CDC must be supported by strong safeguards and align with Guided Retirement requirements

CDC schemes are a type of pension arrangement where contributions from both employers and employees are pooled into a single, large fund for collective investment. They aim to provide members with a target lifetime income rather than a guaranteed one, with investment and longevity risks shared by all members, not the individual or the employer. This structure allows for long-term investment strategies and offers greater cost certainty for employers, bridging the gap between Defined Benefit and Defined Contribution models.

In its submission to the DWP Retirement Collective Defined Contribution pension schemes consultation, Pensions UK said CDC has the potential to deliver meaningful value, but only when supported by strong governance, disciplined actuarial standards, transparent and well-timed communication, and a tightly controlled market environment that protects savers investors from unrealistic projections or inappropriate marketing.

Other mechanisms for sharing risk in the decumulation phase, such as collective drawdown, are also under consideration by some Pensions UK members and can potentially deliver similar, or even enhanced, benefits.

A retirement-only CDC market will require the same high bar for authorisation and supervision as whole-life CDC schemes, including a fully developed regulatory framework and the operational capacity for robust TPR oversight.

It is essential that retirement-only CDC schemes are designed with clarity of purpose, fairness between entrants, and long-term sustainability at their core. Without these safeguards, the risk of intergenerational unfairness, volatility, mispricing, and member misunderstanding would be significant.

Retirement-only CDC will sit within a broader context of Guided Retirement requirements, the evolving VFM regime, and the expected expansion of default pathways across DC schemes.

To avoid fragmentation or inconsistent member journeys, retirement-only CDC must be integrated seamlessly into these frameworks. This means clear rules on transfer mechanisms, shared standards for quotations and illustrations, and alignment with FCA decumulation rules where contract-based schemes are involved. It also means ensuring that trustees remain fully accountable for assessing whether Retirement-Only CDC offers better outcomes than alternative retirement solutions.

Zoe Alexander, Executive Director of Policy and Advocacy at Pensions UK, said: “CDC arrangements – whether whole-of-life or retirement only – have the potential to become a successful part of the workplace pension ecosystem alongside other solutions. But if they are to deliver on that promise, it is imperative that the right regulatory framework, authorisation regime and highest governance standards are in place to ensure savers get the best outcomes.”

Click here to read Pensions UK’s submission in full.

Mark Smith, Head of Media Relations

020 7601 1726 | [email protected]

Cali Sullivan, Senior PR Manager
020 7601 1761 | [email protected]