Collective Defined Contribution (CDC) Schemes

We have been at the forefront of thinking in relation to collective defined contribution (CDC) schemes (also known as collective DC schemes, defined ambition or target benefit schemes).

In June 2014, we published a paper on a possible regulatory framework for CDC schemes, and we have also hosted workshops and given talks and teleconferences on the subject.

Since 2013, the DWP has been actively exploring the possibility of a "third space" in pensions where:

• employers are not exposed to the risks associated with defined benefit plans
• but members can expect better outcomes than they would achieve under conventional individual defined contribution arrangements

They, and others, have also produced useful information and papers on the subject of CDC schemes.

As well as being an important issue for the country at large, we believe that innovation in this "third space" is potentially crucial for employers from a workforce planning perspective: an employee who feels financially insecure will be less willing to retire.

One of the most significant options is CDC schemes, of the kind seen in the Netherlands and Canada. Sometimes called "target benefit" plans, these arrangements seek to produce a more predictable (and generally better) benefit outcome for members by adopting a collective approach to investment and decumulation, while at all times remaining DC from the employer perspective.

The Pension Schemes Act 2015 received Royal Assent on 3rd March, 2015 and sets out the framework (in Part 2 of the Act) for Collective DC Schemes (referred to as schemes which provide collective benefits). The next step is for the Government to bring forward draft Regulations for consultation.

Please visit our current issues section for more information and developments on CDC Schemes.

For other information and research on CDC Schemes, please visit our useful links section.

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