The Royal Mail Collective Pension Plan has received authorisation from the Pensions Regulator, becoming the UK’s first collective defined contribution pension scheme since the structure was set out in the Pension Schemes Act 2021. 

 

TPR has published a list of authorised CDC schemes on its website. 

 

The regulator has described approving the first CDC scheme as a milestone.  
 

“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,” said Nicola Parish, executive director of frontline regulation. 

 

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.”  

 

The regime for CDC schemes requires those who run them to meet fit and proper person requirements and have the right systems and processes in place. They must also show the scheme is financially sustainable and have robust member communications. 

 

The pensions industry has welcomed the news, saying CDC offers a further option for employers and employees. 

 

Claire Altman, managing director of individual retirement at provider Standard Life, said CDC schemes “could prove to be a useful part of the toolkit”, offering a halfway house for employers that run defined benefit schemes and potentially more certainty of outcome than DC for employees.  

 

“However, it’s important to ensure CDC schemes will be sustainable and that proper protections are in place if things don’t go as expected, given the expectations CDC schemes could raise with savers,” she cautioned. 

  

“While it is great that CDC will be an option, we shouldn’t forget that other solutions are available to savers,” she noted, with higher interest rates making annuities more attractive again. Blending drawdown and annuities could also become more common, with Altman expecting significant product innovation in the next two years. 

Chintan Gandhi, partner and head of Collective DC at Aon in the UK, said the first CDC scheme is "just the beginning", calling CDC the greatest innovation in UK pensions in a generation.

 

Aon, which has been conducting CDC research since 2013, strongly supports the DWP’s plans to introduce legislation covering both whole-life multi-employer CDC schemes and decumulation-only CDC solutions, said associate partner Madalena Cain.

"This will bring CDC to the masses, and we urge the government to commit to ensuring the regulations are in place for these wider forms of CDC by the end of 2024," she said.

 

CDC schemes were initiated and worked on in the UK by unions, Royal Mail and the Department for Work and Pensions, after the unions at the privatised postal provider found growing inequalities between longer-serving members and newer recruits, saying members of the defined contribution scheme that had been introduced were inadequately served by DC. 

 

The law currently only allows schemes to be set up for single or connected employers, but a consultation on extending this to non-associated employers is underway after the actuarial profession and some consultancies, alongside providers like master trusts and insurers, showed strong support. Some have also suggested CDC could be offered for decumulation only as an alternative to drawdown, similar to a tontine. 

 

   

 

CDC has been criticised by others in the pensions industry for claims about outsized excess returns compared with traditional DC by consulting firms, the risk of members misunderstanding that their pensions are not guaranteed in CDC – an issue that led to its demise in the Netherleands – as well as intergenerational fairness problems with some designs.