This guide is for financial advisers only. It must not be distributed to, or relied on by, customers. The information on this page is based on our understanding of legislation as at 6 May 2025.
The Pension Schemes Act 2021 introduced a new type of scheme to the UK pensions landscape. Collective money purchase (CMP) schemes are a type of trust-based occupational pension scheme. They provide an alternative to the more traditional defined benefit (DB) and defined contribution (DC) schemes. They are sometimes referred to as 'collective defined contribution schemes' (CDCs). They offer members more certainty over the level of benefits they will receive than DC schemes but are less of a financial burden on employers than DB schemes.
CMP schemes are classed as providing money purchase benefits. Employer and employee contributions are set in advance, as with DC benefits, but employers are not required to cover any deficit in CMP benefits as can happen with DB schemes. There is therefore a known contribution cost for an employer offering CMP benefits. All contributions in respect of CMP benefits are pooled, with the collective fund being invested. The trustees make all investment decisions in respect of the collective fund.
CMP schemes don’t provide a promised level of pension or lump sum. Members are provided with a target level of benefit that may be increased or reduced, even in payment, as a result of annual actuarial valuations. In practice, pension levels will be smoothed to avoid any volatility. Modelling, valuations, and forecasting is carried out by scheme actuaries. To access pension flexibility options (for example, drawdown), a member will have to transfer to a DC scheme.
The first CDC scheme in the UK was the Royal Mail Collective Pension Plan. It was established in 2022 and now has over 100,000 members. Members will receive a lump sum of 3/80ths of pensionable pay for each year of Plan service and a pension of 1/80th of pensionable pay for each year of Plan service. Normal retirement age will be 67 but benefits can be paid earlier on early retirement, ill-health or death.
As CMP benefits are not classed as DB, there is no protection offered by the Pension Protection Fund (PPF) should an employer get into financial trouble. It is worth noting that the Royal Mail scheme provides a CMP pension benefit but the lump sum is provided under a separate section of the scheme on a DB basis. Therefore, the lump sum will benefit from protection under the PPF.
In order to provide CMP benefits, a scheme must be authorised, and is subject to ongoing supervision, by the Pensions Regulator to ensure that the scheme meets the necessary standards. Where a scheme offers different types of benefits, for example, DB and CMP benefits, it is only the CMP section of the scheme that must meet the authorisation standards. The Pensions Regulator has published a Code of Practice setting how an application for authorisation must be made and how they will assess the matters that regulations require them to take account of in deciding whether to authorise a scheme providing CMP benefits.
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