Collective Defined Contribution pension schemes officially launched

02 August 2022

Collective Defined Contribution (CDC) schemes have been launched in the UK following consultations and legislative changes introduced in the Pension Schemes Act 2021.

A research briefing, released 1 August 2022,  details the positives, negatives and future plans for CDC schemes in the UK. CDC pension schemes are an alternative to the two main scheme types currently in use, defined contribution (DC) and defined Benefit (DB). The new scheme type allows employees and employers to contribute to a collective fund which provides an income in retirement. This fund does not need to be guaranteed, like a DB would, therefore pensions paid out are increased or decreased depending on the funding level at the time.

Currently there are no CDC schemes authorised in the UK, similar schemes exist in Canada, Denmark and the Netherlands. The first such scheme is likely to be the Royal Mail Pension Plan, which has advanced plans on how it will implement and run a CDC pension scheme. The Work and Pensions Committee states that “other employers will want to learn from this scheme”.

There is the possibility for future iterations of CDC schemes to be run across multiple employers using a master trust. Another type of alternative scheme is decumulation only, where only individuals receiving pensions are part of the scheme.

The Department for Work and Pensions will consult further on design principles and approaches for new kinds of CDC schemes.

CDC authorisation and supervision will be handled by The Pensions Regulator who have compiled a code of practice for the schemes.

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