What is a CDC scheme?

CDC code in force: 1 August 2022

This section of the code covers the characteristics that a scheme must have to be eligible to apply for authorisation. If a scheme does not meet the legislative requirements to be a CDC scheme, we cannot assess an application to authorise it and it cannot operate as a CDC scheme. This section summarises the position using definitions taken from the Act and Regulations, and should be read in conjunction with them.

Trustee boards should consider taking professional advice to establish that their scheme has the characteristics required by legislation.

A CDC scheme^WA1:

• is a qualifying scheme or a section of a qualifying scheme
• can provide only qualifying benefits

A qualifying scheme^WA2:

• is an occupational scheme established under an irrevocable trust by an employer
• is not a relevant public service scheme
• is only used, or is only intended to be used, by a single employer or two or more connected employers
• must provide qualifying benefits which consist of or include the payment of a pension
• must, if the scheme provides qualifying and other benefits or types of qualifying benefits with different characteristics, have appropriate separation of those benefits

Employers are connected^WA3 if they:

• are group undertakings in relation to each other as defined in section 1161(5) of the Companies Act 2006, or
• are structured so that the economic position of the shareholders of each company is, as far as practicable, the same as if they held shares in a single company that makes up the combined business

A qualifying benefit^WA4:

• is provided from the available assets of the scheme (ie assets that come from member and employer contributions and are available to provide benefits collectively)
• is subject to periodic adjustment, in accordance with the scheme rules, to achieve a balance between the value of the available assets and the required amount (ie the amount expected to be required to provide benefits collectively)
• if a scheme has qualifying benefits and other benefits, for example a defined benefit lump sum (for the avoidance of doubt a lump sum can be provided from a CDC section where it is a qualifying benefit) or a DC benefit at an individual level, these must be separated into different sections^WA5 and only the sections providing qualifying benefits will be subject to authorisation.

  To be separated correctly:

  • a section providing a qualifying benefit cannot provide any other type of benefit
  • contributions made in respect of qualifying benefits must only be made into the section providing those qualifying benefits
  • assets are apportioned to each section and cannot be used to provide the benefits of a different section

All qualifying benefits in a section must:

• be provided by reference to the same rate or amount for all members
• have the same rate or amount of contributions paid by all members
• have the same rate or amount of contributions paid by the employers
• have the same normal pension age for all members

Where an employer wishes to change any of these characteristics, or where there are different characteristics at first application, the benefits must be provided under a different section and each section must be authorised, either at initial application or as different qualifying benefits are created.

Legal references

^WA1 Section 1 of the Act

^WA2 Section 3 of the Act

^WA3 Section 49(2) of the Act and Regulation 3 of the Regulations

^WA4 Section 2 of the Act

^WA5 Section 3(6) of the Act