Financial resources

CDC code in force: 31 July 2026

1. To satisfy us that they meet the financial sustainability criterion, all schemes must have access to sufficient financial resources¹ to set up and run the scheme. They must also have sufficient financial resources to meet the costs following a triggering event, as identified in their costs, assets and liquidity plan (CALP).
2. The composition of these resources may be adjusted over time as the scheme grows and matures.
3. An element of the scheme’s financial resources, referred to in this code as financial reserves, must be sufficient to keep a scheme running after a triggering event, while that triggering event is resolved or if the scheme is wound up and members transferred out.
4. Multi-employer CDC schemes should also be able to demonstrate their commitment to remain in the market after a triggering event. We should see evidence of the scheme’s ability to move towards supporting continuity option 3 at the earliest opportunity.
5. The resources calculated should be broken into three separate strands:
   1. Sufficient resources to cover the costs of setting up and running the scheme on an ongoing basis, whether in-house or outsourced (running costs).
   2. A reserved amount sufficient to allow the scheme to continue to operate for a period of six months to two years (‘run-on period’) following a triggering event (run-on costs).
   3. A reserved amount sufficient to cover the additional costs following a triggering event (costs of compliance).

Running costs²

6. We do not require trustees to maintain a reserve for running costs, although they may do so. We will focus on the:
   1. expected and realised costs of the scheme
   2. ability of the scheme and the employer to cover the costs
   3. enforceability of any commitment of support
7. Where the costs of setting up the scheme have been incurred and fully paid at the 
   point of application, they do not need to be included in a calculation of running costs. 
   However, any costs that are still outstanding, or yet to be incurred, must be detailed.

Run-on costs³

8. Schemes should assume a run-on period of 24 months. Trustees may be able to show that a shorter period is appropriate in some situations.
9. When calculating the run-on costs, schemes should not just duplicate the calculation of annual running costs. Calculations of costs in the run-on period should make reasonable allowance for variations in staffing or overhead costs, and activities undertaken throughout the period of the continuity option.
10. Calculations of run-on costs may exclude costs deducted at source in order to prevent reserving for costs that are covered automatically.

Costs of compliance⁴

11. In calculating the costs of compliance, schemes should, as a minimum, make allowance for:
    1. additional spending on member communications
    2. additional spending on employer communications
    3. data cleansing
    4. professional services, including actuarial, legal and accountancy advice
    5. contract break clauses
    6. staff termination or redundancy payments
    7. contracting staff
    8. additional work and communication from members who choose not to follow the default

Expectations of financial resources⁵

12. Trustees should consider the points below where their financial resources are met in whole or part by financial reserves. In place of maintaining financial reserves, trustees may also rely on other forms of third party support, such as legally enforceable guarantees, loans and funding commitments from, for example:
    1. employers or companies in the employer group
    2. in the case of a multi-employer CDC scheme, the scheme proprietor⁶
13. In these situations, trustees should still consider the points below to ensure that the third party support is always available.
14. Trustees should:
    1. be able to provide evidence that they have first call on the third party support
    2. be able to demonstrate that they can access the third party support if there is a triggering event of any type
    3. be able to show that any guarantor, lender, or provider of a funding commitment can provide the support to which they are committed
    4. regularly review and adjust the value of the financial reserves they hold to account for their liquidity, scheme membership and demographics, and possible market movements
    5. be able to show that they have access to sufficient financial resources at all times
    6. perform their own prudent calculations of the costs arising from a triggering event
    7. base their calculations on what they calculate to be the more expensive of continuity option 1 and 2⁷. We do not expect CDC schemes to reserve for continuity option 3 (running as a closed scheme) until there is a prospect of this being a viable option.
    8. calculate their required financial resources based on a triggering event occurring between one and three full forecast years in the future
    9. consider various factors, including the growth and demography of scheme membership, when deciding the forecast period
    10. ensure any estimates are consistent with the figures used in their CALP
    11. regularly, and at least annually, revisit their calculations to ensure they contain appropriate cost estimates
    12. continuously monitor and maintain their forecast financial reserves

Financial sustainability: Other regulators of the scheme proprietor

15. Some multi-employer CDC schemes will have a scheme proprietor that is regulated by another financial services regulator, for example the Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA), or an equivalent overseas body.
16. We will take any reserving requirements imposed by another regulator into account where they are, and only to the extent they are, relevant. We may decide that a risk, while addressed under another regulator’s reserving requirements, is not fully addressed under ours and therefore needs to be reserved for.
17. Where a scheme proprietor is regulated by a financial regulator (apart from us), the business plan should disclose this, and the regulator(s) in question. Where a scheme proprietor is part of a group that has overseas divisions or subsidiaries, it will not be necessary to disclose the regulators that they operate under in every case. Disclosure is only necessary where an overseas regulator has oversight of a parent, or ultimate parent of the scheme proprietor.
18. To show that a scheme proprietor is reserving against a particular risk, we will require evidence that the risk is fully covered. This may extend to a legally enforceable indemnity from the scheme proprietor stating the extent of the protection provided. We must be assured that should the scheme proprietor fail or withdraw support, any reserves made for the purposes of another regulator can and will be deployed to assist the multi-employer CDC scheme.
19. Some multi-employer CDC schemes will be part of a larger financial services group that is subject to Part VII of the Financial Services and Markets Act 2000 (FSMA) if it wishes to sell or transfer blocks of business. We expect the business plan to show the potential impact of this on the scheme in the event of a sale or transfer of the business. We also expect the trustees to have received an adequate assessment of the impact on the financial sustainability of any such transaction on their scheme and to have made provision for it.

Cash reserves and escrow

20. We believe that, in most cases, multi-employer CDC schemes should have access to a minimum of 15% of their calculated financial reserves in cash. We may require that cash held outside the scheme is held in a specific vehicle, such as an escrow account, intended to ring fence those assets to which the trustees have unfettered access.
21. If we ask a scheme to establish a separate account, we will need to be satisfied of the terms under which the cash is deposited and can be accessed, including any covenant restrictions placed on the account. We may also ask that the cash sum is held with a bank, building society or similar credit institution. 

Legal references

¹ Section 14 of the Pension Schemes Act 2021 and Regulation 12 and Schedule 3 of the 2022 Regulations and Regulation 35 and Schedule 3 of the 2025 Regulations

² Section 14(2)(a) of the Pension Schemes Act 2021

³ Section 14(2)(b)(ii) of the Pension Schemes Act 2021

⁴ Section 14(2)(b)(i) of the Pension Schemes Act 2021

⁵ Section 14(2) of the Pension Schemes Act 2021

⁶ Paragraph 4(b) of Schedule 3 to the 2022 and 2025 Regulations

⁷ Section 34(2) of the Pension Schemes Act 2021

Back to top

Thanks for your feedback.