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 Pension Schemes Act 2021 introduced an authorisation and supervision regime for CDC schemes. They must show they meet 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 said it 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.
Nicola Parish, TPR executive director of frontline regulation, 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.”
Pensions minister Laura Trott added: “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.”
Toolkit
Claire Altman, managing director of individual retirement at Standard Life, said: “The industry is thinking carefully about how we can deliver better outcomes for savers and CDCs could prove to be a useful part of the toolkit. For those employers who still offer defined benefit schemes, CDCs could provide a half-way house between defined benefit and defined contribution arrangements, particularly as it reduces costs and risk for the employer.
“For employees, CDCs can potentially offer more certainty of outcome than that provided through defined contribution schemes. However, it’s important to ensure CDC schemes will be sustainable and that proper protections are in place if things don’t go as expected, given the expectations CDC schemes could raise with savers.
“It’s important to think about CDC in the context of the wider range of options and what these can achieve. There is a lot happening in the retirement space, and while it is great that CDC will be an option, we shouldn’t forget that other solutions are available to savers. In particular, the end of the era of low interest rates has made annuities a more attractive option for those looking to secure a guaranteed income and this is a welcome development.
“Furthermore, thinking has moved on in favour of a more blended approach that allows people to achieve the best of an annuity and drawdown. We expect to see significant innovation and product development over the next couple of years, and welcome CDC being part of the pensions saving toolkit.”
