Providers in Great Britain are now able to apply to launch collective defined contribution schemes, a development hailed by pensions minister Guy Opperman for its potential to “transform the UK pensions landscape”.

Under CDC schemes, employers and employees pay a fixed rate of contributions, collected in a manner similar to defined contribution schemes. Benefits are paid with a target in mind, similar to defined benefit schemes, but with the prospect of variable increases — and the possibility of decreases.

The aim is to provide a pension with a cost certainty, with no likelihood of deficits emerging as they can in DB arrangements, while providing for a higher average pension in retirement than is typically available from DC.

CDC schemes operate as a collective investment fund, thus mitigating volatility and stabilising member pension levels, while freeing members of the need to make complex individual investment decisions and removing the risk that they might run out of money in retirement.

The Pensions Regulator launched a consultation into the code governing single-employer CDC arrangements in January, and the existing regime is limited to that type of arrangement.

The Department for Work and Pensions has, however, confirmed that work has begun on expanding CDC to cover multi-employer arrangements, with TPR’s single-employer code potentially serving as the basis for future regulations expanding the scope of CDC.

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