Collective Defined Contribution: A new kind of pension?

Friday 16th November 2018

Collective Defined Contribution: A new kind of pension?

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Article By Dave Morman

Collective Defined Contribution: A new kind of pension?

Employers may be able to offer staff a new type of pension scheme in the future, subject to the results of a government consultation.

Collective Defined Contribution (CDC) schemes allow workers to save into one giant pot, thus sharing the risks of pensions investing between all members and the employer.

Rather than having individual savings pots, as is the case with a traditional Defined Contribution (DC) scheme, CDC pools all members’ savings together into a single fund, which is then used to provide income for members in retirement. This means that the risks associated with the pension fund are more evenly balanced across all employees, rather than each individual carrying all of the risks for their own savings.

However, there is no guaranteed level of pension income for retirees. Instead, the fund aims for a target income, but there is no requirement for the employer or the scheme to make up any shortfall if that target is not met.

Royal Mail has already been working with the Department for Work and Pensions on plans for a CDC scheme as a replacement for its current Defined Benefit (DB) scheme.

The Government said the new schemes will be strictly regulated and required to undertake an annual, independent valuation to protect savers.

To protect the investments of members and ensure costs are controlled, all CDC pension schemes will be subject to a charge cap of 0.75 per cent of funds under management, or equivalent contribution charge - set at the same level as DC pension schemes.

Pensions Minister Guy Opperman said: 'Collective defined contribution pension schemes are an important innovation which will provide more choice and flexibility for pension scheme members and employers.”

What does it mean for business?

If the consultation is successful and CDC pensions are given the green light, it will give employers another option to offer to staff. Pay outs could be made to savers at a level agreed by trustees - potentially offering a middle ground option between DB and DC schemes. However, CDC structures are complex and there will be many details that would need to be ironed out before schemes can be launched. These include deciding whether CDC schemes would be suitable for auto-enrolment, and whether savers will be able to use ‘freedom and choice’ options such as drawdown when they approach retirement. It’s early days yet, but this could be an interesting development for future pension savings.


This article is intended as information only and not specific advice. It is based on our understanding of possible government proposals which may be subject to change (November 2018). The Financial Conduct Authority (FCA) does not regulate some elements of Automatic Enrolment. Brunsdon is not responsible for the content of third-party web sites.