The Department for Work and Pensions (DWP) has published a consultation on the draft legislation for the introduction of retirement collective defined contribution (R-CDC) schemes, alongside its response to its initial consultation on R-CDC pensions.

Its draft regulations aim to outline what R-CDC providers must do to become authorised, how the schemes can be accessed, and how they will operate effectively under regulatory oversight.

R-CDC schemes are aimed at members who, upon joining, had retired or were about to retire, and ongoing contributions from employment cannot be made into the R-CDC scheme.

The authorisation regime will use the existing CDC regulations as a foundation, although an amendment has been proposed to the way unconnected multi-employer schemes (UMES) operate to ensure transfers are actuarially equivalent.

The DWP said that it believed R-CDC should be as aligned to the UMES regime as possible.

It added that R-CDC schemes will be closely connected to the new guided retirement regime, which the government and regulators are also consulting on, as this was intended to be the primary route to access R-CDC.

R-CDC should only be established within schemes that are already subject to an authorisation framework and close TPR oversight, the consultation noted, meaning that master trusts and UMES were expected to be well placed to operate an R-CDC scheme.

As part of the consultation, the DWP was seeking views as to whether the proposals provided sufficient flexibility for members to enter an R-CDC scheme from the same provider, another occupational scheme, or contract-based provider.

Under the authorisation policy, the DWP proposed making amendments to the first gateway test to replace references to contributions with references to transfers, and said it did not consider the second gateway test and live running test as necessary for R-CDC.

In its initial consultation, the DWP proposed that R-CDC scheme cohorts should target at least CPI inflation, although this was absent from the latest consultation, with the government seeking views on whether this was prudent.

The consultation also sought feedback on communications, disclosures, charges, and regulatory oversight, alongside member protections, with the DWP proposing that bulk transfers without consent should not be permitted into R-CDC schemes.

“By pooling longevity risk, retirement collective pension schemes (RCPS) can provide an income that is designed to last for life,” said Pensions Minister, Torsten Bell.

“They are intended to target inflation-adjusted increases, helping members maintain their purchasing power over time.

“They do not rely on individuals making ongoing investment decisions throughout retirement. And because assets remain invested within a collective fund, members can continue to benefit from long-term investment returns.

“RCPS therefore have the potential to combine many of the features that pension savers value: a regular income, protection against longevity risk, the prospect of maintaining living standards over time and freedom from the burden of managing investments throughout retirement.”

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