Regulations to enable unconnected multi-employer schemes to join a collective defined contribution scheme have come into affect as of 31 July, described as a ‘landmark’ development by a former pensions minister.
This update marks a significant departure from current law, in which the only extant CDC scheme belongs to the Royal Mail Collective Pension Plan. This CDC scheme came into effect in 2023 after legal provision was made for it in the Pension Schemes Act 2021.
These new regulations allow CDC arrangements to operate across multiple unconnected employers, unlocking the potential for master trust-style schemes to deliver more predictable and sustainable retirement incomes at scale.
Former pensions minister Guy Opperman, now an adviser at pensions and administration firm Aptia, says: “Today’s announcement is a landmark moment for UK pensions and a major step towards making CDC a reality for millions more savers. CDC has the potential to be a game-changer, offering significantly improved member outcomes and greater income stability in retirement at a time when many people are worried about their financial future.”
To support the development of CDC, the government is also considering allowing schemes who are committed to pursuing a CDC scheme as a default pension a “targeted and time-limited” extension to allow the scheme to become operational, before beginning to default members into it.
Dan McLaughlin, UK country head at Festina Finance, says: “With regulations enabling unconnected multi-employer CDC schemes coming into force much of the discussion around CDC to date has understandably focused on regulation, governance and scheme design. These are essential building blocks, but a framework alone will not deliver successful outcomes unless equal consideration is given to how CDC will operate in practice.”
As part of the pensions roadmap, a draft regulations consultation on CDC is also projected to be published by the government in October 2027, and a full set of regulations to become law in October 2028.
Pensions minister Torsten Bell says: “This roadmap recognises both the imperative for change and the reality of what it takes to bring the reforms to life. It charts the course to a pensions system fit for the 21st century, with pension savers at its heart. We all know there is much to be done, but holding us to the course laid out in this roadmap is something even more important: the scale of the prize for doing it.”
A recent interim report from the ongoing Pensions Commission found that around 15 million people are at risk of an inadequate retirement income under current arrangements, in spite of the successful take up of automatic enrolment.
Paul Waters, head of DC Markets at Hymans Robertson, says: “CDC can play a meaningful role in addressing the significant challenge of retirement adequacy. By pooling longevity risk and investing collectively, it offers the prospect of higher retirement incomes than other DC alternatives, alongside a simpler member experience with fewer complex decisions at retirement. The trade-off for this is typically less flexibility, or the ability to pass on a legacy if you die.”
