The authorisation window for multi-employer CDC schemes opened this month and we expect several multi-employer CDC schemes live by mid-2027.

Retirement CDC (R-CDC) is also moving from theory to practical implementation. The government proposes to consult on draft regulations in Q4 2026 with the legislative and regulatory framework in place by Q4 2028. The first R-CDC schemes are likely to launch in Q2 2029.

Over the past 18 months, scheme proprietors (the bodies responsible for commercial decisions and funding set up and running costs) have been sourcing capital, building operational structures and processes, gauging employer interest, identifying target markets and considering scheme design in a finely balanced trade-off between fairness and simplicity.

A strategic partnership

The working relationship between scheme proprietor and trustees is fundamental to a successful set-up and authorisation process.

Most new commercial pension schemes are start-ups; they need to set up the pension scheme and corporate infrastructure from scratch. In this scenario, trustees need to act as a strategic partner to the scheme proprietor, working collaboratively to get the proposition up and running in a risk-managed way. This broadens the role of the trustee board.

Moving quickly towards authorisation requires considerable trust and confidence between the two parties. Trustees need to be confident that the scheme proprietor understands their role in protecting members’ interests, managing risk and engaging with TPR. Equally, trustees need to recognise that the scheme proprietor is likely a commercial entity, answerable to wider stakeholders (e.g. external investors) and its interests should be taken into account where there is no conflict with trustee duties to members.

While the interests and priorities of the scheme proprietor and trustees will largely align, inevitably there will be areas requiring compromise. For example, if the scheme proprietor requires a unilateral power to decide a course of action (e.g. opening a new section), trustees will need to ensure this is subject to pre-agreed parameters. Similarly, if the proprietor is reluctant to financially reserve for continuity option three (running as a closed scheme), trustees should review the position periodically.

From the outset, the scheme proprietor and trustees should agree a governance framework with clear responsibilities, delegation and reporting processes to establish effective ways of working and ensure appropriate trustee oversight. Trustees must also have flexibility and autonomy to commission independent advice within pre-agreed budgets where appropriate, enabling them to properly scrutinise the proprietor’s initial work and meet TPR expectations around independent decision-making.

Financial sustainability

To evaluate the proposition holistically, trustees need to ascertain where the money is coming from. This will dictate cashflow, including how profit flows from the scheme, and the availability and suitability of financial resources. Under the multi-employer CDC framework, the scheme proprietor itself needs to hold set up and running costs – this can be a tricky dynamic to navigate in a multi-layered corporate structure.

If the scheme proprietor is a newly formed entity, it is unlikely to have audited accounts at authorisation. Trustees will need to work with the scheme proprietor to agree ring-fenced financial reserves that reflect the business plan and evidence the financial sustainability of the scheme.

Scheme design

Before appointing a trustee board, most scheme proprietors will have carried out a thorough feasibility study to determine employer base, membership profile and scheme design. Most multi-employer CDC schemes will adopt age-related accrual where different age groups receive different benefit amounts for the same level of contribution to reduce intergenerational cross-subsidies.

But trustees still need to assess whether the scheme design is sound, fit for purpose and achieves a pragmatic and proportionate balance between fairness and simplicity. They will need to work closely with the scheme actuary to understand the assumptions, projections and modelling underpinning the scheme design, which feed into the viability report and certificate. The scheme design will also influence scheme communications, systems and processes and the continuity strategy. Trustees need sufficient time to review and approve each component of the authorisation application, which are interconnected and should not be viewed in isolation.

Communications

Perhaps the biggest and most publicised risk for a CDC scheme (particularly a multi-employer scheme with a diverse membership and wide range of employers) is communication risk. Trustees will need to decide how best to communicate with members and encourage feedback to build engagement and understanding. Communications should be clear, accessible and proportionate, explaining the key risks and features of the CDC scheme without overwhelming members with unnecessary detail.

This is a critical balance to strike – members do not need to understand every aspect of the benefit design but they need sufficient information to make informed decisions. Trustees should adopt a risk-based and flexible communications strategy, focusing on headline messages around accrual, benefit adjustment and indexation, developing communications in response to member feedback and designing bespoke communications for different cohorts of members, if appropriate.

Promotion and marketing

However, there are limits to trustees’ role as a strategic partner to the proprietor. Trustees cannot promote or market the scheme and, as part of the authorisation application, they must provide assurance to TPR this is the case.

In a commercial context, this can be difficult because the proprietor is likely to want trustees to act as figureheads for the proposition, support tenders and help generate new business. As promoting and marketing can take many forms, trustees need to understand how to provide factual information about the scheme or CDC more generally without straying into persuasion or inducement. Trustees should have regard to TPR’s newly published guidance in this area and exercise caution with any material that provides illustrations and expected levels of income.

The way forward for trustees

CDC has the potential to bring real benefits to members and help to address the UK’s retirement adequacy challenge. If implemented carefully, CDC can provide higher, more sustainable retirement income for those who need it most. Trustees are perfectly placed to influence the direction of travel and ensure new CDC schemes are designed and operate in a way that has the best chance of success.