58: DWP consults on draft collective money purchase regulations
The DWP has published its consultation on the draft Occupational Pension Schemes (Collective Money Purchase Schemes) Regulations 2021 (the Regulations). The Pension Schemes Act 2021 which received Royal Assent in February provided the primary legislative framework for Collective Money Purchase (CMP) schemes in the UK.
CMP schemes are also commonly known as Collective Defined Contribution schemes. Under a CMP scheme an employer, as well as members, makes fixed contributions to the scheme. However employers are not liable to fund a guaranteed level of benefits: members know their target income in retirement but if the assets held by the scheme are insufficient to pay the target pension, a lower level of benefits may ultimately be payable. The member and employer contributions are aggregated into a single pool of assets, which is invested by the trustees to grow over time.
As with a Master Trust, a CMP scheme needs authorisation from The Pension Regulator (TPR).
The Regulations set out the authorisation conditions that TPR will assess potential CMP schemes against when deciding whether a scheme qualifies. The authorisation regime seeks to protect members and build confidence by ensuring only well run schemes are able to operate.
Authorisation criteria will include:
- whether the persons involved in the scheme are fit and proper persons with consideration of competence, conduct and integrity;
- the soundness of the scheme’s design;
- the financial sustainability of the scheme;
- whether the scheme’s systems and processes are sufficient to ensure it is run effectively and are adequate for communicating to members; and
- the adequacy of the scheme’s continuity strategy.
There will be an authorisation fee payable. It is not yet known how much this will be but it is likely to be greater than that required under the Master Trust authorisation regime.
The Regulations also expand on the ongoing supervisory and intervention regime and how CMP schemes should work with TPR when changes to the scheme need to be made.
The consultation runs until 31 August 2021 and it may be possible for Regulations to be in place by the end of this year. In addition to the DWP consultation TPR will be consulting on its own guidance and Code of Practice covering the authorisation and supervision of schemes in greater detail.
Royal Mail are designing a CMP scheme and are likely to be the first to apply to the TPR for authorisation. The Regulations will allow other single employers (or connected employers) to open CMP schemes which are similar in design to Royal Mail’s. Governance of the CMP schemes are likely to be largely similar to that of a defined contribution scheme with some necessary adjustments.
If you require any assistance with CMP schemes or any pensions matter contact our legal experts here BDB Pensions Team.