On 23 October 2025, the Government published four key documents expanding phase 1 of Collective Defined Contribution (CDC) provision from single and connected employer CDC schemes to ‘well-run’ unconnected multiple employer whole-life CDC schemes (UMES) and at retirement (decumulation) CDC provision:
What is a CDC scheme?
A Collective Defined Contribution (CDC) scheme is halfway between a defined benefit (DB) and a defined contribution (DC) scheme. In a DB scheme the employer bears the risk whereas in a DC scheme the member bears the risk. In CDC schemes there is more of a balance.
CDC schemes are common in the Netherlands, Canada and Denmark but have not yet been widely established in the UK – the only CDC schemes currently permitted in the UK since 1 August 2022 when CDC provision was introduced are non-commercial single or connected employer ones and only one of these has been set up, the Royal Mail Collective Pension Plan, that was established last October. It is accepted that unless CDC is permitted between unconnected multiple employers, they are unlikely to really get off the ground.
The legislative framework for CDC schemes is set out in the Pension Schemes Act 2021 (the 2021 Act) and the Occupational Pension Schemes (Collective Money Purchase Schemes) Regulations 2022 (the 2022 Regulations). CDC schemes are authorised and supervised by the Pensions Regulator (TPR), must be operated by a fit and proper person, be financially sustainable, have an adequate continuity strategy and operational and member communication systems and processes and comply with certain scheme design criteria.
How does a CDC scheme differ from other pension schemes?
Unlike in a DB scheme, the amount of pension that will be paid on retirement from a CDC scheme is not guaranteed. Instead, there is a target level of pension that is based on a long-term, mixed-risk investment plan whilst the cost to the employer is fixed. By conducting regular valuations and reviewing the funding position, the target retirement benefits can be adjusted accordingly (possibly reduced) so that the assets and benefits are balanced.
A CDC scheme differs from a DC scheme as the member does not have an individual pension pot. The assets are pooled in a collective pot and invested, and retirement benefits are paid from the pool of assets. Members do not bear all of the longevity, inflation and investment return risk in a CDC scheme as they would with a conventional DC scheme. Whole-life schemes can also avoid lifestyling where assets are gradually moved into lower risk and liquid assets as a member comes up to their chosen retirement age. A decumulation or retirement CDC scheme does not pool accumulation investment risk but can benefit from the advantages of pooling longevity, investment and timing risks in the retirement phase.
The idea is that CDC can provide higher and more predictable pension benefits when compared to traditional DC provision because it can maintain a more growth-oriented investment strategy for longer, pool risks, smooth outcomes and pay pensions directly from the fund rather than absorb the costs of annuity purchase.
Phase 2 of CDC: UMES consultation response and final UMES regulations
The UMES legislative framework
The Government received broad support for the draft UMES regulations and has introduced several changes in response to feedback.
In summary, the UMES regulations build on the existing single and connected employer CDC legislation in the 2021 Act and the 2022 Regulations. Many of the current parts of the 2022 CDC regulations are regarded as being equally applicable to UMES and so have been ‘replicated’. Some changes are needed to reflect the differences between UMES and single/connected employer schemes, for example, that UMES can be operated on a commercial basis and will be used by different employers in the same/different sectors. UMES must also have a scheme proprietor that has liability in respect of certain costs and providing funds in certain situations – it cannot be the trustee.
The explanatory memorandum to the UMES regulations explains the Government’s intention that:
- “only schemes that are well run and built on sound foundations are allowed to operate;
- schemes must have a clear strategy and resources to deal with any problems that may arise;
- schemes must have an effective framework for communicating with members;
- the interests of members continue to be protected throughout the life of the scheme; and
- the Pensions Regulator has appropriate powers to intervene when necessary.”
Authorisation and supervision by TPR
As with single or connected CDC schemes, TPR will authorise and supervise multiple-employer schemes. UMES must meet ‘fit and proper person’ standards in addition to scheme design tests. The scheme design conditions include requirements on member communications, business strategy, demonstrable financial sustainability including actuarial viability, investment governance and a continuity strategy intended to protect members in response to triggering events. Such events include a scheme proprietor entering insolvency or becoming unlikely to continue as a going concern, withdrawal of TPR authorisation, and a decision to wind-up or close a scheme.
Once authorised, UMES will be subject to ongoing supervision by TPR. Oversight includes the reporting and monitoring of significant events such as material changes to / failures of the key authorisation elements, continued compliance with authorisation requirements and implementation of continuity options if a triggering event occurs. TPR’s existing CDC code of practice will be updated during 2026 to accommodate UMES.
Actuarial equivalence and benefit adjustments
UMES will operate under the principle of actuarial equivalence, meaning the expected cost of providing benefits accruing should match the contributions paid. This principle is designed to prevent ‘excessive’ subsidisation of one group of members by another, particularly important for UMES that may include different employers and employees. The valuation and adjustment process for CDC schemes is therefore fundamental to maintaining stability, sustainability and fair treatment among different generations of member. As with other types of CDC arrangements, UMES will be subject to set criteria to ensure that benefits are valued and adjusted appropriately.
The Financial Reporting Council will provide actuarial equivalence guidance for both whole-life and retirement CDC
Promotion and marketing
TPR will oversee the promotion and marketing of UMES to mitigate the risk of “overpromising to gain a commercial advantage” and potential mis-selling. Promotion or marketing of a UMES must not be unclear or misleading and there are specific legislative requirements to ensure this. Trustees will not be permitted to promote or market a scheme.
Phase 3 of CDC: Retirement-only CDC schemes
Retirement-only CDC schemes will permit the transfer of a DC pot at retirement, the aim being to provide a more stable and predictable retirement income for life “at a variable target benefit level, without the need for ongoing management of a pot”.
The consultation explores the Government’s proposals for the operation of such schemes, including potential changes needed to reflect the differences between whole-life and pensioner only CDC arrangements, for example, to manage risks associated with there being no contributions or accrual phase in retirement only CDC. The framework is developed from the existing CDC and UMES proposals.
Retirement CDC is intended to be a non-retail product selected by trustees, either as a default or qualifying benefit under the Guided Retirement duty in the Pension Schemes Bill 2025, or through partnerships between a DC scheme and the selected retirement CDC scheme for actively engaged members.
The consultation covers schemes operating under trust. The Financial Conduct Authority (FCA) will set equivalent rules for FCA-regulated pension schemes. The Guided Retirement provisions do not apply to non-workplace pensions, but the Government is considering ways these could link with retirement CDC schemes and may review options to extend CDC access to non-retail sectors like the self-employed.
Qualifying schemes
Retirement CDC schemes will be set up as occupational pension schemes in the form of a UMES or a section of a Master Trust, will be subject to TPR authorisation and supervision and receive the same tax treatment as other occupational pension schemes.
Scheme design
To encourage innovation, there will be sufficient flexibility to accommodate different designs such as on death benefits and the provision of lump sums. Schemes will need to target at least Consumer Price Index (CPI) pension increases.
Financial sustainability
Schemes will need to demonstrate financial sustainability before being authorised – this will include showing that the set-up costs (and running ones) can be met. Initial and ongoing running costs may be higher in some retirement CDC schemes than in others depending on their structure. Initial costs could also be higher than in whole-life schemes as pensions will be paid for every member from day one.
Promotion and marketing
As with UMES, TPR will oversee promotion and marketing. It is proposed that there will be a ban on prospective member/member marketing to fit in with the concept of the schemes being selected by trustees, not members.
Transfers to retirement CDC schemes
Transfers to retirement CDC schemes will be made on an actuarially equivalent basis to prevent “excessive cross-generational subsidisation” so that the expected value of benefit rights is equal to the transfer value received. Transfers will be made either:
- under the Guided Retirement provisions in the Pension Schemes Bill 2025 where doing so would, in the trustees’ opinion, provide a better outcome for the member; or
- in the case of members making an active decision, under the current Pension Schemes Act 1993 transfer framework.
Valuations and adjustments
Cohorting of members will be permitted. This can assist in ensuring a scheme’s sustainability and fair treatment of members – members who join during the same period will do so on the same terms with new cohorts established in response to changes in market conditions and once an acceptable level of cross-subsidisation has been reached. The principle for benefit adjustments is that these will be applied consistently to all members in a given cohort.