional DC schemes. - The Pension Schemes Act 2021 (the 2021 Act) received Royal Assent in February 2021 and introduced the legislative framework for collective money purchase (also called collective defined contribution or CDC) schemes within the United Kingdom. The DWP has since developed the Occupational Pension Schemes (Collective Money Purchase Schemes) Regulations 2022 (SI2022/255) in close consultation with TPR. These expand on and provide specific detail to the provisions in the 2021 Act. The regulations came into force on 1 August 2022.
- The Pensions Regulator is the regulator of work-based pension schemes in the UK. Its statutory objectives are: to protect members’ benefits; to reduce the risk of calls on the Pension Protection Fund (PPF); to promote, and to improve understanding of, the good administration of work-based pension schemes; to maximise employer compliance with automatic enrolment duties; and to minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of the regulator’s functions under Part 3 of the Pensions Act 2004 only).
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