The Pension Schemes Act 2021 provides a statutory framework for collective money purchase (more commonly known as, collective defined contribution (“CDC”)) schemes in the UK. Regulations set out the authorisation and supervision regime.
CDC is a type of DC arrangement where member and employer contributions are invested in a single collective fund, rather than individual pots, with members receiving a pension from the scheme at retirement based on the value of assets in the scheme. As they offer a target (as opposed to a guaranteed) level of pension benefits, the government considers CDC to be a “third way” between traditional DB schemes and individual DC schemes.
CDC pension benefits can fluctuate; they are not guaranteed. This applies to both projected pension benefits and those already in payment.
The rate or amount of benefits payable is subject to periodic adjustments to balance the value of the assets of the scheme and the amount expected to be required to provide benefits to the members of the scheme collectively. Therefore if circumstances change eg investment performance changes, benefit levels could change. This is a complex message to get members to understand and requires regular actuarial valuations and potential adjustments.