This blog bites inside the sweet messages of a 60% better pension for members to find what the DWP (and its regulator) have in mind beyond what was laid in 2022, is being laid now but what will need to be laid for an Retirement product. I deal with why we need a separate CDC product for retirement than we do for a whole of life product.
Ten years of hard work leads to a hard inside to the nut.
The bulk of the Consultation on Retirement CDC is about getting it right and this is 10 years work from DWP. It doesn’t mess about. Early on we have this statement to organisations thinking of running a CDC plan for those at retirement.
Entering the market without proper authorisation could create an unfair commercial advantage and lead to excessive cross-subsidisation, which may ultimately result in consumer detriment.
Authorisation can be made (at some cost) but it can be taken away if it is not used. It is not a tradeable commodity. There will be no “speculation” . If you aren’t operating within 2 years of authorisation, you are junked.
Application Fees will be £77,000 per application with a very complicated fee charging for multi-section schemes. Let’s not see CDC as a game for the amateur, professional pensions only.
The authorisation criteria introduced by this legislation areas follows: these have been laid out in 2022 laws for single employer schemes (Royal Mail) . At a high level
- the persons involved in the scheme are fit and proper persons
- the design of the scheme is sound
- the scheme is financially sustainable
- the scheme has adequate systems and processes for communicating with members and others
- the systems and processes used in running the scheme are sufficient to ensure that it is run effectively
- the scheme has an adequate continuity strategy
“Continuity” is the DWP and TPR word for “closing down”.
Adjusted for multiple employers
The 2025 Regulations introduce the following additional criteria for whole-life unconnected multiple employer CDC schemes (UMES) yesterday in October 2025.
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that the scheme has a single scheme proprietor, and the scheme proprietor meets specific requirements;
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that no person has carried out promotion or marketing of the scheme that is unclear or misleading without rectification, and that the scheme has adequate systems and processes for securing that promotion or marketing of the scheme is clear and not misleading;
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that the scheme trustees do not promote or market the scheme or act as a chief financial officer for the scheme; and
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that (unless required to pursue continuity option 1 by virtue of section 34(3) of the 2021 Act) the trustees of the scheme would not be prevented from pursuing continuity option 3 whenever they consider it appropriate to do so should a triggering event occur in relation to the scheme.
There are some provisions that come in , that didn’t need to be spelt out before
CDC’sat retirement is not a retail annuity product.
We recognise that to some providers it may be attractive to offer ‘level pensions’, to be a CDC alternative to a fixed rate annuity. However, we do not think this is appropriate for CDCs; the annual adjustment means that level pensions could not be achieved, and the high risk of cuts in nominal benefit rates when targeting a level pension compared to a target of CPI, risks undermining confidence in CDCs.
Transfers in should occur on an actuarially equivalent basis but Gateway 2 is out of Retirement CDC.
Cohorting is a likely to be a necessary feature of Retirement CDC scheme
This would enable new members to enter the scheme on terms that reflect current market conditions and for schemes to price their benefits based on a target of at least CPI-linked increases, rather than inheriting the target benefit adjustment of the entire collective fund
Investment strategy will be different from UMES
Unlike whole-life CDC schemes, Retirement CDC schemes will be paying out benefits as soon as they start running. As a result, their investment strategies will inherently differ, as greater liquidity will be required from the outset
Those operating an at retirement CDC scheme are known collectively as an individual “scheme proprietor”.
The scheme proprietor of a Retirement CDC scheme would need to satisfy all criteria regarding financing responsibilities and liabilities. When considering whether a Retirement CDC scheme has a single scheme proprietor who meets the criteria, TPR will need to be satisfied that the person identified as the scheme proprietor is responsible for financing the scheme
The Scheme proprietor is a key figure for authorisation and cannot be a trustee.
the scheme proprietor’s ability to deliver such financing will need to be assessed by TPR, both at authorisation and on an ongoing basis.
Key to authorisation and maintenance of privileges is seriousness of intent and a business plan that spells out how success will follow.
Retirement CDC has the potential to be more volatile; as scale is built through members joining the scheme at retirement, there will be no accrual. However, a member joining at retirement is more likely to be transferring a significant sum, and therefore greater scale can be built with fewer members. We anticipate that schemes will be able to demonstrate onflows of members to TPR at authorisation, to demonstrate how they will achieve scale and sustainability.
UMES whole of life can operate without an at retirement CDC or vice versa but it would make absolute service for UMES whole of life to be open for transfers at retirement from those who choose to and schemes that want to continue as DC but have partners to meet their obligations to offer a default decumulation arrangement.
But the DWP do not want to have introducers from the retail market
While individuals will retain the ability to opt out of a default pension benefit solution or to select amongst retirement options, we do not intend for there to be a retail market aimed at individuals for Retirement CDC schemes, therefore we propose prohibiting promotion and marketing to prospective and existing members of Retirement CDC schemes. We foresee that there may be necessary exceptions to this proposal, and we welcome views on where this may be appropriate.
I have seen one trustee document which includes the facility for the trustees to allow individuals to join the scheme at their discretion. This is hardly key to that master trust’s plan to get to Scale.
It seems wrong to exclude those who are outside of work and have not membership of a scheme that gives access to a Retirement CDC. To be able to choose to join one that makes individual choice available seems fine and I hope that regulating this is a matter of marketing not law . There are of course small pot consolidation considerations that may make it hard to include all pots but that is about scheme rules
Marketing will need be vetted by both Regulators and Trustees.
As expected, the potential routes to wind up for CDC schemes are rigorously laid out as “Continuity” options
discharge liabilities and wind up the scheme (continuity option 1);
resolve the triggering event (continuity option 2);
or convert the scheme to a closed scheme (continuity option 3).
Will continuity option (3) create a tontine? No doubt some will argue this is legitimate, to me a closed CDC scheme is bad news
Retail?
There is much in the consultation about CDC not being or becoming a retail scheme which exists under two conditions
1. a Retirement CDC scheme is a default or qualifying pension benefit solution under the Guided Retirement duties in the Pension Schemes Bill 2025, or;
2. there is a formal partnership between a DC scheme and the scheme’s chosen Retirement CDC scheme, to cover instances where members are actively engaged, choosing Retirement CDC as their retirement income.
The DWP is adamant – no retail!
These routes to access, alongside the proposed prohibition on marketing to members , would prevent the emergence of a retail market aimed at individual members
We propose that access to a Retirement CDC scheme should be contingent on it being either a default solution within the scheme or part of a formal partnership between a DC scheme and a Retirement CDC scheme.
Pricing and value for money
The consultation is clear about intention but leaves development with the actuaries and in particular with the FRC
We therefore think it necessary to introduce a requirement that transfers into the scheme be on an actuarially equivalent basis. That is, that the expected value of rights to benefits provided upon the receipt of a transfer should be equal to the transfer value received.
The FRC is developing guidance for actuaries in relation to actuarial equivalence for whole-life schemes, and we anticipate similar guidance being provided by the FRC for Retirement CDC schemes.
Quotations should not be marketing documents
Marketing has long been a worry for the DWP and TPR. We learn that quotations should..
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accurately describe the methods by which the scheme determines the rate or amount of benefits provided under the scheme
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accurately describe estimates of the rate or amount of any future pension benefits payable under the design of the scheme
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accurately explain that the future pension benefits payable under the scheme are subject to annual adjustment in accordance with the scheme rules
and learn that.
We may also require quotations to include a list of the key features of the scheme such as that benefits are not guaranteed and that they can be adjusted on an annual basis.
Lifestyling
Some of the benefits (the 60% improvement in pensions) of whole-life CDC schemes come from avoiding lifestyling,
This is another reason why it is right that Retirement CDC is explored in the context of the Guided Retirement policy
Valuations
There is a fundamental requirement on schemes whatever the CDC type.
To avoid bias in favour of a particular group of members and to limit the volatility of the benefit adjustments, CDC schemes are required to follow strict rules on benefit adjustments.
These requirements include using central estimate assumptions for valuations and ensuring that increases in benefits are sustainable for the remaining lives of the membership – these principles will remain crucial for Retirement CDC schemes.
Cohorts necessary for Retirement CDC
But because they cannot smooth over a lifetime , cohorts need creating
while all cohorts would join with an aspiration of CPI adjustments initially, over time, different cohorts will have different adjustments due to their historic performance
Here is where the advantages of whole of life smoothing come into play. Cohorting need not happen for WOL but needs to happen for Retirement CDC schemes who necessarily will have a bumpier life on their transfers
I must admit to getting a little lost in the interplay of MAR and upper threshold in schemes using and not using Cohorting.
Retail market possible in the future
In an open market, schemes would be able to offer a CDC income in exchange for member’s pots in competition with one another, targeting individuals. This has the advantage of opening CDC income in retirement to everyone, including the self-employed.
For the time being, however, we prefer a non-retail market due to the risk of market issues, pricing concerns, and a greater danger of mis-selling
Universal Provider – possible for the future
Nest and the Pension Protection Fund (PPF) are potential organisations with the scale to serve as a universal Retirement CDC provider.
we will continue to monitor developments in the Retirement CDC landscape and assess whether a universal provider may become more appropriate in the future, either alongside or as a replacement for the current proposed approach.
Collective Defined Contribution (CDC) aspirant roadmap
In my other blog today, I deal in more detail with my thoughts on the Roadmap but here are the DWPs. The most immediate requirement is to reply to certain questions arising from the consultation. I suspect that only minor changes will be made as the roadmap is aspirant!
As set out in this consultation, Retirement CDC is interdependent with other areas of Government policy, including: – the establishment of Unconnected Multiple Employer CDC schemes (UMES), as Retirement CDC could be delivered as a section within an UMES, and, – the implementation of the Guided Retirement provisions in the Pension Schemes Bill 2025, which we anticipate will be the primary route through which members access Retirement CDC.
