Collective Defined Contribution (CDC) pension schemes are an interesting innovation in the UK pensions market where contributions are collected akin to a DC scheme, but are pooled and invested collectively with a view to delivering a sustainable target benefit level, more like DB.
THE PLSA'S VIEW
CDC has the potential to complement DB and DC schemes in specific circumstances, such as where large employers do not wish to continue offering a DB scheme but would prefer not to opt for individual DC arrangements, so the PLSA supports the Government’s desire for innovation to improve outcomes for savers. However, it is important to recognise that CDC entails some challenges, particularly regarding the communication of benefits, complex governance, and high running costs.
Having consulted thoroughly with industry and employers, DWP and TPR have now established the regulatory footing for single employer CDC schemes, and we will soon see the launch of the UK’s first CDC scheme. We also look forward to continuing our engagement with government and regulators as they explore the extension of CDC to multi-employer and decumulation-only structures in due course.