UK’s First CDC Pension Scheme Authorised by The Pensions Regulator

The Pensions Regulator (TPR) has assessed and authorised the UK’s first Collective Defined Contribution (CDC) pension scheme with many more lined up to be introduced.

This is a landmark authorisation from TPR and shows how the regulator is pursuing its strategy to embrace innovation to help meet pension savers’ needs.

The minister for Pensions, Laura Tott said that this is just the beginning. She went on to comment that the positive effects of these schemes are evident in other countries and that plans to extend the CDC framework will enable more pension savers to achieve the retirements they want.

What are CDC schemes?

CDC schemes provide an innovative alternative to traditional Defined Benefit (DB) and Defined Contribution (DC) pension schemes. In CDC schemes, member and employer contributions are pooled in a collective fund from which an aspired to pension income for life is drawn.

The pooling of longevity and investment risks makes CDC schemes more resilient to market shocks. In addition, unlike DB schemes, the pension benefits are not guaranteed in CDC schemes, so they provide employers with predictable costs. External modelling suggests that they can also provide, on average, better returns for members than traditional DC schemes.

What does this mean for Trustees?

The trustees of a CDC scheme must satisfy TPR that it has sufficient systems and processes to run effectively in respect of administration, scheme governance and member communications.

For the regulator to be satisfied, they will assess three main areas:

  1. The functionality and maintenance of the IT systems used in scheme administration, governance and member communications
  2. The structures for governing the scheme
  3. The processes for supporting the different functions to administer and govern the scheme effectively

These are areas in which Assure UK can be of expert assistance and provide independent assurance, contact us to see how we can help.

While the regulator recognises that a scheme will not have begun administration before authorisation, they will expect its systems and processes to be fully developed and ready to go live at the point of application.

They recognise that in some matters, trustees may rely on a third party to give them information about how a scheme will be administered. In these circumstances, while the activity itself can be delegated, accountability cannot be delegated, so the trustees must assure themselves of how the requirements are met.

The application should explain how trustees have assessed that the scheme meets the systems and processes requirements.

This could be demonstrated through independent checks, such as agreed-upon procedures, internal audits and scheme documentation, particularly in respect of the functionality and maintenance of IT systems.

If the trustees do not have access to internal expertise to assess systems and processes, the authorisation application should include evidence that the scheme has had an independent external assessment, particularly in respect of the functionality and maintenance of IT systems.

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