A majority of pensions professionals are not confident that collective defined contribution schemes (CDC) will gain significant traction, despite government moves to expand the market, according to polling by Sackers.
The law firm surveyed 79 respondents from across the pensions industry, as the government seeks to extend the framework beyond single and connected employer schemes to allow unconnected multi-employer schemes and retirement-only CDC arrangements.
However, the survey suggested that explaining how the model works could be a major obstacle. Almost half of respondents (48%) said key features would be challenging to communicate, while 26% identified the possibility of retirement incomes falling as the most difficult issue to explain to members.
CDC schemes combine fixed employer contributions with collective investment and risk sharing, targeting a regular retirement income without giving employers the open-ended funding commitments associated with defined benefit (DB) schemes.
Andrew Worthington, partner at Sackers, highlighted that the biggest challenge facing proponents of CDC was not necessarily the model itself but rather familiarity with how it works.
“As a new approach for the UK pensions market, building confidence will take time, like any innovation,” Worthington said. “It’s also notable that many respondents highlighted the possibility that retirement income could reduce as a key concern. In practice, retirement incomes under defined contribution [DC] structures are already uncertain, fluctuating with market performance and individual decisions.
“CDC has the potential to become an important third option alongside DB and DC. It gives employers certainty over contribution costs while giving members the benefits of collective investment, risk pooling and the prospect of a more predictable retirement income than many individuals can achieve through traditional DC arrangements.”
Worthington said the experience of similar overseas arrangements showed that the model could deliver good outcomes, but wider UK adoption would require continued policy support, workable regulation, and more practical experience.
He welcomed the government’s proposed easement from its guided retirement requirements where schemes are actively considering retirement CDC as their default option. He also pointed to additional flexibility intended to help new unconnected multi-employer schemes navigate the authorisation process.
“This momentum will need to continue as CDC cannot succeed through single employer demand alone; it needs policy leadership to build confidence and encourage wider adoption,” Worthington said.
