CDC legislation to come into force from 1 August 2022

The government has confirmed that draft legislation for single or connected employer Collective Money Purchase (CMP) schemes will come into force from 1 August 2022, subject to parliamentary approval.

In the government response to its recent consultation on the draft regulations, the Department for Work and Pensions (DWP) highlighted the plans as a "huge step forward", confirming that it will also lay draft regulations making the necessary consequential and miscellaneous changes in February 2022.

The government has made some changes to the regulations in light of industry feedback, confirming, for instance, that it has re-drafted the definition of connected employer to be more in line with the policy intent, and to mitigate confusion that arose from the use of 'joint venture' as well as the transfer of active members between connected employers.

The authorisation and ongoing supervision of CMP schemes, also commonly referred to as collective defined contribution (CDC) schemes, will be administered by The Pensions Regulator, which is expected to consult on a draft Code of Practice and operational guidance to support employers in January 2022.

This Code of Practice is also expected to provide more detail on the processes that will be used to calculate fees for applications in respect of schemes with more than one CMP section, while the guidance will provide illustrative examples around how the fees or additional applications would be set.

Commenting in the foreword of the government’s response, Pensions Minister, Guy Opperman, highlighted the development as “the culmination of four years’ worth of work”.

He said: “These regulations will be a huge step forward in providing a major enhancement to the existing occupational pensions landscape and a third way forward between traditional defined benefit and post 2012 defined contribution schemes.

“By allowing pension scheme members to share investment and longevity risk, and by ensuring that employers have predictable pension costs, CDC schemes will mean scheme members can be confident of an income in retirement that, whilst not guaranteed, will provide them with good value from the contributions they and their employer have made.”

Opperman also said that he was “greatly encouraged” by the number of industry responses to the consultation that indicated a “real desire” to extend the benefits of CDC to more employers and their workers.

As such, he confirmed that whilst the prime focus will remain on ensuring CDC is available for single or connected employer schemes from next year, the DWP has already begun engagement with interested parties to understand their proposals for multi-employer schemes.

The consultation also confirmed that once there is clarity as to what these parties want to achieve and how they may deliver this, the DWP will look to work to arrive at a consensus on what a potential legislative framework for these schemes might look like.

"It will be important to learn from the lessons of operating single or connected CMP schemes in live running as well as carefully consider any potential risks that may arise in extending this provision," it stated.

The update was also highlighted as "great news for Royal Mail, the Communication Workers Union and Royal Mail employees", having been the first company in the UK to look to introduce a CDC scheme for its staff.

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