Govt consults on draft CDC regulations

The Department for Work and Pensions (DWP) has launched a consultation on the draft regulations and associated consequential changes for the implementation of a new authorisation and supervision regime for collective defined contribution (CDC) schemes.

The consultation is seeking views on draft regulations outlining what CDC schemes must do to become authorised, to operate effectively in the market under regulatory oversight and what happens if changes must be made to their schemes.

In addition to broader views on whether the regulations effectively deliver on the intended outcomes, queries have also been raised around specific elements of the draft regulations, such as the proposed fee structure and schemes divided into sections.

The regulations were developed in “close consultation” with The Pensions Regulator (TPR) and are designed to enable the launch of a single or connected multi-employer CDC schemes, including the proposed Royal Mail (RM) CDC scheme.

Indeed, the government argued that establishing the regime in regulation would allow for rapid amendments in response to market innovation and development, as it intends to build on the experience of the RM scheme before facilitating other forms of CDC provision.

The DWP confirmed that CDC authorisation and ongoing supervision will be administered by TPR, which is expected to produce detailed practical support in the form of operational guidance and a Code of Practice, which will also be subject to a separate public consultation.

In addition to this, HM Revenue & Customs are working to make the necessary changes to the tax regime to allow the provision of CDC schemes.

Commenting in the foreword of the consultation, Pensions Minister, Guy Opperman, said: “CDC schemes can only succeed if there is confidence in this new type of provision. These regulations will help ensure that CDC schemes are set up and run well by providing clear criteria by which TPR will authorise and supervise these schemes.

"When I published the government’s response to our consultation on CDC benefits in 2019, I welcomed the growing interest in CDC provision. That interest is growing day by day as the legislative framework for CDC benefits becomes clear, and many employers, pension providers and unions can see the advantages it can bring.

"These draft regulations are a huge step towards fulfilling our commitment to legislate for single employer and connected multi-employer CDC schemes. But I know that this is a job half done.

"Many want to see non-connected multi-employer CDC schemes, master trusts and decumulation only CDC schemes. That interest is very welcome. I have no doubt collective provision can benefit millions of pension scheme members when its full potential is realised.

"Right now our priority is to ensure the full framework for single employers and connected multi-employer CDC schemes is in place as soon as we can, and this consultation is rightly focused on delivering that. But we are not deaf to calls from those who wish us to go further.

"Once this first step is done we will turn our attention to the growing demand for these other types of provision."

The statutory framework for CDC schemes was first introduced by the Pension Schemes Act 2021, which contained powers to make regulations to enable models such as decumulation-only vehicles, commercial master trusts and industry-based multi-employer schemes to be brought into the authorisation and supervision regime.

Plans for today's consultation were also initially announced by the Pensions Minister earlier this month amid the launch of an industry forum, which aims to promote the development of CDC pensions, and are in line with the timeline previously outlined by the government.

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