Draft Occupational Pension Schemes (Collective Money Purchase Schemes) (Extension to Unconnected Multiple Employer Schemes and Miscellaneous Provisions) Regulations 2025
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The Parliamentary Secretary to the Treasury (Torsten Bell)
I beg to move,
That the Committee has considered the draft Occupational Pension Schemes (Collective Money Purchase Schemes) (Extension to Unconnected Multiple Employer Schemes and Miscellaneous Provisions) Regulations 2025.
That should encourage enthusiasm from everyone. The primary purpose of the draft regulations is to extend the legal framework for collective money purchase schemes, commonly known as collective defined contribution schemes, to allow multiple unconnected employers to participate. Until now, CDC schemes have been restricted to single employers or connected employers.
Significant progress has been made in getting more people saving, not least under the previous Conservative Government. We now have 23 million people saving into a workplace pension, but the job is not finished. Currently, pension contributions in defined contribution schemes are going into a savings pot, not a pension, leaving them exposed to the twin challenges of adequacy and risk. The Government believe that CDC schemes have an integral role in helping us address these challenges.
The statutory instrument puts in place a number of key measures to ensure that unconnected multiple employer CDC schemes deliver for members. Part 2 of the statutory instrument amends the Pension Schemes Act 2021—we will be hearing more about that—to allow for unconnected multiple employer schemes and to broaden the range of organisations that can set up a CDC scheme. To become authorised, a scheme needs to satisfy the Pensions Regulator that it meets the authorisation criteria, which are listed in section 9(3) of the 2021 Act. Part 2 of the statutory instrument amends that Act to create additional authorisation criteria specifically for unconnected multiple employer collective money purchase schemes.
We have identified persons who we consider will have an important role in such schemes, and we have brought these people within the scope of the fit and proper persons test, so that they are subject to appropriate scrutiny. It is imperative that our regulations clearly establish who is responsible for a scheme’s business strategy and financial sustainability, and that it is evidenced to the regulator at authorisation. Regulation 10 therefore amends the 2021 Act to require that an unconnected multiple employer CDC scheme has a single scheme proprietor that meets specific criteria and requirements. Regulation 10 also inserts a requirement for the scheme proprietor to prepare, maintain and submit a business plan to the regulator.
The new legislative framework will permit schemes that intend to operate on a commercial basis. To mitigate the risks of schemes overpromising to gain a commercial advantage or mis-selling, we are introducing a promotion or marketing authorisation criterion. The requirement is that no person has carried out promotion or marketing of a scheme that is unclear or misleading without rectification, and that the scheme has adequate systems and processes for ensuring that promotion or marketing is clear and not misleading.
We want trustees of these schemes to focus entirely on the interests of scheme members, and to have complete autonomy to do so. A trustee also acting as a person who promotes or markets the scheme, or as the chief financial officer for the scheme, detracts from this responsibility and creates a clear conflict of interest. Regulation 5 of the statutory instrument amends the 2021 Act to make a separation of these roles an authorisation criterion.
It is the Government’s intention that running an unconnected multiple employer CDC scheme as a closed scheme should always be an option open to trustees, where it is viable to do so and to the extent that it is permitted under wider pensions legislation. Regulation 5 therefore inserts a new authorisation criterion into the 2021 Act to ensure that trustees can choose this option, if appropriate. To deter speculators, part 2 also imposes a mandatory deadline of 24 months from authorisation, by which an authorised unconnected multiple-employer CDC scheme must start being operated—it cannot sit there in abeyance.
Part 3 of the statutory instrument supplements the meaning of “connected” in section 49(2)(a) of the 2021 Act—one of the better sections. This term is relevant for determining whether a collective money purchase scheme is a single and connected employer scheme or an unconnected multiple-employer scheme, and therefore which of the two legislatives frameworks applies to it. Part 4, including schedules 1 to 6, implements the new authorisation and supervisory regime for unconnected multiple employer collective money purchase schemes under part 1 of the 2021 Act. It includes regulations on the application for authorisation, scheme design, financial sustainability, the valuation and adjustment process essential to calculating benefits, and the supervisory regime, both at set up and on an ongoing basis. The new regime will continue to place strong emphasis on regulatory oversight. The Pensions Regulator is empowered to issue risk notices, approve and enforce continuity strategies and, ultimately, withdraw authorisation where schemes fail to meet the required standards.
Part 5 of the instrument contains amendments to the Occupational Pension Schemes (Collective Money Purchase Schemes) Regulations 2022, introduced under the last Conservative Government, to ensure that certain aspects of the single or connected employer collective money purchase schemes regime are aligned with this new regime. Part 6 and schedule 7 make consequential amendments to other relevant primary and secondary legislation.
Unconnected multiple employer CDC schemes are a welcome addition to the UK pensions landscape, as are CDC schemes more generally, as they have come forward on the basis of cross-party consensus over the past few years. When well designed and well run, which this instrument will ensure, they can help boost retirement incomes and benefit the wider economy. I comment the instrument to the Committee.
Mark Garnier (Wyre Forest) (Con)
I suspect the name of this statutory instrument is probably longer than my speech will be. I am grateful to the Minister for his words about the details of this instrument. Its intention is to bring more people who are not saving into pensions into the pension schemes. In that respect, it builds on work done by the previous Conservative Government, which I think we would all agree were 14 years of strong and stable Government [Hon. Members: “Hear, hear!”] Thank you very much. We are 100% behind this. It continues the work of the previous Government. It has the intention that we always had—to get more people saving into pension schemes. In the broader sense, it follows the intentions of the Pension Schemes Bill, which is currently passing through Parliament, and on which we disagree with one or two things. But we are in agreement on the overall thrust of this statutory instrument, so I will not trouble the Committee any longer.
John Milne (Horsham) (LD)
The Liberal Democrats largely welcome all the measures in this legislation. We also agree that it will be of great benefit. I am seeking clarity on just one thing: communications. CDC schemes are harder to explain than DB guarantee or DC individual pot arrangements. Misunderstanding could lead to some negative consequences. I understand that the idea is that minimum communication standards will be in place, overseen by the Pensions Regulator. What might that consist of? Does the regulator approve a communications programme in advance or check it afterwards? Does it have minimum numbers of comms going out or timings? Could the Minister give some clarity on exactly what is proposed?
Torsten Bell
I thank the hon. Members for Wyre Forest and for Horsham for their consensual approach and the clarity of their support for what is a development of CDC schemes that has had good cross-party support. Communications are very important. The truth is that they are important in all pension schemes—particularly within CDC schemes because they are new, and because there is some complexity sitting behind them. That is why we take this particularly seriously.
In response to the questions raised by the hon. Member for Horsham, the regulators will be looking at the overall approach to communication. They are not signing off the individual bits at the initial authorisation. As I said in my opening remarks, the authorisation is not a “one and done”. There will be ongoing monitoring of that. Specifically on communications, for multi employer CDC schemes, the marketing in general will be to employers, not to individuals. That may help allay some concerns about how that is communicated. But even within that, we will definitely want clarity, particularly to savers, about the honesty of what the offer is—this is not a DB scheme; it is not a certain guaranteed income. It is one that is aiming for a target amount, and there can be some fluctuation around that. It is important that we are honest and straight about that, and that those of us who support these schemes are also clear about what they are and are not offering.
The pension landscape does need to change—we all agree about that. Fundamentally, we need to move from having savings pots to delivering actual pensions. CDCs are one of the ways—there are others—in which we can make progress on that. I therefore commend this instrument to the Committee.
Question put and agreed to.