The Pensions Regulator (TPR) has announced that they have assessed and authorised the Royal Mail’s Collective Pension Plan as the UK’s first Collective Defined Contribution (CDC) pension scheme.
TPR’s Executive Director of Frontline Regulation, Nicola Parish, announced:
“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.”
Collective Defined Contribution pension schemes are a type of retirement savings plan created as a third option to the Defined Benefit (DB) and Defined Contribution (DC) schemes. CDC schemes are sometimes referred to as "collective pensions" or "shared-risk pensions".
In a CDC scheme, contributions are paid into a central fund, which is invested to provide retirement benefits for members. However, unlike a traditional DC scheme, the investment risk is shared among all members of the scheme, rather than being borne solely by the individual.
In a CDC scheme, the retirement benefits are based on the overall performance of the fund, rather than on the contributions made by the individual. The amount of retirement income a member receives is not guaranteed, but rather is dependent on the performance of the fund.
CDC schemes differ from traditional DB schemes in that the benefits are not guaranteed and are subject to the overall performance of the fund. However, unlike DC schemes, CDC schemes provide a degree of risk-sharing among members.
Currently, CDC schemes can be set up by single employers, for that employer only, or for employers in the same group of companies and TPR has published guidance for CDC schemes explaining how they are assessed for authorisation and then supervised.
CDC schemes are currently only available in a few countries, including the Netherlands, Denmark, and Canada. In these countries, they are seen as a way to provide retirement benefits that are more predictable than DC schemes, while also avoiding some of the risks and costs associated with traditional DB schemes.
Laura Trott - Minister for Pensions - 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.”
