There is a “strong appetite” from pension savers and employers to explore collective defined contribution (CDC) in order to deliver better value and improve retirement outcomes, a new report has found.
The study, from the leading pensions and financial services consultancy Hymans Robertson, comes as the UK prepares for the next phase of regulation.
The comprehensive report analyses the current CDC landscape and its potential to transform retirement outcomes in the UK.
The paper also aims to inform the industry about CDC and encourage engagement and innovation, explores how employers and members perceive CDC, what can be learned from international experience and the investment strategies that will be required to support CDC’s success in the UK.
The firm is now calling for the government and industry leaders to actively support the development of diverse CDC models, ensuring they are scalable, inclusive and fit for the future.
Can collective defined contribution schemes fulfil their potential?
It added that “now is the time to move from discussion to delivery – CDC must be prioritised in tackling pension inadequacy across the UK”.
Paul Waters, head of DC markets at Hymans Robertson, said: “CDC is not just a technical innovation, it’s a meaningful opportunity to improve retirement outcomes for millions of people across the UK.
“CDC schemes deliver pensions in a way that improves adequacy and the analysis published in our latest report reinforces that view.
“Support for CDC is not just from members but from employers too. There is a clear appetite for change.
“Members are pragmatic, they understand that CDC involves trade-offs, such as occasional income fluctuations or generational differences, but they are willing to accept these if it means a more secure retirement income.
“Employers are increasingly open to risk-sharing models, recognising that CDC can offer better outcomes without placing undue burden on their organisations.”
Waters said that “one type of CDC scheme will not be right for every employer, which is why we are advocating for a diverse ecosystem of CDC designs, including whole of life, decumulation only, single-employer, multi-employer and sector-based schemes.”
That diversity, he added, will be essential to making CDC scalable, inclusive and adaptable to different needs.
Walters continued: The government’s support of multi-employer CDC is a welcome step, but it must be followed by commitment and clear leadership.
“Government backing, whether through promotion or direct provision, would significantly boost confidence in CDC among savers. We urge the industry to prioritise CDC as part of a broader strategy to tackle pension inadequacy.
“Ultimately, CDC is about strengthening the social contract between generations. It’s about giving people a better chance of a decent retirement while ensuring the system remains fair and resilient, this can be done through thoughtful design, transparent communication and collaborative delivery.
“Now is the time to move from discussion to delivery, CDC must be prioritised in tackling pension inadequacy across the UK. If we get this right, CDC could become a cornerstone of UK pension provision for decades to come.”
