Interest in Collective Defined Contribution (CDC) pensions is reaching a tipping point, with more than three quarters (76%) of UK pensions influencers and decision-makers set to consider a CDC option within the next three years.
That’s according to Gallagher’s CDC Report, which examines industry confidence levels, the barriers to implementation and the path to scale for CDC pension schemes in the UK.
The research, which surveyed 250 employers, trustees and pensions professionals, arrives at a time when multi-employer CDC schemes are nearing regulatory approval in the UK.
Interest in the CDC model is growing, with around half of respondents (52%) saying they would be comfortable being an early adopter.
Interest in CDC is growing but confidence is a barrier
Larger employers are leading the way. Among respondents working with companies of fewer than 250 members, 51% expect to explore CDC within the next three years. This rises to more than 80% among respondents from companies.
The findings indicate that larger employers may be better placed to assess CDC at this stage. Beyond the natural barrier of cost, they are more likely to have specialist pensions support and strong internal governance structures. Smaller companies may face greater barriers around governance capacity and internal resource.
Notably, many organisations are hesitant to move first when it comes to adopting CDC. When asked what would increase their confidence, respondents cited clearer regulatory guidance (39%), proven results from early adopters (38%) and positive feedback from unions or employee representatives (37%).
Andre Clarke, Senior Vice President, Investment Consulting at Gallagher, said: “In a very short period, the conversation around CDC has moved forward at blinding speed. The Royal Mail scheme gave the UK market its first live example. It is no longer possible to think of CDC as a niche actuarial idea; it is stepping into the spotlight, demanding close attention.”
“However, our research paints a more nuanced picture. There’s a clear difference between exploring CDC as an option and taking the steps to introduce it into an existing benefits package. Employers and trustees want to see more test cases, and they want greater clarity on regulation and delivery. Then they want to understand what it really means for their specific workforce. It is here where an experienced consultant can help firms assess their options in the CDC market and decide which arrangements could suit their workforce best.”
Multi-employer models lead the way
The availability of practical access routes will determine the rate of CDC adoption. More than half (53%) of respondents say they would be most likely to consider a multi-employer or master trust CDC arrangement, compared with 34% who would favour a single-employer model.
Sector-wide arrangements also saw significant interest, with 86% saying they would find a sector-wide CDC scheme appealing. The findings point to a preference for scalable CDC models that can be put into action across a broader range of organisations.
A role for both whole-life and retirement CDC
The research also challenges assumptions about how the CDC market may evolve. While retirement-only CDC arrangements have received a high amount of attention, the majority of the respondents preferred whole-life CDC. Nearly one third (32%) favour whole-life CDC, compared with 22% who favour retirement-only arrangements.
The largest group (36%) see both models as equally appealing, suggesting many organisations are open-minded about how CDC could be delivered in practice and recognise that their roles are not mutually exclusive.
David Piltz, CEO of Gallagher's Benefits & HR Consulting Division, says: “For decades, employers and pension professionals have struggled with one question: how can we offer good retirement outcomes for employees without putting too much risk on the balance sheet? A Collective Defined Contribution scheme offers a potential alternative. It is an aspirational model, and one that could offer more predictable outcomes than a traditional Defined Contribution scheme and without the high-risk guarantees of a Defined Benefit plan.
“The challenge is converting that interest into adoption. If a firm is unsure about CDC, it’s likely due to a mix of factors: a low number of test cases, competing business priorities, and a hesitance to step out first. The science, regulations, and guidance are in place, but the industry needs to communicate CDC in a way that everyone can understand. That is the only way that the sector will translate the growing interest into this emerging area into real and tangible action.”
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