TPR authorises the UK’s first CDC pension scheme
14 April 2023
The Pensions Regulator (TPR) has assessed and authorised the UK’s first collective defined contribution (CDC) pension scheme.
CDC schemes provide a new 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. Currently, CDC schemes can be set up by single employers, for that employer only, or for employers in the same group of companies.
TPR states:
‘‘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.
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 following pension schemes have been granted CDC authorisation:
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Royal Mail Collective Pension Plan (RMCPP)
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 introduces new duties for those involved in running pension schemes. It also gives TPR powers to protect pension scheme members and the Pension Protection Fund. The Act introduced an authorisation and supervision regime for CDC schemes. Schemes must show they meet strict 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.
TPR has also published guidance for CDC schemes clarifying how they are assessed and then supervised.
The list of authorised CDC schemes can be accessed here. Read more on this topic here.
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