Royal Mail Collective Pension Plan, London, was approved to operate as the U.K.'s first collective defined contribution plan by The Pensions Regulator.
Investment and longevity risks are pooled in CDC plans and shared among participants. The U.K. government said this potentially makes them more resilient to market shocks vs. defined contribution plans, while also freeing corporate sponsors of the responsibility and costs of providing guaranteed defined benefit plans.
Royal Mail's plan was developed in 2018 by plan executives in conjunction with The Communication Workers Union — representing Royal Mail employees — to replace a defined benefit cash balance plan as well as the postal group's existing DC plan. Ahead of the launch of the CDC plan, Royal Mail transferred the £8.8 billion ($10.8 billion) in its Royal Mail Pension Plan, London, along with three members of the in-house investment team to BlackRock.
"TPR authorizing the first CDC scheme is a landmark moment, and this is just the beginning. We have seen the positive effect of these schemes in other countries and our plans to extend our CDC framework will enable more pensioner savers to achieve the retirements they want," Laura Trott, U.K. minister for pensions, said in a news release Thursday.
CDC plans were introduced into U.K. law by The Pension Schemes Act 2021 to help corporations reduce the costs associated with running DB plans.
Royal Mail's plan design was the first CDC plan to be endorsed by the U.K. government. The government also permitted other plan sponsors to model their own CDC plan designs on that of Royal Mail. However, no other corporates have launched a CDC plan since.
TPR must approve new CDC plans and confirm they have proper oversight, the right systems and processes in place, and are financially sustainable.
A spokeswoman at Royal Mail could not be reached for comment.