Collective Defined Contribution

With the trend of DB scheme closures and concerns around DC adequacy and post-retirement choices, an increasing number of individuals are retiring without securing a pension income for life. Alternative innovations such risk-sharing pensions are therefore being considered to address this concern. Collective Defined Contribution (CDC) pensions are currently the most prominent of these in the UK.

CDC pensions are a type of collective retirement provision which provides members an annual income for the whole of their retirement. This is an alternative option for employers, compared to the traditional options of defined benefit (DB) pensions and individual defined contribution (DC) pensions. It could also become an alternative option for individuals with DC pensions at retirement. The key features of a CDC pension are that:

Expected higher benefit

It is expected to provide a materially higher benefit than from a typical DC pot used to buy an annuity at retirement, with the same level of contributions.

Variable increases

Pension increases vary depending on the funding level, so costs are fixed for employers.

Pension for life

The benefit is in the form of a pension for life, avoiding the possibility of running out of money (as could be the case with a drawdown pot) or needing to make difficult decisions into old age.

CDC pensions can come in different forms:

• Whole-of-life: where a CDC pension is built up while an individual is working and then paid out in retirement.
• Decumulation-only: where contributions are built up in an individual DC pot, which is then used by that individual to buy a CDC pension at retirement.
• Multi-employer or mastertrust: where an employer can join a scheme alongside other employers to share, or outsource, the cost and governance associated with setting up and running a CDC pension scheme.

You can find out more about CDC by downloading our Guide to Collective Defined Contribution pensions below.

WTW have been at the centre of developments of CDC pensions in the UK, working closely with a number of interested employers, government departments and regulators, to help bring to fruition the existing legislation and schemes and lay the groundwork for further developments in this space.  We would be very happy to help you consider whether, and how, to introduce CDC pensions for your organisation. We also have colleagues across the globe with extensive experience of CDC pensions, and other similar risk sharing schemes, for example in the Netherlands, Australia, Canada, Denmark, Germany and Japan.

We also have close links with the Thinking Ahead Institute, a global investment research and innovation network founded by WTW and made up of institutional asset owners and asset managers, which has been a leading voice in providing thought leadership in this field.

If you’d like to discuss CDC pension provision, or other pension risk sharing arrangements, please contact your WTW consultant or one of our CDC and risk-sharing specialists show at the top of this page.