The Pensions Regulator (TPR) has started a consultation into the collective defined contribution (CDC) code of practice.
The Pension Schemes Act 2021 requires that members will be appropriately protected through an authorisation and supervision regime for CDC schemes.
The regulator drafted the code which aims to provide trustees with clarity on how to apply for authorisation and sets out the criteria the regulator expects prospective schemes to meet, TPR stated.
David Fairs, TPR’s executive director of regulatory policy, said: “CDC schemes have the potential to change the pensions landscape by offering savers and employers a viable alternative to traditional defined benefit and defined contribution schemes.”
He added that the regulator’s draft code “sets the right bar for authorising and supervising CDC pension schemes that have demonstrated how they meet the criteria.
The draft code – which reflects regulations for CDC schemes published by the Department for Work and Pensions (DWP) and laid before parliament last month – assumes that trustees have a good knowledge of all relevant legal requirements and of the regulator’s expectations in other codes of practice, which may apply in addition to the CDC code and its legislation.
TPR’s CDC code of practice statutory objectives are:
- to protect the benefits of pension scheme members;
- to reduce the risk of calls on the Pension Protection Fund (PPF);
- in relation to the exercise of functions under Part 3 of the Pensions Act 2004 only, to minimise any adverse impact on the sustainable growth of an employer;
- to promote, and improve understanding of, the good administration of work-based pension schemes;
- to maximise compliance with the duties and safeguards in the Pensions Act 2008.
TPR will revisit the code to expand on its expectations for the closure or wind up of a scheme in due course and will also produce accompanying guidance.
“While initially CDC schemes will be limited to those set up by single employers, or two or more connected employers, the Pension Schemes Act 2021 contains powers to enable further developments of the CDC market, such as multi-employer schemes. We look forward to working with the DWP and industry on any development and expansion of CDC schemes,” Fairs said.
Steven Taylor, partner at LCP, said that it was good news to see further progress on the CDC front, but he noted the new consultation placed a heavy focus on the style of scheme favoured by Royal Mail.
“This means the draft code may not currently support all of the features envisaged by other employers wishing to go down the CDC route, and will need to be updated over time to accommodate them. We expect this to be a key focus in many of the industry responses,” he added.
“That said, the consultation does provide some important new detail about the information required for authorisation, which will be helpful for other companies in their own preparations,” Taylor said.
Trustees will be able to apply for authorisation to operate a CDC scheme from August this year.
The Pension Schemes Act 2021 introduced an authorisation and supervision regime to ensure only CDC schemes that are well run and built on sound foundations can operate and that TPR has powers to intervene when necessary.
The eight-week consultation will run until Tuesday 22 March.