Employers Key to CDC Pension Plans’ Success

Employer adoption will determine the success of collective defined contribution (CDC) pension plans, according to experts at the Pensions UK Annual Conference. While interest in CDC schemes is growing, inertia and a preference for traditional defined contribution (DC) plans could slow progress.

Growing interest in CDC schemes

Several organizations, including unions, employers, and the government, are exploring CDC schemes as a potential improvement on existing DC plans. John Wilson, head of pensions technical at Aptia, revealed that his company is considering a CDC scheme for its staff. A third of conference delegates said they are actively exploring the structure.

Despite this interest, a poll of delegates found that 53% believe a lack of employer demand is the biggest barrier to CDC adoption. Harinder Mann, co-chair of the CDC Forum at Cambridge Judge Business School, noted that many employers are hesitant to discuss CDC with their unions until they feel it’s the right time.

Potential benefits of CDC plans

Aptia’s Wilson highlighted the potential for CDC schemes to improve workforce outcomes by 10% to 20% with no additional cost. Guy Opperman, a former pensions minister, expressed confidence in the future of CDC, citing lessons learned from past attempts and a growing will to move forward.

Opperman also emphasized the staff retention benefits of improved pension offerings, citing evidence from other countries where CDC implementation has led to increased employee pride and satisfaction.

Union and Employer Collaboration

Unions aim to engage employers in the CDC discussion, emphasizing education as key for private sector understanding. This collaborative approach seeks to clarify what CDC implementation will involve for all parties.

CDC’s future outlook

Panelists predicted that CDC will become a mainstream offering in the coming years. Mann estimated that up to two-thirds of pension savers could be in a CDC scheme within 10 to 15 years, while Opperman projected around 20%. A majority of delegates (73%) expected multi-employer CDC structures to be adopted in some form within the next five years.

The Royal Mail became the first employer to establish a CDC scheme in 2024, and a rulebook for multi-employer schemes has been finalized. The Pensions Regulator began accepting applications from new providers in August, with organizations like TPT Retirement Solutions, the Church of England, and Arboreum Pensions expressing interest in launching their own models.