TPR authorises first CDC pension scheme

CDC schemes provide an alternative to traditional defined benefit and defined contribution pension schemes and see member and employer contributions pooled in a collective fund from which an aspired-to pension income for life is drawn.

The pooling of longevity and investment risks makes CDC schemes more resilient to market shocks. TPR published a list of authorised CDC schemes on its website on April 13.

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.

Laura Trott, Pensions Minister

The regulator said the authorisation is a “milestone” as it shows how it is pursuing its strategy to embrace innovation to help meet pension savers’ needs.

TPR executive director of frontline regulation Nicola Parish said: “I am delighted that we have authorised the first CDC scheme, which is a clear demonstration that we are serious about embracing innovative approaches to deliver the pensions of tomorrow.”

Unlike DB schemes the pension benefits are not guaranteed in CDC schemes, so they provide employers with predictable costs.

The Pension Schemes Act 2021 introduced an authorisation and supervision regime for CDC schemes. 

They must show they meet stringent 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. Currently, CDC schemes can be set up by single employers, for that employer only, or for employers in the same group of companies.

The act also contains powers to enable further developments of the CDC market, such as schemes for groups of employers who are not legally connected.

Pensions minister 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.” 

Earlier this year, the Department for Work and Pensions began exploring if it could introduce legislation for CDC schemes exclusively for decumulation, since these could help “improve member choice and outcomes”.

The government published a consultation on introducing a route to CDC for multi-employer schemes and master trusts, after legislation creating these schemes was introduced in 2022.

TPR is working closely with the DWP in this area.

This article originally appeared on FTAdviser.com