The UK government has launched a consultation on draft regulations designed to enable the launch of single or connected multi-employer collective defined contribution (CDC) schemes.

This will accommodate the launch of the CDC scheme that Royal Mail and the Communication Workers Union are looking to deliver. Their proposed CDC scheme is the first of its kind in the UK.

The Pensions Schemes Act, which received royal assent in February, provides the statutory framework for CDC schemes in the UK.

The draft regulations presented for consultation today will implement the authorisation and supervision regime for CDC schemes under the provisions of the 2021 legislation.

The Department for Work and Pensions (DWP) said they had been developed in close consultation with The Pensions Regulator (TPR), and that HM Revenue & Customs were making the necessary changes to the tax regime to provide for CDC schemes.

TPR will be responsible for authorisation and ongoing supervision of CDC schemes, and is due to produce operational guidance and a code of practice. The code of practice will be published in draft and subject to a separate public consultation.

According to the DWP, TPR will assess an application for authorisation of a CDC scheme against the following criteria:

  • that the persons involved in the scheme are fit and proper persons;
  • that the design of the scheme is sound;
  • that the scheme is financially sustainable;
  • that the scheme has adequate systems and processes for communicating with members and others;
  • that the systems and processes used in running the scheme are sufficient to ensure that it is run effectively, and;
  • that the scheme has an adequate continuity strategy.

“Right now our priority is to ensure the full framework for single employers and connected multi-employer CDC schemes is in place as soon as we can, and this consultation is rightly focused on delivering that,” said Guy Opperman, minister for pensions and financial inclusion.

“But we are not deaf to calls from those who wish us to go further. Once this first step is done we will turn our attention to the growing demand for these other types of provision.”

Chintan Gandhi, partner and head of CDC at Aon, said: “This has been a long road, so it’s great to see this much-anticipated first set of draft regulations on CDC. For employers who are looking to follow Royal Mail’s lead by establishing their own CDC scheme, this provides first sight of the regulations they will need to operate under.”

Earlier this month the pensions minister committed to extensive engagement with employers looking to join with others to establish CDC schemes. Aon’s Gandhi said this would be a “hugely positive step”.

“We therefore urge the government to press ahead with drafting its proposed regulations covering multi-employer CDC schemes, and also those provided through commercial master trusts.”

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