The collective defined contribution (CDC) concept is slowly gaining traction, but Iain McLellan of the Society of Pension Professionals asks whether it needs its own ’electric vehicle moment’ to gather more traction across the industry.
As part of an early festive catch-up with a few friends in the pub, one of them pointed out that all six of us now drove electric cars. This was quickly followed by a further, suitably smug, observation that he had been the first to get one over 10 years ago. This was despite a variety of concerns being raised with him at the time, including range anxiety, lack of charging infrastructure, and high up-front costs.
While I had been among the more positive voices around the time of his early adoption, I was definitely glad to let him go first and wait to see how his ‘EV experiment’ worked out.
Now, I’m getting to benefit from the infrastructure investment, government and local council incentives, and manufacturer developments to have my (relatively) cheap, quiet and nippy electric car.
This was not to say that the concerns being raised all those years ago weren’t valid – just that when there is sufficient effort and innovation applied, most of them can be addressed or suitably mitigated.
By now, you will probably be asking: what has any of this got to do with pensions? As someone who spends lots of time talking about the potential of CDC pensions in the UK, I thought it made for an interesting analogy to help frame where we currently are in the CDC journey.
CDC’s EV ‘moment’
I regularly encounter lots of concerns or objections around the likelihood of the widespread adoption of CDC arrangements, whether single-employer, multi-employer, whole-of-life, or retirement CDC. The majority of these concerns are perfectly reasonable and reflect the technical, regulatory, and trust barriers that have to be overcome.
At the Society of Pension Professionals, a lot of the CDC committee’s time has been spent looking at CDC regulation and formal consultations. However, we thought that it would be useful to look beyond the legislative developments and consider the real-world challenges facing CDC early adopters.
The Committee has therefore prepared a paper on the subject – titled “From Concept to Practice: a practical guide to CDC pension schemes” – due for publication in early January 2026.
The paper covers a range of areas that should provide helpful guidance to those interested in CDC:
- Governance – As a collective arrangement where the approach to investment and risk management has a direct impact on the benefits that members will receive, the overarching scheme design and rules will be critical in building the foundations of a successful CDC scheme.
- Actuarial – CDC schemes will require an annual valuation to be carried out, which will set the level of benefit increase or reduction that will be applied to reflect actual investment returns and member experience.
- Investment – The investment risk profile of a CDC scheme is fundamentally different to individual DC, which has traditionally prioritised liquidity and lifestyling, leading to investing more in lower risk/return assets in the period up to retirement.
- Administration – Establishing a new type of pension arrangement will require high levels of innovation and automation to make sure CDC scheme members can experience the type of digital experience that they are used to in existing DC schemes.
- Costs – It is unlikely that many employers will have the scale and appetite to invest in setting up a single-employer CDC scheme. However, multi-employer and retirement CDC schemes should allow organisations to avoid set-up costs and give providers the scale to run efficiently.
- Communications – This is one of the areas of greatest challenge. Talking to members in relatively simple terms, focusing on income in retirement, but always emphasising that the benefits from a CDC scheme are not guaranteed.
- Regulatory risk – As with any new regulatory regime, there are risks that subsequent changes become onerous and increase the costs or restrict the investment flexibility that are currently proposed.
I hope you have a chance to read the paper and consider where you sit on the ‘first in line’ to ‘over my dead body’ spectrum of CDC appetite. I’m optimistic that the challenges we raise can be addressed and that CDC schemes will become part of the mainstream for UK pension savers.
In the years to come, I look forward to the catch-up in the pub where I realise that the majority of those in my company are saving for their retirement in a CDC scheme.
Iain McLellan is deputy chair of the Society of Pension Professionals’ CDC committee.
