Collective defined contribution (CDC) schemes could begin operating from next year after the government set an August enforcement date for legislation.
In what it hailed as a "huge step forward", the Department for Work and Pensions (DWP) yesterday (15 December) confirmed it would proceed with regulations for single and connected employer schemes.
The regulations set out how schemes will be authorised, assessed and monitored by The Pensions Regulator (TPR), alongside rules for valuations and benefit adjustments, information disclosures, and member protections.
The first CDC scheme is expected to be launched by Royal Mail, which has been working on the proposals since a decision to close its defined benefit (DB) provision in 2018.
While the scheme will need regulatory approval, much of the work has already been undertaken to prepare for the legislative regime, including setting its contribution rates.
In a foreword to the consultation response, pensions and financial inclusion minister Guy Opperman(pictured) said: "These regulations will be a huge step forward in providing a major enhancement to the existing occupational pensions landscape and a third way forward between traditional DB and post-2012 defined contribution schemes.
"By allowing pension scheme members to share investment and longevity risk, and by ensuring that employers have predictable pension costs, CDC schemes will mean scheme members can be confident of an income in retirement that, whilst not guaranteed, will provide them with good value from the contributions they and their employer have made."
But he reiterated that this was only a "job half done" with plans to expand CDC availability to master trusts and other multi-employer offerings, with "engagement with interested parties" already underway.
For single-employer provision, however, the next steps will see the regulations laid in parliament in February, while TPR is expected to consult on a draft code of practice in January.
The Association of Consulting Actuaries earlier this month revealed that around a fifth of business were considering CDC as an option for their employees. Over half of respondents to its poll also wanted to see CDC expanded to multi-employer providers.
Lane Clark & Peacock partner Steven Taylor agreed that speedy action was needed to ensure greater use of CDC where it was wanted.
He said: "It's great that the government has now produced its initial framework for CDC. However, the proof of the pudding will now be not only in the successful emergence of the first scheme but also whether this helps to spur wider adoption.
"Given the lead times for groups to make such significant decisions, other companies will want government to now quickly pivot to meeting emerging demand from other organisations."