Pensions Essentials - October 2025

Background: In a CDC scheme, employers and employees pay fixed contributions to fund a target retirement benefit. Benefits are provided directly from the scheme, but are not guaranteed. Members, including pensioners, collectively bear the longevity and investment risk, which means that pensions in payment can go down as well as up. 

Under the current legislation, CDC schemes must be for single or connected employers only (preventing commercial schemes from being set up). They must also be authorised by TPR and satisfy various design and operational requirements.

CDC schemes for unconnected employers: For many people, DC does not provide nearly the level of income that the DB schemes of yesterday would have done. New pensions models could address some of the shortfall, and in October 2024, the Government launched a consultation on draft regulations to allow unconnected employer CDC schemes. 

It has now responded to that consultation and issued draft regulations to allow such schemes to be established, which are intended to come into force at the end of July 2026. This will allow commercial providers to set up CDC schemes. For more details on what the new regime will look like, have a look at our Pensions Briefing.

CDC as a decumulation option: The Pension Schemes Bill contains provisions which will require trustees to offer DC members a default retirement solution, providing a pension income in retirement. This default can be provided via another scheme if it is not reasonably practicable to do so in the original scheme and using another scheme would provide a better outcome for members. The Government says that allowing members to transfer to a CDC scheme on retirement could be an option and that some providers have expressed an interest in offering this.

A new consultation paper looks at how this type of “retirement CDC” arrangement could work. Crucially, this new option will be available for trustees to offer to members but will not be accessible directly by members. The key elements of the Government’s proposals are again set out in our Pensions Briefing.

Consultation closes on 4 December 2025.

The case concerned the Coca-Cola Pension and Assurance Scheme. The trustee had used the majority of the assets to purchase a buy-in policy with AXA, although £46 million remained in the scheme. The liabilities were reinsured with a captive reinsurer within the Coca-Cola group. The buy-in policy allowed for the arrangements to be terminated and a termination payment (which triggered a correlating payment from the reinsurer). The triggers for termination included the wind-up of the scheme but the trustee had no power to trigger a wind-up in the circumstances.

In 2024, it was estimated that the termination payment would be £232 million, whereas the cost of buying out the liabilities would be £150-£160 million. This meant that termination would generate a surplus within the scheme. However, the principal employer would not agree to trigger a wind-up unless the termination payment due under the reinsurance arrangement was reduced.

A compromise was proposed under which the trustee agreed to vary the termination payment to match the cost of a new, replacement 'buy-in' policy covering the same liabilities and the principal employer would give notice to terminate the scheme. This would allow the trustee to wind the scheme up and it proposed to use the remaining assets to augment benefits equally for all beneficiaries by up to 27%. The trustee sought the consent of the court to the variation and augmentations.

In a pragmatic decision, the court held that the decision to agree to the proposed compromise and augment benefits equally was one which a reasonable trustee, taking into account all relevant factors, could properly have arrived at. The compromise allowed the trustee to augment benefits now rather than relying on the possibility there might be a greater surplus in the future, especially as the employer was under no obligation to ever trigger a wind-up and could simply allow the scheme to run on until the last beneficiary had died.

DB market: The DB survey was carried out in March and involved around 200 schemes. The key findings include:

• 93% of schemes have a long-term objective with 58% intending to buy out and only 6% aiming to run on and generate a surplus. 
• Although only 1% had an objective of transferring to a commercial consolidator, 27% described consolidation as an attractive option. 
• 34% of schemes indicated that their rules allowed the payment of an ongoing surplus to the employer. 8% of schemes with a surplus had released some in the previous year but none had released any to the employer. 53% said even if surplus release is made easier, their trustee boards would still have concerns. 
• 95% of schemes had a cyber security incident response plan, although most relied on the plan of a third party such as the employer or their administrator.
• 60% of schemes had increased the amount spent on managing/improving data over the previous two years, and 46% expected this to increase in the next two years. Fewer schemes reported additional investment in administration technology or automation. 
• 17% of schemes rated ESG as a high priority relative to their other responsibilities, whereas 36% described it as a low priority, although attitudes varied by scheme size. 

In addition, TPR has also recently published its analysis of DB funding based on 18 schemes with valuation dates between 22 September 2022 and 21 September 2023. The main points TPR draws from its analysis are:

• 62% of schemes reported a surplus.
• The average assets to liabilities on a technical provisions basis was 104%.
• The average recovery plan length for schemes in deficit was 4.4 years.

DC market: TPR conducted a similar survey of 200 DC schemes in March 2025, the key findings from which include:

• 97% of DC members were in schemes that demonstrated all of the elements associated with assessing value for members. Larger schemes were more likely to be compliant than smaller ones and many smaller schemes (with assets of less than £100 million) were still not complying with all of the detailed value for members requirements.
• Just over a quarter of schemes offered decumulation benefit options to their members, although every surveyed master trust did this. Awareness of the proposed duty in the Pension Schemes Bill to provide default decumulation options varied widely, increasing by scheme size.
• While every master trust surveyed and most large and medium schemes provided support to members with retirement decisions, a significant minority of smaller schemes only provided statutory communications.
• Nearly one in ten schemes planned to transfer their members to a master trust.
• As with DB, a relatively small proportion of trustee boards treated ESG as a high priority in comparison to other responsibilities, and around two-fifths saw their fiduciary duty as a barrier to investing in a net zero economy.
• Smaller schemes with a professional trustee reported higher standards of governance and administration across many areas, compared to those with no professional trustee.