The industry has described the laying of the regulations for multi-employer collective defined contribution (CDC) pension schemes as a ‘seminal moment’, but warned that its success will hinge on scheme design, fairness and communication.

The regulations, which are set to be laid in parliament tomorrow (23 October), are intended to allow the expansion of CDCs to more employers and address a growing demand among workers to receive a more secure retirement income.

The government has estimated that millions of people across the UK could see their pensions increase by up to 60 per cent under the new savings vehicle.

Reacting to the move, Pensions Management Institute (PMI) chief strategy officer, Helen Forrest Hall, said it marked “a transformative leap” for savers.

“By pooling contributions and sharing risks, CDC has the potential to offer a stable, lifelong income without the burden of complex decisions,” she argued.

“The expansion to multi-employer and retirement CDC models is a major step towards a fairer, more secure pensions landscape.”

Independent Governance Group (IGG) trustee director and head of sustainability, Tegs Harding, also welcomed the development, describing it as “great to see” the regulations finally laid in parliament.

“Defined Contribution (DC) schemes are leaving around a third of members without adequate pensions at retirement, and CDC is an important part of the toolkit that can help address that,” she explained.

However, she warned that the key to delivering better outcomes in a way that is transparent and fair would come down to solid scheme design.

“I am hoping there will be further guidance on key principles like how much variability there should be in how much people get for every pound contributed and whether people with very different life expectancies can be put in the same pool,” Harding said.

Echoing the early optimism, TPT Retirement Solutions’ chief client strategy officer, Andy O’Regan, said the publication of the regulations marked “a major leap forward” for the industry.

“For the first time, employers of all sizes will be able to access the benefits of collective DC provision, paving the way for better outcomes for members and greater scale in this new model,” he said.

“The new rules will allow more workers to receive incomes for life in retirement, avoiding the need to make difficult decisions, while employers will maintain the cost certainty they have with DC provision.”

He added that the accompanying consultation on retirement CDC could help support guided retirement defaults for DC schemes.

“Unlike the whole-life model, CDC in decumulation does not pool investment risk in accumulation, but it does take advantage of longevity pooling to provide a lifelong income in retirement,” O’Regan explained.

“This model could be of particular interest to DC schemes which will be required to offer members a guided retirement default in future years.”

Meanwhile, Hymans Robertson senior partner, Jon Hatchett, claimed the new regulations were the “final piece of the jigsaw needed for CDC to take off in the UK”.

“Our research and work with employers has shown that multi-employer CDC master trusts are the vehicle that the vast majority of employers want for CDC,” he explained.

“We now have the regulatory certainty needed for providers to design and launch CDC schemes. The benefits of CDC are clear from our research - a higher pension and a secure income for life.”

Hatchett also welcomed the government’s focus on retirement CDC as part of a broader push to improve adequacy.

“Retirement CDC has an important role to play, particularly for existing older DC members who will not have the benefit of decades of saving into a whole-of-life CDC scheme,” he continued.

“With the Pension Schemes Bill including provisions for a default retirement approach that includes longevity protection, we expect it to play a prominent role.”

Similarly, WTW head of GB retirement consulting, Rash Bhabra, described the move as another “significant milestone” in bringing CDC to the UK.

“Most employers do not have the scale or commitment to set up their own CDC scheme, so these regulations should enable more employees to benefit from the higher and more predictable pensions that risk-sharing can deliver,” he said.

WTW also welcomed the government’s ongoing commitment to retirement CDC, which Bhabra said could “generate a higher, more reliable income for life” than existing options.

“Our research shows that retirement CDC is expected to provide around 40 per cent more income than buying an annuity with a DC pot,” he added.

“DC trustees will need to carefully pick the best option as the default for their members, and retirement CDC has the potential to be the most cost-effective and member-friendly option available.”

From an employer perspective, Broadstone head of policy, David Brooks, said that while CDC “may not be perfect”, it could be “good enough” to deliver the balance many have been seeking.

“On one hand, it satisfies the desire for a return to some degree of paternalism in pensions where people can, in return for their share of the cost, receive an income for life, albeit without the gold plating of traditional defined benefit pensions.

“However, on the other, there are question marks over whether it can provide better outcomes than individual DC pensions or whether it can resolve accusations of inter-generational fairness," he explained.

Brooks said that despite the downsides of CDC, there are enough upsides to see the move as a positive step forward, although he stressed that the details of the regulations being laid will be key to whether it can encourage enough employers to take the leap and participate.

Barnett Waddingham partner and head of DC pensions, Mark Futcher, also struck a note of cautious optimism.

“Following the Pensions Commission launch earlier this year, a green light on CDCs reinforces the government’s ambition to drive reform that delivers better retirement outcomes,” he said.

“But good reform should be about cultivation, not upheaval. CDC offers potential, but much of what it seeks to fix can already be addressed within the existing DC system if providers are simply given the room to innovate.”

While acknowledging that the changes were a sign of “real progress,” Law Debenture trustee director, Lynne Rawcliffe, stressed that it was going to require a collaborative approach across the pensions landscape.

“Trustees must play a key role in shaping member expectations and providing crystal-clear communication on CDC benefits,” she added.

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