Occupational Pension Schemes (Collective Money Purchase Schemes) (Extension to Unconnected Multiple Employer Schemes and Miscellaneous Provisions) Regulations 2025

Monday 8th December 2025 Grand Committee

Considered in Grand Committee

16:36

Moved by

[Baroness Sherlock]

That the Grand Committee do consider the Occupational Pension Schemes (Collective Money Purchase Schemes) (Extension to Unconnected Multiple Employer Schemes and Miscellaneous Provisions) Regulations 2025.

Relevant document: 40th Report from the Secondary Legislation Scrutiny Committee

[The Minister of State at the Department for Work and Pensions (Baroness Sherlock) (Lab)]

My Lords, I am pleased to introduce this instrument. Subject to the approval of this Committee, these regulations will be another significant step forward in the reform of our occupational pensions framework, building on the foundations laid by the Pension Schemes Act 2021 and the Occupational Pension Schemes (Collective Money Purchase Schemes) Regulations 2022. The primary purpose of these regulations is to extend the legal framework for collective money purchase schemes—commonly known as collective defined contribution, or CDC, schemes—to allow multiple unconnected employers to participate. Until now, CDC schemes have been restricted to single employers or groups of connected employers.

I have been advised that there are two minor drafting errors in Schedule 2 to the SI as laid in draft, resulting in two cross-headings before paragraph 2 where there should be only one and a repetition of “regulation” in paragraph 2. The intention is for these to be corrected in the version that is made so that there is a single cross-heading reading “General” and a single appearance of the word “regulation” in paragraph 2. I apologise for these errors, but I assure the Committee that these corrections do not change the legal meaning of Schedule 2 in general or paragraph 2 in particular.

Before I move on to the detail of this instrument, it may be helpful if I give some context. The Pension Schemes Act 2021 provided the statutory framework for CDC schemes in the UK. The Government believe that CDC schemes have an integral role to play in addressing the challenges faced in our pensions system, so long as the guiding principle is to ensure that we protect the interests of members. Although good progress has been made, four in 10 working-age people are under-saving for their retirement. CDC schemes can help address this issue: by pooling longevity and investment risk across the membership, such schemes have the potential to target higher investment returns for their members than a DC scheme. CDC schemes also have potentially infinite investment horizons and no need to lifestyle investments, which means they can invest productively for longer. Industry modelling suggests that CDC schemes could boost retirement income by anywhere between 25% and 60%. The Committee will agree, I am sure, that if such increases in returns were realised, CDCs could really help address the issue of inadequate retirement incomes.

CDCs can support the wider economy, too. Longer investment horizons mean greater investment in vital UK infrastructure and the technologies of the future, such as renewable energy. Pooling can also shield savers from much of the uncertainty and risk faced by members of DC schemes, which is especially important as they approach retirement. CDC schemes offer members a seamless transition from saving into receiving a trustee-managed retirement income. We know that many people do not want—and, indeed, feel ill-equipped—to make complex financial decisions at retirement. Some 72% of DC members want a pension income yet 50% of pots are taken fully as cash, exposing them to individualised longevity risk. CDC schemes provide a target income for life and will target at least inflationary increases in member benefits at a scheme’s outset, helping members’ money keep pace with the cost of living through their retirement.

The Government want to ensure that as many savers as possible can take advantage of these benefits. That is why we have introduced this legislation. This instrument opens the door for broader adoption of CDCs: it will allow different, unconnected employers to participate in the same scheme, including smaller employers who lack the scale or expertise to go it alone. It also opens the door to CDC being a solution for specific sectors and for commercial schemes. For employers, the benefits are clear. Their liability is no greater than in a DC scheme, with contributions being made in the same way. Yet, with the aforementioned benefits, CDC schemes can be a valued employee benefit, allowing employers both to attract and retain talent in a competitive labour market.

I will now dive into the detail of this instrument, and there is, of necessity, plenty of detail. Despite the successful launch of the Royal Mail collective plan last year, CDC remains a relatively novel concept. It is critical that employers and their employees can have confidence in CDC pensions. The Government therefore make no apology for this instrument setting a high bar for entry. The robust authorisation and supervisory framework introduced by this legislation means employers can be confident they are joining well-run, well-governed schemes.

Part 2 of this instrument removes the exclusion in the Pension Schemes Act 2021 which limits the schemes that can be collective money purchase schemes to schemes used, or intended to be used, by single or connected employers. This allows for the creation of unconnected multiple employer schemes. Part 2 also amends the definition of a qualifying scheme, so that a broader range of organisations can set up a collective money purchase scheme. This will enable commercial organisations to establish unconnected multiple employer schemes.

A scheme applying for authorisation must satisfy the regulator that it meets the authorisation criteria. These criteria are listed in Section 9(3) of the Pension Schemes Act 2021. Part 2 amends the existing authorisation criteria in the 2021 Act and thereby creates additional criteria, specifically for unconnected multiple employer collective money purchase schemes. We have identified persons that we consider will have important roles in unconnected multiple employer CDC schemes and have brought these people within the scope of the “fit and proper persons” test, so that they are subject to appropriate scrutiny.

Regulation 10 amends the 2021 Act to require that the scheme has a single scheme proprietor meeting specific criteria and the specific requirements set out in new Section 14C of that Act. As we are seeking to extend CDC provision to unconnected multiple employer CDC schemes, we know there will be new entities involved in the operation and funding of these new types of CDC scheme. We want to ensure that any financing required to meet relevant costs is credible and realisable, so that it is available at the point of need. Therefore, the scheme proprietor’s ability to deliver such financing will need to be assessed by the regulator, both at authorisation and on an ongoing basis.

Regulation 10 of the instrument also inserts a business plan requirement under new Section 14A of the 2021 Act. The scheme proprietor would be required to prepare, maintain and submit a business plan to the regulator, which will include the key financial information for its financial sustainability assessment. The detailed content of the business plan is set out in newly inserted Schedule 1B to the 2021 Act.

These regulations will permit schemes that intend to operate on a commercial basis. This will involve acquiring new business through the promotion or marketing of their scheme. To mitigate the risk of schemes overpromising to gain a commercial advantage, or mis-selling, we are introducing a new promotion or marketing authorisation criterion for these schemes. The requirement is that no person has carried out promotion or marketing of the scheme that is unclear or misleading without rectification, and that the scheme has adequate systems and processes for ensuring that its promotion or marketing is clear and not misleading.

We also want trustees of these schemes to focus entirely on the interests of the scheme members and to have complete autonomy to do so. If the trustee were also to act as a person who promotes or markets the scheme, or as the scheme’s CFO, it would detract from that responsibility and create a clear conflict of interest. Regulation 5 makes a separation of these roles a criterion for authorisation. The Government’s intention is 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 permitted under wider legislation. Regulation 5 therefore inserts a new authorisation criterion into the 2021 Act to ensure that trustees can choose this option if appropriate.

Finally, on Part 2, Regulation 6 imposes a mandatory deadline of 24 months from authorisation by which an authorised unconnected multiple employer CDC scheme must start being operated. This is to deter speculators. We want only people or organisations that are fully committed to providing well-run and soundly designed unconnected multiple employer CDC schemes to apply for authorisation.

Part 3 of this instrument supplements the meaning of “connected” in Section 49(2)(a) of the Pension Schemes Act 2021. This 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 legislative frameworks applies to it.

16:45

Part 4, including Schedules 1 to 6 to this instrument, 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 for unconnected multiple employer collective money purchase schemes—both at set-up and on an ongoing basis.

A combination of the 2021 Act and these regulations stipulates the actions trustees must take if a scheme experiences a triggering event. These are certain events set out in the primary legislation that can pose a threat to the future of the scheme and the interests of members. If a triggering event occurs, the trustees must take certain actions. The new regime will continue to place strong emphasis on regulatory oversight. The Pensions Regulator is empowered to issue risk notices, enforce continuity strategies and withdraw authorisation where schemes fail to meet standards. Member interests remain paramount in this instrument.

Part 5 of this instrument contains amendments to the Occupational Pension Schemes (Collective Money Purchase Schemes) Regulations 2022 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 legislation. Part 6 amends provisions in other legislation that give meaning to the term “scheme rules” to reflect provisions in this instrument that override rules of unconnected multiple employer collective money purchase schemes. It amends the Pensions Act 2004 to include the Pensions Regulator’s new power to issue a risk notice to a scheme proprietor of an unconnected multiple employer CDC scheme as one of its regulatory functions for the purposes of that Act. It amends the Pension Schemes Act 2017 relating to master trusts, so that the two multiple employer frameworks can operate in tandem and without duplicating authorisation requirements. This will avoid unnecessary burdens on business. Schedule 7 also amends other secondary legislation so that unconnected multiple employer collective money purchase schemes can operate as intended.

In conclusion, unconnected multiple employer CDC schemes are an important addition to the UK pensions landscape. When well designed and well run, which this instrument will ensure, they can help tackle the challenges we face. Our pensions world needs to change; we want pensions, not just savings pots. With the appetite for CDC growing among employers, the effect of this instrument will be to pave the way for potentially millions more savers to access its benefits. The Government are laying the legislative foundations, and it is now for industry to realise that potential. I commend this instrument to the Committee.

[Lord Davies of Brixton (Lab)]

We have here the interaction of a number of different pieces of legislation. Of course, we are all looking forward to the Second Reading of the Pension Schemes Bill next week. We have before us the Occupational Pension Schemes (Collective Money Purchase Schemes) (Extension to Unconnected Multiple Employer Schemes and Miscellaneous Provisions) Regulations 2025. We also have the 2022 regulations that first set out the regulatory requirements for CDC schemes. In parallel, we have the Occupational Pension Schemes (Collective Money Purchase Schemes) Regulations. As the Minister and the Front Bench well know, that sets out another of the Government’s initiatives: to provide CDC schemes that can offer retirement pensions, rather than people having to buy annuities. All these different pieces of legislation interact in ways, I think it is fair to say, that are sometimes difficult to grasp.

What worries me about these regulations is that it is a bit like when you have extensive building work in your house, and the architect asks you where you want the light switches. Of course, you do not know where you want the light switches until you have lived in that house for two or three years, but you have to decide in advance. This is my concern about these regulations: we do not know how these schemes will work in practice. We are all agreed that they are a good thing, we want to see them supported and developed and we have to start somewhere, but certain aspects of what is before us today cause me some concern—or, to tone it down, some level of interest.

First, is it clear that the provisions in the Pension Schemes Bill dealing with value for money, guided retirement and particularly scale will apply to these schemes? They are closer to these schemes than they are to defined benefit. It is quite clear in the legislation that the scale requirement applies to DC arrangements. To what extent will the scale requirement directly, or indirectly through the supervision requirements, end up requiring schemes of a particular scale? My fear is that, if there is a scale requirement, it will just be another barrier to establishing these schemes that, in practice, we all want.

An associated point that has been raised is that we are now effectively getting separate CDC regimes. The existing one with the Post Office scheme is the only live example, and that is very scheme specific. We do not know how far the legislation can cover other sorts of single-employer CDC schemes. Then we have the multi-employer scheme regime and the retirement pension CDC regime. Are these regimes completely separate? To what extent is there going to be scope to make transfers from one regime to another? Are these regimes overlapping or are they distinct?

One problem is always raised. I am a strong supporter of CDC arrangements. It should be the future of private sector pension provision and we want to encourage it as much as possible, but there are problems with the way it works in practice. Ultimately, however deep it is hidden down in the workings and however many formulae you adopt to ensure fair treatment, there is always the risk of some form of cross-subsidy between members. There will be winners and losers.

With multiple employer CDCs, there is also the possibility of cross-subsidy between employers. It is inherent in the approach, in my view. I know supporters of CDC argue that it is not the case, but I think you should always be concerned about the fear of that. We do not know, because so many of the supervisory powers are given to the regulator, the detail of how they are going to be applied. Will it be made clear that this will not be an impediment to developing these sorts of arrangements? The important point is communication. We need to be clear in the regulations about the need for full and adequate communication so that potential members are fully aware of the nature of the arrangement they are entering.

My final concern is that we are heading towards a retailisation of this sort of provision. It will become a retail product, and that is not how I and many other people envisaged CDC operating. It should be a collective endeavour. I must admit that I have an instinctive reaction against the use of the word “proprietor” for the sponsor of these arrangements. I would prefer the word “sponsor”, because “proprietor” implies that it is not a collective arrangement but a commercial one.

Clearly, it will cost money to set up these arrangements and, to a certain extent, the complexity introduced by these regulations means that even more money will be required to do so. But my fear is that we will ultimately end up with underregulated insurance companies, rather than the collective and co-operative arrangement that I think is the true way forward for CDC arrangements. My fears are that it is all too complicated. We need to be clear about the overlap between these different areas of legislation and the different types of CDC arrangement. A system in which people have the right to transfer their money out of a scheme at the same time as the Government are encouraging schemes to invest in non-market based investments, means that there is a contradiction, which could be the Achilles heel of this type of arrangement.

I am taking this opportunity to express my concerns and raise them formally with the Minister. The specific questions are about multiple CDC arrangements, information communication requirements and an approach which enables people to understand what they are getting here—it is better than pure DC.

My final complaint is that the regulations persist with the business of calling these schemes “collective money purchase”. I have made the point before in these discussions that they are not collective money purchases. They are called money purchase schemes because you purchase an annuity, and these schemes are being set up specifically with the introduction of retirement-only CDCs so that you do not have to buy an annuity. I am really sorry that the department has persisted in using the term “money purchase” in these regulations when they are clearly not money purchase arrangements.

[Viscount Younger of Leckie (Con)]

My Lords, I am pleased to speak in this debate on the regulations extending collective defined contribution schemes to unconnected multiple employer arrangements. I say at the outset that I accept the apology given by the Minister for the changes needed in Schedule 2. I hope that when she responds she will confirm that these are minor changes, as I assume they are; that would be helpful.

By any measure, this is a highly technical statutory instrument that even seasoned pensions professionals would concede is difficult to absorb on first reading. Yet precisely because of that complexity, and the potentially far-reaching implications for the architecture of our pensions system, it is essential that this Committee scrutinises it with particular care. Collective defined contribution schemes—CDCs—are an important and promising innovation. They offer the potential for better outcomes than pure defined contribution schemes for risk-sharing across generations and smoothing investment volatility in retirement. They could and should play a larger role in the future of pension provision in the United Kingdom.

We also recognise that this SI is an enabling vehicle. It is a mechanism to broaden the CDC framework so that unconnected employers may participate. We raise no objection to that direction of travel. I am surprised that this debate will not have more contributions from other Peers. I am very pleased that we have the welcome and regular presence of the noble Lord, Lord Davies. I am quite surprised that we have no representation from the Liberal Democrats. I am not sure why that is.

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However, as the noble Lord, Lord Davies, said—I agree with him—this instrument marks a potentially significant structural shift in how our pension system may evolve. For that shift to succeed, it must be underpinned by firmer analytical foundations than those that are currently available. I am grateful to the Minister and her officials for the time that they spent with me and my team last week exploring these issues in detail. Their openness is genuinely appreciated. Nevertheless, as she will expect, important gaps remain and there are many unanswered questions. The gaps give us real pause. Were we in government, we would have gone further to ensure that the essential groundwork had been completed to guarantee that this SI truly enables the smooth and secure creation of CDC schemes and to avoid expanding an industry of which the parameters, risks and long-term implications are still too insufficiently understood.

Let me now delve into our concerns. The first area of concern is consultation. We need clarity on who has been engaged and, notably, who has not. Many admitted bodies in the Local Government Pension Scheme, for example, might see CDC as a useful midpoint between the Local Government Pension Scheme and DC upon an affordable exit, yet it appears that they were not consulted. Can the Minister comment on that? As this policy expands from a single scheme to what could become a diverse market with unconnected multi-employer connections, transparency on consultation stages and milestones becomes more, not less, important.

A second area of concern is the wider vision for CDC expansion. What in practice do the Government envisage? Do Ministers anticipate a small number of large CDC master trusts or a competitive market of many providers? What scale is needed for a sustainable multi-employer CDC model? If the Government do not yet know, should more modelling not be undertaken before regular regulations are drafted? The scale and structure of the market will directly influence investment decisions and flows, regulatory design, government requirements and downstream financial stability risks.

This brings me on to another concern, which was raised by the noble Lord, Lord Davies, and takes account of discussions that I have had with the Minister, who I think raised it. It is to do with member communications. CDCs are not well understood. They are scarcely understood outside specialist circles. Transitions into and out of CDCs are fundamentally different from familiar DB to DC transitions. Yet the communication requirements in the regulations remain surprisingly light touch. Members need clearer, more strident, more stringent and more tailored information about benefit variability, collective risk and the absence of an individual pot. If we expand CDCs without ensuring that members fully understand what they are entering, we risk undermining confidence in the very innovation that we hope to promote.

We also need much greater clarity on what lessons the Government have drawn from the Royal Mail design. That scheme has been invaluable in demonstrating that CDC can operate at scale but may have equally exposed the practical challenges of modelling assumptions, governance structures and sustained member engagement. To date, we have seen no systematic public assessment of those lessons. How do the CDCs ascertain an aspired pension pot and how has this worked at the individual level at Royal Mail? It would be very helpful to have a response from the noble Baroness.

I am also keen to understand what the Government have learned about member take-up linked to that, the consultation experience and the challenges encountered during Royal Mail’s implementation. Have Ministers sought to add or remove elements of the framework in the light of what has worked—or, indeed, not worked—in practice? If so, where can Parliament see that thinking reflected? If not, is that not in itself an indication that further analysis should precede the expansion for which we are legislating today?

We would also have liked to see a more meaningful impact assessment on the gilt market and government borrowing costs. Ministers rightly acknowledge the importance of this—the Minister spoke about it in our informal meeting last week—but acknowledgment is not analysis. We understand that take-up cannot be precisely modelled, but the absence of precision is not an argument against scenario testing. Whether the Government anticipate a handful of CDC schemes or a market of many is not a trivial distinction: it carries real implications for gilt demand, investment strategies and systematic risk across the pensions landscape.

Although we recognise that most savers entering CDC schemes are likely to come from DC schemes rather than DB schemes, which may reduce the scale of any macroeconomic impact, that does not remove the need for proper analysis. Even a more limited shift still warrants clear modelling so that Parliament can see how different scenarios might play out. I argue that there is a strong element of crossing of fingers over the details of this instrument.

There are also important technical questions about admission criteria for smaller employers; the Minister alluded to this in her opening remarks, but I would like some more information. Irregular contribution flows can destabilise benefit projections in a collective model. Will smaller or more volatile employers be subject to enhanced checks before joining? What additional powers will the Pensions Regulator have in this space? How will it intervene? What metrics will it use to assess scheme resilience and viability? I believe that further clarity on these points, too, is needed. Indeed, what opinions has the regulator given on these schemes so far?

Opening CDCs to multi-employer schemes could be a significant step forward—the efficiency gains, the ability to smooth investment volatility and the principle that every penny goes to the members they serve are all compelling features—but good ideas need good foundations. Wider and more lateral thinking will be required if this model is to succeed. The purpose of our scrutiny today is to help ensure that success by asking the right questions now rather than repairing problems later, as the Minister might appreciate. This SI may look rather dry and technical, but it is not merely administrative: it is part of the scaffolding upon which a new pillar of our pensions system may be built. If CDCs are to become a meaningful and trusted component of that system, we must ensure that the foundation is robust; I look forward to the Minister’s response.

I have a few final questions to ask. One concerns the Pensions Commission, as we are on the subject of pensions. I wrote to the Minister with a question about when the Pensions Commission will report and I think that she has replied to me on this, but during an episode of the “Making Money” podcast on 17 November, the Pensions Minister said that it would report within 12 months, but our understanding is that it will report in 2027. If the Minister here could clarify that confusion for the Committee, I would be extremely grateful.

My next question is on CDCs’ relationship with the pensions dashboard. It would be very helpful to have a quick viewpoint on where we are with the setting up and progression of the dashboards, including how CDCs will fit in to the dashboard. Also, bearing in mind the comment made by the noble Lord, Lord Davies, on whether this is seen as a retail offering, which I am not necessarily against, it would be interesting to know how the Minister would define that.

My final question is on surpluses. I should know the answer to this but, in setting up CDCs, is it expected that they will have a surplus or will the safeguards for CDCs lie with the sponsors? I use that word in line with what the noble Lord, Lord Davies, said. It would be helpful to know where we are with that because surpluses will, I am sure, be the subject of much debate in the forthcoming pensions Bill.

With that, I conclude my remarks.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to the Committee for the handful of questions that has been offered up. I share with the noble Viscount, Lord Younger, disappointment that there are not hordes of colleagues here wanting to question these regulations. They are extremely important and utterly fascinating, but there is no accounting for taste—what can we say? I am very grateful to him and to my noble friend Lord Davies of Brixton for being here, asking such excellent questions and keeping me on my toes. I am going to try to work my way through them.

It is worth saying at the outset that my noble friend Lord Davies had quite a nice analogy about moving into a house. I moved house a year ago, and he is absolutely right—I now realise there should be power points in the middle of my kitchen where I actually use my devices and none of them are there. However, the reality is that there have to be some power points; some decisions have to be taken. At some point down the line, I may decide on additional power points and just have them put in. There may be new lights in the house, but we have to start off with lights, and we may add more lights later.

We have gone to considerable care to make sure that the system is set up as robustly as possible, but we will adapt and learn as we have experience from this. That is an important question, but it is one I am happy to offer reassurance on.

We think that CDCs are a type of money purchase because there is a type of money purchase benefits in the legislation. They are covered by the legislation applying to money purchase benefits and not DB benefits. I can see him shaking his head; I have failed to persuade him, but I will keep trying on subsequent questions.

My noble friend mentioned in passing that there are lots of different kinds of legislation and asked how they join up. I assure him they absolutely do join up. The Government have a vision for the pensions landscape. Most of these issues are coming in stages; for example, we have made our views known; we have had comments and clear steers from the Chancellor; we have had the pensions investment review, which set out the landscape, and as a result of that, we have the Pension Schemes Bill, which starts next week and which he and I are looking forward to so much. That will make the necessary adjustments to the landscape so that the Pensions Commission, which is doing its work on issues such as adequacy, can make sure that if savers, or indeed employers, are encouraged to invest more, or in different ways, the market is fit for it at that point.

These things do connect; I accept that they are complicated. One of the challenges is that pensions are very complicated, and there is a lot of money at stake, and therefore it matters—he raised the point about regulation—that we get that absolutely right.

My noble friend mentioned in passing the question about retirement CDCs. He will be aware the consultation has just closed and so more information on that will be coming out soon. He asked about whether CDC schemes will be captured by things such as the scale requirements in the Pension Schemes Bill. Because CDC schemes are a new and innovative development with the potential to offer improved outcomes, they will need to have a degree of scale and a long investment horizon to enable them to invest in a wider range of assets, including productive assets. It is right to give this new market the space to develop with confidence, but we are going to keep the requirements for these schemes under review as the market develops.

He asked about how the legislation will ensure fairness between members of different employers. Regulation 40 specifies that any adjustment to benefits that may need to be made must be applied to all members “without variation”. Regulation 40 also requires that benefit rates must be determined on the principle of actuarial equivalence and that, as he will of course be only too aware, is achieved when the expected accrual and expected contribution levels are equal over a period of time. That prevents new entrants unfairly subsidising existing members and avoids cross-subsidies between employers, which could, for example, happen if one employer had a younger workforce than another.

Both he and the noble Viscount, Lord Younger, asked about communication to members of CDC schemes. The regulations require schemes to inform members regularly and clearly that the rate or amount of benefits provided under the scheme is not guaranteed and can fluctuate. This includes providing this information at joining, annually and in retirement. CDC schemes are also required to have adequate systems and processes for communicating with members and must provide information in their authorisation application about monitoring them to help ensure the systems and processes remain effective. To ensure transparency, key scheme information must be made available on a publicly available website, including the scheme rules, a summary of the scheme design and information about the most recent actuarial evaluation of the scheme.

My noble friend commented about whether the regulation is all too burdensome or too hard to join, but as in DC schemes, members will bear all the risks of the CDC scheme in accumulation and decumulation. So, we think it is only right that we make sure these schemes are well-designed, well-run and resourced properly so that employers, members and the Pensions Regulator can have confidence in the scheme at authorisation and on an ongoing basis.

My noble friend raised the question of commercial interests. I know he was not necessarily challenging there being commercial providers; it was more about the language and how that is understood. We have worked quite hard to make sure that the authorisation criteria require a clear separation between the trustees and those funding the scheme, promoting the scheme and trying to make a profit out of it. The promotion and marketing authorisation criterion mitigates against the risk of overpromising to gain a competitive advantage, as I said in my opening speech. Although my noble friend does not like the term “proprietor”, the financial sustainability requirements are designed to prevent that person passing on to members the costs of setting up and operating the scheme.

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The noble Viscount, Lord Younger, asked about lessons from the Royal Mail CDC scheme to inform this. He will be aware that it has not been going for very long and that this is a different type of product. Having said that, although it is very early days for the Royal Mail scheme, following consultation and engagement with the pensions industry, many of the core principles of the CDC framework that apply to Royal Mail have been retained and expanded on for the unconnected multiple employer CDC schemes.

For example, there is the importance of a mechanistic approach to valuations and adjustment of benefits and the requirements for ongoing monitoring of the effectiveness of communication. These draft regulations reproduce these things while taking new approaches to those things already mentioned, such as the more flexible approach to the cost of accruing benefits where the membership is more diverse and where competing commercial interests come into play. The noble Viscount will understand that this is a fundamental difference between a single employer scheme and an unconnected multiple employer scheme.

The noble Viscount asked about consultation. I am sure he is aware that the Government consulted on this and that their response was published in October. This detailed who had responded and went through various things. That was published alongside these regulations. A total of 50 written responses were provided by various stakeholders, including the pensions industry, trade unions, legal firms, asset managers, investment consultancy firms, UK charities and actuaries. There is plenty more detail, but we have consulted widely. Having considered the points that were raised, some drafting changes were made to the final SI where necessary to ensure that the legislation is as effective as possible in delivering the policy intent.

The noble Viscount asked how smaller employers will be assessed. This is particularly important, given the possibility of irregular contributions and high churn. The scheme proprietor will have to evidence to the regulator its strategy for onboarding members, and that the strategy will ensure that the scheme has the necessary scale to operate and can maintain and increase that scale on an ongoing basis. The noble Viscount will have noticed that Regulation 10 inserts into the 2021 Act Section 14A, which requires the scheme proprietor of an unconnected multiple employer scheme to prepare a business plan. The regulator must take into account the robustness and prudence of any assumptions about membership, contributions, income and costs when assessing that scheme’s business plan.

The noble Viscount asked for more detail. There is more detail to come. Subject to parliamentary approval—which I am not assuming—these regulations will come into force on 31 July 2026. He will be pleased to know that in the very near future, the regulator will launch a consultation on its code. We plan on laying the draft code of practice before Parliament during this parliamentary Session so that it can be in place for commencement. We anticipate that some prospective unconnected multiple employer CDC schemes will apply for authorisation soon after that. However, the code of practice is where he may find some of what he is looking for, and I commend that to him. It will be out very shortly, and I am very happy to alert him when it is published, which will be soon.

The noble Viscount asked about safeguards to protect members of the unconnected schemes. As I said in my opening speech, schemes must satisfy a stringent and comprehensive set of authorisation criteria to operate. This is designed to ensure that only well-designed, well-run schemes that members can have confidence in can operate. Also, schemes are subject to strict rules on the calculation of benefits to guard against excessive cross-subsidisation, and all authorised schemes are subject to continuous oversight by the regulator. The noble Viscount also asked about the Pensions Commission. I am sorry that I did not hear my very dear friend and honourable friend the Minister for Pensions on the radio programme that was mentioned. However, I confirm that the Pensions Commission has announced that it will publish an interim report in spring 2026. I am happy to clarify that its final recommendations are expected to follow in early 2027.

The noble Viscount mentioned pensions dashboards. The Pensions Dashboards Regulations 2022 include requirements for certain occupational pensions schemes to connect to the pensions dashboards ecosystem if they have 100 or more relevant members, and that will include CDC schemes. New CDC schemes with 100 or more relevant members will have to connect to dashboards within six months after the end of the scheme year within which the scheme was established.

The Government remain committed to launching dashboards as soon as possible. In line with the commitments the noble Viscount made when he was doing my job, I am happy to carry on giving regular updates to the House at appropriate points on the development of pensions dashboards. I think one of those points may come up soon. I can see the noble Viscount is twitching to stand up again, so I am going to sit down and allow him to clarify.

[Viscount Younger of Leckie (Con)]

I thank the noble Baroness for spelling out the code of practice; we look forward to seeing that. I remain quite surprised that the Pensions Commission will finally report as late as spring 2027. I cannot believe it is going to take that long, despite the fact that pensions are generally known to be quite technical and detailed. I am not expecting the noble Baroness to comment on that, but I just wanted to put it on record. The noble Baroness did not answer my question about surpluses, and I am very happy to be written to about that. Perhaps the main question I wanted to ask, which the noble Baroness also did not answer, is about membership take-up at Royal Mail. What was the rate of take-up for the Royal Mail scheme?

[Baroness Sherlock (Lab)]

On the question of surpluses, the regulators will ensure that a scheme has sufficient financial resources through a range of key mechanisms centred around the role of a scheme proprietor, robust planning and ongoing regulatory oversight. The Pensions Regulator must be satisfied that the scheme is financially sustainable before it can be authorised. That would obviously involve a rigorous assessment of its expected costs, income and the strategy for recovering any shortfalls. The schemes accounts have to be submitted to the regulator on an ongoing basis to give transparency. I am not sure that that does answer his question on surpluses, but if I have an answer, I will write to him.

On the membership take-up of the Royal Mail scheme, 110,000 people have joined and around 700 have opted out. I hope that answers that question, and that I have answered all the other questions. I thank both noble Lords for their helpful contributions to this debate. This instrument will allow CDC schemes to play an integral role in the future of pensions in this country, affording potentially millions of savers access to the benefits they offer. With that, I commend this instrument to the Committee, and I beg to move.

Motion agreed.