Pensions Bulletin 2025/43

Unconnected multi-employer CDC legislation finalised

One day after the announcement that the Government was to move forward on CDC provisions (see Pensions Bulletin 2025/42), the DWP laid the Occupational Pension Schemes (Collective Money Purchase Schemes) (Extension to Unconnected Multiple Employer Schemes and Miscellaneous Provisions) Regulations 2025 before Parliament, and published the outcome of the consultation on draft regulations launched in October 2024 (see Pensions Bulletin 2024/38). 

As a result of the consultation process, the Government has confirmed that much of its policy intentions for the Unconnected Multi-Employer CDC Schemes (UMES) remain unchanged, but the regulations laid before Parliament have been amended to clarify details in scheme operations. Changes include: 

• A scheme that is granted authorisation will have 24 months from the date on which the Regulator receives the application for authorisation to begin operating, instead of the original 18 months.
• The requirement for the scheme proprietor to approve the viability report on an ongoing basis has been removed following concerns that this could subject the trustees to commercial pressure from the proprietor.
• Instead of the CDC scheme actuary, the trustees will be responsible for the choice of method and assumptions for the “actuarial equivalence test” (whose purpose is to avoid excessive cross-subsidisation between members or employers). The trustees will need to take actuarial advice, and the CDC scheme actuary will be subject to guidance to be published by the Financial Reporting Council. Schemes can also switch between an employer level or a member level test.

The Government expects to bring this legislation and an updated Pensions Regulator Code of Practice into force on 31 July 2026, so that prospective UMES can apply for authorisation from summer 2026.

Retirement CDC schemes closer to becoming a reality 

On the same day as the Unconnected Multi-Employer CDC Scheme (UMES) regulations were laid in Parliament, the DWP published its consultation on Retirement CDC schemes. These allow individuals who have saved into DC pensions to transfer their pot at retirement into a collective fund that provides a trustee managed income for life, adjusted annually based on investment performance and scheme sustainability. 

Much of the consultation is used to set out the Government’s aim for Retirement CDC schemes to be a form of UMES, proposing necessary changes to the UMES regulations to allow for individual DC member pots being pooled into a collective vehicle at retirement. In particular, the Government envisages that: 

• Retirement CDC schemes should be established within occupational pension schemes as a section of a Master Trust or a section of a UMES.
• Retirement CDC might be offered as a default pension benefit solution under a member’s own DC occupational scheme, or members may be transferred into an external qualifying scheme that delivers Retirement CDC. 
• Retirement CDC schemes will operate in the wholesale market with DC scheme trustees selecting appropriate retirement income options for their members – and so the schemes will not operate in a retail market aimed at individual members. However, this is “for the time being”, and the DWP says that it will continue to review the Retirement CDC landscape to see whether extension to the retail market becomes a more appropriate option in future.  

Pricing is a vital part of scheme design and to avoid excessive cross-generational subsidisation, transfers into Retirement CDC schemes are to be priced on an actuarial equivalence basis. The Government is also minded to require Retirement CDC schemes to operate “cohorting” in which those transferring their DC pots within a particular timeframe would join on the same terms and after that period ends this cohort would be closed and a new one opened on potentially different terms. The idea is that different cohorts would neither benefit nor be at a detriment because of the experience of the collective fund before they joined.

The Government also proposes to amend long-standing regulations to permit transfers of DC benefits to authorised CDC schemes without member consent, as is already permitted for transfers to Master Trusts. Such permission would be necessary for CDC schemes (including UMES) to build scale at the start.

Consultation closes on 4 December 2025. A roadmap shows that the Government expects to consult on draft regulations for Retirement CDC schemes in 2026 which are to be finalised in early 2027 and be in force at the start of 2028. In early 2027 the Pensions Regulator is to consult on changes to its CDC Code of Practice to facilitate such Retirement CDC schemes. It should be in a position to receive applications from prospective Retirement CDC schemes by mid-2028.

PPF publishes Sustainability report

The Pension Protection Fund has published its first sustainability report, bringing together its responsible investment, climate change and operational sustainability actions into one report.

The report outlines how the PPF invests, focusing on delivering the best returns for its members, while minimising investment risk and reducing the impact the PPF’s own activity has on the environment.

The PPF says that this report highlights its achievements, including:

• Engaging with the PPF’s external Private Markets portfolio managers to understand where they are in their journey to support the transition towards a lower carbon economy;
• Creating ESG dashboards to facilitate investment decisions; and
• Working alongside other investors to accomplish effective stewardship

The report runs to nearly 80 pages and is mainly divided into the PPF's UK Stewardship Code submission  submission to the FRC, its Climate Change Report, which aligns with the TCFD recommendations and its Corporate Sustainability reporting on the PPF as an organisation. The report considers progress in the year to 31 March 2025 against the PPF’s July 2023-launched Sustainability Strategy.

The PPF’s climate-related objectives for the 2025/26 financial year include extending the measurement of its operational carbon footprint to its supply chain and undertaking a full analysis and implementation of the 2026 Stewardship Code.

Pensions Regulator gets a thumbs up 

The latest report on the perceptions that a small number of stakeholders have in relation to the Pensions Regulator’s performance and regulatory approach makes for interesting reading. In particular, the report says that four key themes emerged as follows: 

• The Regulator’s increased visibility was praised as was its more collaborative approach, with a greater willingness to engage noted. Whilst the Regulator’s expertise was generally commended, stakeholders wanted to a see a strengthening of its investment knowledge, particularly in relation to active (rather than passive) investment. 
• The Regulator’s lack of power over third-party administrators and professional trustee firms was seen as a barrier to implementing its evolving regulatory approach. Many also perceived a lack of cohesion between the Regulator and the Financial Conduct Authority in relation to the Value for Money framework. 
• The Regulator’s strategic vision was clear to stakeholders, attributing this to its proactive approach, greater visibility and the CEO’s leadership. Some wanted a clearer articulation of the benefits of scheme consolidation and investment in UK assets. Others raised concerns about the Regulator’s ability to implement its vision, citing resourcing constraints and a lack of progress in some of its focus areas. 
• Stakeholders wanted the Regulator to be bolder and use its expertise to guide earlier intervention on challenges facing the industry. 

Overall, sentiment was favourable towards the Regulator, as it had been in the previous survey, with the Regulator seen as commanding the respect of the industry and several stakeholders explicitly noting that it is “moving in the right direction”. However, amongst the comments made was the need for the Regulator to be mindful of the industry having stretched resources while dealing with the new and forthcoming regulatory changes. There was also some appetite for the Regulator to show “what good looks like” through case studies, even when it does not have powers in certain areas (for example with administrators and professional trustees) and to use its voice on topics beyond the limits of its powers.  

Government lays legislation to regulate ESG ratings providers

The Government has laid draft regulations before Parliament that will provide the Financial Conduct Authority with the necessary powers to regulate ESG ratings providers. The Financial Services and Markets Act 2000 (Regulated Activities) (ESG Ratings) Order 2025 makes the provision of ESG ratings where those ratings are likely to influence a decision to make a specified investment a regulated activity within the meaning of the Act. 

Welcoming this development the FCA says that it has been developing its regime for ESG ratings in parallel with the Government finalising its legislation and intends to consult on its proposed rules before the end of 2025. It says that its rules will focus on transparency, governance, systems and controls, and conflicts of interest and it will also be producing guidance to help firms assess whether their activities will fall under regulation and require the FCA’s authorisation. 

The potential regulation of such providers was announced by the then Chancellor of the Exchequer Jeremy Hunt as part of his Edinburgh reforms in December 2022 (see Pensions Bulletin 2022/46), with a consultation being held from 30 March 2023 to 30 June 2023. The decision to proceed was announced by Jeremy Hunt in the Spring Budget 2024.