Employer take-up will be key to the success of collective defined contribution (CDC) arrangements, according to panellists at the Pensions UK Annual Conference.
Several organisations – including unions, employers, and even the government – are said to be exploring CDC schemes as a potential replacement and improvement on existing DC plans, delegates heard.
During the discussion, John Wilson, head of pensions technical at Aptia, revealed that his company was exploring whether a CDC scheme would be right for the administration provider’s staff. A third of delegates at the session said they were actively exploring the structure.
However, inertia among employers and a focus on low-cost traditional defined contribution (DC) could hamper wider take-up. A poll of delegates found that more than half (53%) believed a lack of employer demand was the biggest barrier to adopting CDC.
Harinder Mann, co-chair of the CDC Forum at Cambridge Judge Business School, said: “There are a lot of employers thinking about CDC, but they don’t want to say anything until they feel it is the right time to talk to their unions about it. Pensions can be very contentious to discuss.
“The unions are involved, and they want to bring the employers in… The really important part for those in the private sector is education, and people understanding what this is going to entail.”
Aptia’s Wilson said: “Employers are wondering where auto-enrolment contributions will go and how much more it’s going to cost the business. We are saying that they could potentially improve the outcomes for their workforce by 10% to 20% with no additional money. Would they like to have that conversation? Invariably the answer is yes.”
Guy Opperman, a former pensions minister who oversaw the first CDC legislation that enabled the Royal Mail’s scheme to launch in 2024, was confident that CDC would catch on significantly.
“We have learned a lot of lessons from other people who have tried [CDC] or looked at it and made mistakes…. There is both a will and a way forward that I think is genuinely optimistic.”
“I think there is a real sea change in certain parts of this economy and society,” he said. “We see that sea change coming and we should be supporting that.”
Opperman highlighted the staff retention aspect of a potentially improved pension offering. He cited evidence from other countries that successful CDC implementation can result in “staff having a sense of pride in the business, and understanding that the business is looking after them over and above a pure DC basis”.
He continued: “We have learned a lot of lessons from other people who have tried [CDC] or looked at it and made mistakes…. There is both a will and a way forward that I think is genuinely optimistic.”
The panellists were confident that CDC would become a mainstream offering over the next few years. Mann posited that as much as two-thirds of pension savers could be in a CDC scheme in 10 to 15 years, while Opperman put this at around 20%.
Almost three-quarters (73%) of delegates at the session said they expected multi-employer CDC structures to be adopted in some form in the next five years.
Royal Mail was the first employer to set up a CDC scheme in 2024, and a rulebook to enable multi-employer schemes has recently been finalised. The Pensions Regulator opened its application process for new providers in August, and organisations including TPT Retirement Solutions, the Church of England, WTW, Aon, and the newly established Arboreum Pensions have all expressed interest in launching their own models.
