What is a CDC pension?
A CDC pension is a new style of pension scheme designed to bridge the gap between Defined Benefit (DB) and Defined Contribution (DC) schemes.
It has the potential to offer members a higher and more predictable retirement income than Defined Contribution schemes and take-out the risk of unexpected pension-related costs for employers compared to DB schemes.
TPT is the first pension provider to announce the development of a multi-employer CDC solution, aiming for launch in early 2027.
How it works
Unlike a DC scheme, a CDC scheme provides a whole-life pension income to members.
The contributions employers and members pay are fixed and pooled into a collective fund. By pooling investment and life expectancy risk amongst the membership, a CDC pension is expected to generate higher returns than an individual DC scheme resulting in higher expected benefits.
Annual increases to benefits depend on the performance of the scheme. This removes the possibility of the employer having to plug a funding gap.
Transcript
Hi, I am Andy O'Regan, the Chief Client Strategy Officer at TPT.
Today I want to talk to you about a game changer for the pensions industry that's Collective Defined Contribution or CDC pension schemes.
You may be aware that Royal Mail launched the first CDC scheme in October, 2024.
This new type of pension arrangement is designed to combine the best features of traditional defined benefit and defined contribution plans, offering tangible benefits to both employers and pension scheme members.
The government has consulted on regulations which will make CDC available to any employer of any size in a cost effective way.
TPT is now actively exploring the development of a CDC scheme.
We Are opening up our diaries from January, 2025 to have initial conversations with interested employers.
These meetings are designed to capture valuable feedback from you and help us to shape our offering by taking 30 minutes to have a conversation with us.
You'll get early insight into the CDC framework and its advantages.
CDC schemes combine the best features of traditional pension arrangements, an income in retirement for the pension scheme members, similar to defined benefit and the predictability in contributions for the employers similar to defined contribution schemes by pooling risks.
It is expected that CDC schemes can deliver better outcomes for pension scheme members than DC without increasing the cost for employers.
Please book a 30 minute meeting with us to discuss how CDC can benefit your organisation and your workforce.
We look forward to the opportunity to discuss CDC with you and how we can make pension schemes perform better for everyone.
Many thanks for your time and look forward to speaking to you soon.
The benefits of CDC
CDC - the best of both worlds
Download our flyer below to see how CDC pension schemes are bridging the gap between Defined Benefit (DB) and Defined Contribution (DC) pensions.
I am delighted to see TPT confirming plans for a multi-employer CDC scheme, just days after I set out the timeline for new legislation to enable these new types of pension schemes.
Meet our trustees
We’ve appointed a highly experienced board of trustees to lead our multi-employer CDC scheme – the first of its kind in the UK.
Hear more from our trustees and how they will bring their insight and expertise to help build this exciting new model.
Transcript
Hi, I'm Andy O'Regan, Chief Client Strategy Officer at TPT, and I'm delighted to unveil our newly appointed independent and highly experienced CDC trustee board. As the first provider to announce our intention to launch a CDC multi-employer scheme, we're proud to be at the forefront of pension innovation and the diverse expertise that our trustees bring will help create that solution and also provide rigorous oversight and governance.
So let's meet the trustee board. Kim, could you please introduce yourself?
Thanks, Andy. I'm Kim Nash. I'm the Chair of the Trustee Board. I'm Managing Director of Zedra and a qualified actuary. I've been a professional trustee for over 10 years, working with DC Schemes, DC Master Trusts, as well as DB.
So Kim, how do you think the CDC could fit in the market and what are the opportunities?
From a trustee perspective, we're really focused on member and member outcomes. So really excited to see CDC as another option that's available to employers. I think this gives much better flexibility to be able to provide retirement solutions that meets members' needs.
Thanks, Kim. Over to Alison. Could you introduce yourself?
Absolutely. I'm Alison Hatcher. I am the Head of Trusteeship at Vidett. I hold a number of executive and non-executive positions as well as trustees. I am on the board of Islington and Hackney Housing Association and also the University of Warwick Council, so the university sector as well.
Alison, what do you see some of the challenges of formulate an investment strategy for a CDC pension scheme.
So for us trustees, we need to focus on creating strong returns that are aligned with member benefits, both the younger and on an older generation. So we manage intergenerational fairness, but we also need to make sure that we are managing the volatility within the portfolio. We need to create stability so that benefits aren't impacted in the longer term, which would then erode the member confidence in the CDC scheme.
Venetia, please could you introduce yourself?
Hi, I'm Venetia Trayhurn. I'm a partner at Falcon Trustees. I'm an independent trustee with a legal background and I currently chair the first authorised CDC scheme in the UK with Royal Mail.
And what about the communications with members? What do you see as the challenges for the communication?
It's really important that members understand that they're building up a target pension, but the actual amount that's built up and paid out each year in retirement will be calculated annually and could go up and down. So it's not a guaranteed amount. But we think that CDC can play a significant role in enhancing member retirement savings. It's going to be really important that communications are clear and effective.
Great. thank you everyone, and we look forward to sharing more with you as we develop the solution and we continue to build that momentum.
FAQs
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Can an employer open a CDC pension scheme if it already has an existing DB or DC scheme in place?
Yes, Collective Defined Contribution schemes will be an option for all employers regardless of whether they currently offer DB or DC (or a combination of DB and DC) to their employees.
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What is the risk of a funding deficit in a CDC scheme?
There is no funding risk for the employer. The funding position of a CDC scheme will be assessed annually by the Scheme Actuary. If the assessment identifies that the assets in the scheme are lower than the value expected to be required to meet future benefits, then the targeted level of future pension increases will be adjusted accordingly. No deficit can occur so no deficit contributions will be payable.
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Will members be able to take income drawdown from a CDC pension at retirement?
No, CDC schemes are designed to provide members with a targeted income for life. Therefore, income drawdown will not be available from the scheme.
However, if a member wishes to take drawdown, they will be able to transfer the assessed value of their CDC benefits into a DC scheme for drawdown or other benefit flexibility.
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Will salary sacrifice be available within a CDC pension scheme?
Yes, we anticipate that employers will be able to offer salary sacrifice to members of Collective Defined Contribution schemes.
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How will pension benefits be paid from a CDC pension scheme, will members need to purchase an annuity at retirement?
No, members' pensions will be paid directly from the CDC pension scheme (in a similar way to a DB arrangement).
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Can members be able to take a tax-free cash lump sum from a CDC pension scheme?
Yes, members of a CDC scheme will be able to take a tax-free lump sum on retirement from their CDC pension. Part of the accrued pension would be converted to the lump sum (in a similar way to a DB arrangement).
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Could members transfer existing/deferred funds into a CDC pension scheme?
Yes, we expect members will be able to transfer into a CDC scheme from either DB or DC. We would expect the value of the transfer value to buy a certain target level of pension in the CDC scheme.
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Will members be able to make additional voluntary contributions (AVCs) to a CDC pension?
Yes, we expect members will be able to pay AVCs in CDC pension schemes.
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In the event of death what benefits will be paid from a CDC pension scheme?
We expect there will be scope for CDC schemes to have some beneficiary benefits 'built-in' to the scheme design. We are in the process of finalising our design.
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How is the pension at retirement and increases calculated in a CDC pension scheme?
Much like a DB scheme CDC pension schemes will target a certain indexed income in retirement. However, where a DB scheme guarantees the increases a CDC will apply the target increase where the funding allows it based on the schemes annual valuation.
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How will contribution levels be set in a CDC pension scheme?
Contribution levels will be set by the sponsoring employer. Employers currently offering DC benefits may choose to use the same contribution rates within the CDC pension scheme. Employers will also need to be mindful of the Auto Enrolment requirements.
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How does legislation influence CDC pensions and the delivery of member benefits?
- The Pension Schemes Act 2021 introduced the legal framework for alternative pension scheme design, through collective defined contribution. It gives the Pensions Regulator powers to oversee how CDC schemes are run for maximum governance and transparency.
- The Occupational Pension Schemes (Collective Money Purchase Schemes) (Extension to Unconnected Multiple Employer Schemes and Miscellaneous Provisions) Regulations 2025 will extend this legal framework and enable schemes to be established to provide CDC pensions for employees of unconnected employers.
- CDC pensions aim to provide a target pension income that adjusts to market conditions, with the goal to improve retirement outcomes for members. By pooling risk and managing funds collectively, TPT’s CDC solution is designed to support sustainable and reliable member benefits over time.
CDC Podcasts
The following podcasts feature Andy O’Regan, TPT’s Chief Client Strategy Officer, and cover the growth of CDC pension schemes.
Get in touch
Leave your details and we’ll be in touch, or drop us a line to tell us about your requirements and we’ll see how we can help.
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Andy O'Regan
Chief Client Strategy Officer
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Paul Eagles
Head of CDC
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