Collective Money Purchase (CMP) schemes

This article is for financial advisers only. It mustn’t be distributed to, or relied on by, customers. It is based on our understanding of legislation at the date of publication.

CMP is a new type of UK pension scheme. The first step will be the delivery of a CMP scheme for the Royal Mail and Communication Workers Union. Beyond that, a wider model may develop so other employers have the option to operate a CMP scheme for their employees. CMP schemes are widely used in other countries – notably in Canada, Denmark and the Netherlands – and are also known in the UK as Collective Defined Contribution (CDC) schemes.  

A CMP scheme will be an alternative to defined benefit (DB) and defined contribution (DC) schemes but will still be classed as a money purchase benefit. CMP schemes will have trustees in the same way that DB and occupational DC schemes have. Employer and employee contributions will be set in advance as in a DC scheme BUT employers operating a CMP scheme will not be required to contribute more to cover a deficit as can happen in a DB scheme. There is therefore a known contribution cost for an employer with a CMP scheme. All contributions to a CMP scheme will be pooled with the collective fund being invested. Employees will not have to make investment decisions like they would in a DC scheme. 

There isn’t a promised level of benefit like in a DB scheme - members will be provided with a target level of benefit that can be increased or reduced, even in payment, as a result of annual actuarial valuations. In saying that, pension levels are expected to be smoothed in practice to avoid any volatility. Modelling, valuations and forecasting will be carried out by scheme actuaries. To access pension flexibility options, a transfer to a DC scheme will be required. 

As CMP schemes are not classed as DB, there will be no protection offered from the Pension Protection Fund (PPF) should an employer get into financial trouble. 

The proposed Royal Mail CMP scheme aims to provide a wage in retirement that provides a better outcome than a DC annuity purchase, which will also be a specific aim for any other CMP schemes. The retirement benefit in the Royal Mail scheme will be a pension commencement lump sum and a CMP pension based on 1/80th of pensionable pay for each year of service. Normal retirement age is expected to be 67 but benefits can be paid earlier on early retirement, ill-health or death. 

Suitable quality tests will need to be developed to allow employers to use a CMP scheme to comply with their automatic enrolment duties. Similarly, guidance will be needed on how to test against the annual and lifetime allowances. There will also be an authorisation regime for CMP schemes similar to that which currently operates for master trusts. 

The government introduced legislation on CMP schemes in the Pension Schemes Act 2021. More information can be found at:

Government consultation

Royal Mail CDC scheme design

Pension Schemes Act 2021

Taxation of CDC schemes

Pensions Technical Services