Insurance Curator BRIGHTON, England — The Pensions Regulator (TPR) launched a public consultation Tuesday on a new code of practice for multi-employer Collective Defined Contribution (CDC) schemes, a move designed to expand "pensions for life" to millions of workers across the United Kingdom.
The consultation marks a significant regulatory shift intended to transition the UK pension landscape from individual "pots" to collective funds. By allowing unconnected employers to join multi-employer CDC schemes or master trusts, the government aims to provide savers with more predictable retirement income without the investment risks associated with traditional Defined Contribution (DC) plans or the high costs of individual annuities.
"CDC schemes have the potential to transform the UK pensions landscape by offering savers a more predictable income in retirement," said Nausicaa Delfas, Chief Executive of TPR. "This consultation is a vital step in opening up these schemes to a wider range of employers and savers, ensuring they are well-governed and deliver value for money."
CDC schemes differ from traditional pension models by pooling member contributions into a single investment flight path. Instead of an individual pot that a saver must manage, the collective fund pays out an annual income based on the performance of the total fund. While benefits are not guaranteed as they are in Defined Benefit (DB) schemes, they are designed to be more stable than individual DC drawdowns.
The new draft code provides the framework for how TPR will authorize and supervise multi-employer CDC schemes. To gain authorization, providers must demonstrate that their schemes are financially viable, have sound administrative systems, and are managed by "fit and proper" persons.
Pensions Minister Emma Reynolds welcomed the development, noting that the expansion of CDC schemes is a priority for the government’s broader pension review.
"We want to see more people benefiting from the higher returns and the security that collective schemes can provide," Reynolds said in a statement. "By moving from 'pot to pension,' we are helping to ensure that savers do not outlive their money."
The move toward multi-employer CDC schemes follows the launch of the UK's first single-employer CDC scheme by Royal Mail in late 2024. Industry experts suggest that the multi-employer model is essential for the survival of the concept, as most UK businesses are too small to operate their own standalone collective funds.
According to data from the Department for Work and Pensions (DWP), CDC schemes can potentially provide a 30% higher retirement income compared to traditional DC plans that utilize individual annuities, primarily due to the collective sharing of longevity and investment risks.
The consultation period is scheduled to run for six weeks, during which industry stakeholders, trustees, and life insurance providers can submit feedback on the proposed regulatory requirements. TPR expects to lay the final version of the code before Parliament later this year, with the first multi-employer CDC schemes anticipated to seek authorization shortly thereafter.
Financial analysts noted that the success of the initiative will depend on the willingness of large insurance providers and master trusts to develop these complex products.
"The regulatory bar is high, as it should be for a product promising lifelong income," said David Fairs, a former TPR executive and current industry consultant. "The challenge for the market now is to build the scale necessary to make these schemes commercially viable."