Draft CDC code requires 'sound scheme design'
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The Pensions Regulator has launched a consultation on a new code of practice for the authorisation and supervision of collective defined contribution schemes.
The Pension Schemes Act 2021 introduced an authorisation and supervision regime for CDC schemes, which will initially only be for single employer trusts or connected employers.
To date, only Royal Mail has said that it will be introducing a CDC scheme, but the government is looking at whether to expand the regime to multi-employer funds, with some defined contribution master trusts showing an interest in using CDC for the decumulation phase.
The Pension Schemes Act 2021 introduced an authorisation and supervision regime for CDC schemes, which will initially only be for single employer trusts or connected employers.
To date, only Royal Mail has said that it will be introducing a CDC scheme, but the government is looking at whether to expand the regime to multi-employer funds, with some defined contribution master trusts showing an interest in using CDC for the decumulation phase.
The final code will outline how trustees can apply for authorisation and how TPR will assess schemes against authorisation criteria at the initial application stage and throughout supervision.
Authorisation costs £77,000 - more than three times the fees for a DC master trust.
Funds will be assessed on whether the persons running it are fit and proper, its systems and processes, member communications - to ensure members understand the risks - the continuity strategy and financial sustainability.
In addition, CDC schemes, unlike DC master trusts, must demonstrate their sound scheme design, which should be "supported by evidence including appropriate advice from suitably qualified professionals and modelling and testing appropriate to a scheme’s complexity".
Authorisation costs £77,000 - more than three times the fees for a DC master trust.
Funds will be assessed on whether the persons running it are fit and proper, its systems and processes, member communications - to ensure members understand the risks - the continuity strategy and financial sustainability.
In addition, CDC schemes, unlike DC master trusts, must demonstrate their sound scheme design, which should be "supported by evidence including appropriate advice from suitably qualified professionals and modelling and testing appropriate to a scheme’s complexity".
TPR will expand code and issue guidance
David Fairs, TPR’s executive director of regulatory policy, said CDC schemes have the potential to change the pensions landscape.
“As a regulator we welcome innovation but we remain committed to protecting savers," he said. Fairs added that the code will be expanded to outline TPR's expectations for the closure or wind-up of a scheme "in due course", and that TPR will be producing guidance to accompany the code.
Looking ahead to how CDC scheme regulations might be changed in future to permit multi-employer funds with unconnected employers to offer CDC, he said: "We look forward to working with the DWP and industry on any development and expansion of CDC schemes.”
Looking ahead to how CDC scheme regulations might be changed in future to permit multi-employer funds with unconnected employers to offer CDC, he said: "We look forward to working with the DWP and industry on any development and expansion of CDC schemes.”
Trustees will be able to apply for authorisation to operate a CDC scheme from August this year. The eight-week consultation, which includes 27 questions, runs until Tuesday, 22 March.
