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The Pension Schemes Act 2021 introduced an authorisation and supervision regime for collective defined contribution (CDC) schemes. Such schemes must show that those in charge 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. The Pensions Regulator has powers to intervene when necessary.
The authorisation is a milestone for the regulator’s strategy of encouraging innovation, with pensions minister Laura Trott commenting that “this is just the beginning”.
At present, CDC schemes can be set up by single employers or employers in the same group of companies. The Act contains powers to enable further developments within the CDC market, such as schemes for groups of employers that are not legally connected. The Department for Work and Pensions (DWP) consulted on this issue earlier this year.
Madalena Cain, an associate partner at Aon, said the DWP’s move “will bring CDC to the masses” and urged the government to commit to ensuring the regulations are in place by the end of 2024.
Standard Life managing director of individual retirement Claire Altman said that, for employers still offering defined benefit schemes, “CDCs could provide a halfway house between defined benefit and defined contribution arrangements, particularly as it reduces costs and risk for the employer.”
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